Mart Resources Inc. - MMT.V, $0.47
Operational Update
Union Securities Update
Warren Verbonac 403-205-2224 wverbonac@union-securities.com 12-Oct-11
Stock Rating: Buy Target Price: $0.90
Mart is a Canadian company producing light sweet crude oil from high productivity wells onshore Nigeria. The Field Production Sharing Agreement entitles Mart to share in net revenues from the Umusadege Field at rates ranging from 50% to 82.5 %.
The Company has offices in London, England and Lagos, Nigeria.
Source: Bigcharts.com
Developments
Mart released test results from the UMU 8 well.
Comments
Cumulative production tests from three zones in the UMU 8 well was 7,661 bd. Two zones did not flow, possibly due to completion issues which are being investigated and may be the reason the cumulative test came in under the UMU 7 rate of 10,373 bd, and the UMU 6 rate of 14,319 bd.
We expect the initial gross production of the UMU 8 well to be similar to the 3,350-4,000 bd that the two prior wells, drilled from the same well pad, experienced. Mart’s share of net revenue from UMU 8, under its production sharing agreement, should be approximately 70%.
The drilling rig is being moved to a new well pad and is expected to commence drilling the UMU 9 location within a few days.
September production averaged 7,076 bd, during Q2 production averaged 5,825 bd and in Q1 3,699 bd.
Valuation and Recommendation
Mart’s success in bringing in high productivity wells is expected to continue this year and next year, resulting in continued growth in production and cash flow, with only minor interruptions likely in pipelining.
Mart is trading at less than our 2012 cash flow estimate of $0.58, based on production averaging 8,000 bd – a conservative estimate if the Company maintains its rate of drilling and is able to ship all of its production. Also due to the fluctuating share of production, we believe the production estimate is nonetheless prudent for valuation purposes.
Mart’s 3P reserves are 46.1 million barrels, with an asset value of $2.59 per share. The Company’s 2P reserves of 21.0 million barrels provide an asset value of $1.37 per share.
We maintain our Buy recommendation, based on the combination of the value of the stock price, and the growth emanating from a high-quality, geologically low-risk, oil field.
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