Dominic Spooner from IAG put together some really good notes about his marketing trip with Madalena in Vancouver on Wednesday March 5th - Here are the salient points:
1. The election is the key to this story: Once Kirchner is defeated the majors will take a stronger interest in the Vaca Muerta and Madalena could catch a JV that could double its MCAP over night. There are 3 candidates. They are all pro business and a big improvement over Kirchner. The politics in Argentina are interesting. As you know the government has posted internal Oil sales at $77/BBL. Gas goes as high as $7. The reason? The government has no choice. They know they have to build the energy industry within their country in order to fix their struggling currency and economic woes. The majors have told the Argentinians they need that price in order to make money in a country where the unions are so prevalent. I am confident the price will always remain above the Brent Price. Furthermore, the government is talking to the unions about curbing some of their more unreasonable practices like “featherbedding” in which companies have to hire 25 Labourers for a job that only needs 10. Recent legislative changes have been positive. Companies can now repatriate 20% of their revenues to their home country after a $250mm spend rather than the old $1B spend. The CEO of YPF has been instrumental in negotiating some of these changes. Keep in mind that $77 Medanitio Oil vs $55 Brent is good for Argentina’s central Bank. They are selling high and buying low. Effectively $77 oil is a hidden consumer tax. Argentina is of course a net importer of oil.
2. The massive change in Madalena over the past year and a compelling valuation: 1 Year ago MVN had 3 concessions and 100 BPD of production. Today the company has 13 concessions and 3600 BPD. MVN is now able to negotiate a JV. The GTE acquisition was done at 19,000/pfboe. It will be paid out in 2 years. (1 year left). The company is drilling out of CF which yield roughly $30mm/year. Shale resources amount to 2.9B BBLS This means MVN is trading at $0.03/recoverable resource BBL. Furthermore, MVN’s NPV 10 valuation is roughly $0.40/share or $200mm. This represents only the conventional assets. The unconventional is free to shareholders at this price. Canada is only $14mm of that value and will be sold when the time is right.
3. Catalyst: Loma Montosa….this is a conventional appraisal play and although I like most of MVN’s plays, I this one the best: MVN has 100% of this play and is of course the operator. The PMN-1117 well provided a good HZ proof of concept in 2012. Since then MVN has drilled the PMN-1094 at Puesto Morales. It has now TD’d and the frac crew is on their way to frac the well. We should have news in about 2 weeks to 1 month. This well only cost $5mm. (only 10 fracs) The target is light oil. Management expects anywhere from 200 BPD- 500 BPD. If they get 500 BPD this well will pay out in less than 1 year. The depth is only 1100 metres. The company has developed significant targets in this field. Puesto Morales is a lot like the field that Petro Andina was so successful in. (interesting fact Wayne Fu drilled 19 duds before that field became a huge hit).
4. Another Catalyst and Good news: Corion Amargo, which lies east of Chevron’s 160 well program, is now contolled by Plus Petrol and MVN as per their voting rights under the JOA. The 3rd partner, Roche, was a small contractor who had previously operated in a difficult and problematic fashion . The partnership is currently drilling the CAN 16 H well and should be finished in Mid April. This is also light conventional oil. MVN is 35% non op. See page 20 of the company’s March presentation for the metrics. They are decent and wells can pay out within a year at 400 BPD.
5. About the Shales: lots of activity here. Land is going for $5000 to $17,000/ acre. MVN has 1mm acres. 2 imminent wells for MVN: CH.x-1 is a vertical test well in the lower Agrio that originally flowed 75 BOPD without a frac, and Yp.X-1001 is a vertical test into the Mulichinco which offsets the YP.x which tested 10mmcfpd of gas and 500 BOEPD of 51% condensate after acidizing. The idea here is to de risk and sell these shales. Keep in my mind there are multi $B programs surrounding MVN’s lands.
6. Canada: Currently stranded by Keyera, these assets will be sold when they are producing again. Good to have some direction on that.
