When MXP BoD’s failed to secure a farm out deal on the deep prospects – they decided to raise the cash and go it alone. 100% interest in a potential 467mmboe discovery would have been a massive transformational result for shareholders. As it happens, they are teetering on the edge of a possible discovery some 1500m above the TD like a bunch of chancers in a coach hanging over a cliff – “Hang on a minute, lads, I’ve got a great idea!” (The italian job, Michael Caine).
The great idea is to suspend the well while the directors all edge to the end of the coach. Now what?
Well, the large institutions might have a few ideas themselves – with Macq leading the charge. You see, when a company potentially ends its hunt for elephants – it instantly becomes a different proposition – one that hunts squirrels instead? There’s no doubt that MXP’s Shallow wells can deliver a very sustainable and cash generative business – but it’s never going to be transformational like the deeps. Investors that bought into the 17p placing may well prefer to see maximum value brought in pronto rather than hang in there for the next couple of years with moderate growth that would make a FTSE 100 company look attractive.
So – here are the credentials for the ‘sales’ leaflet
1. MXP have a very profitable shallow well program which has proven to be cheap vs production gains/cap ex costs. Most wells are heading towards greater valued export status.
2. MXP have a bucket load of seismics which are worth $15mln+ alone
3. MXP have a deep prospect with a tough salt seal to crack but just 1500m left to TD. It’s a well that would have cost any other exploration team around $25mln. It could cost a different expert team just $5mln to complete it. They have many other sizable targets all with 100% interests.
4. They have manageable debt that any cash rich or larger company can pay off or continue with very easily.
The company is currently valued at just £33mln today.
Perhaps UBS’s reason for buying recently is that they know the best way forwards for MXP might well be to hang up the ‘for sale’ sign. I don’t agree with this but then I don’t hold over 21% of the shares. I also don’t know what the alternative is but my gut says it’s going to be dilutive – after all, desperate funding often is. MacQ, UBS and Henderson own a combined 35%+ so it’s not a pi discussion – it’s for the big boys to decide.
Who might be interested?
Lets take Dragon oil for instance. They recently made an approach for Bowleven but soon walked away after the market moved BLVN 3 fold upwards.
Dragon have assets just across the border to the north in Turkmenistan. They know the region, the politics and the Caspian basin well. They are looking for massive exploration opportunities but also reserves and production. They are cash rich and have bank loan facilities with companies familiar with the region.
At £33mln and 3.22p per share, if Dragon offered MXP shareholders 14p per share or even 17p per share – they would still be gaining a bargain. The II’s involved – particularly MacQ might not think twice should an offer come in at the higher ranges.
Of course any predator would be wise to make an offer in the low single digits and work their way up – but a bidding war might not be a great idea as seen by events on COVE.
It doesn’t have to be a cash deal. An all share deal would allow MXP holders to still retain an interest in the deeps just within a company that has the cash pile to drill them and drill them properly.
Deals like the Ophir/Dominion is a great example of smaller companies seeing the writing on the wall and joining forces with the bigger guns.
If Dragon snapped MXP up tomorrow for 14p per share – I wouldn’t be too disappointed if it meant that I had Dragon shares and an opportunity to see the deeps drilled and the company grow. The investment would be derisked to some extent yet still have the upside potential.
I expect the II’s involved might well be looking for suitors. Perhaps UBS buying up 26mln shares suggests they feel the path forwards from here is a company sale at a much higher value?
Hi – do you think that this is still a possibility? I keep hearing rumours of a potential approach but can never find its origin…that is rumours for you I guess!
Why cant Max farm out the last 1500m of the drill. If they offered 50%-75% of the deeps to anyone that would finance the remainder of the NUR1 drill and a 50:50 split of any other deep drill if NUR1 is a success
who’s to say they won’t. But if you are stumping up circa $20mln or so for NUR-1, why not stump up circa $100mln or more and try and bag the entire business? That way you derisk the exposure to the Deep prospects by securing reserves and production on the shallow assets.
There’s no doubt it – at sub 8p, the deeps are in for free.
Max’s Exploration Contract expires in early March and cannot be extended again. Only the mature and small Zhana Makat has Full Field Development status, which means it has a 25 year Production Contract. The other shallow fields are expected to get it but a change of ownership may well allow the Kazakhs to prevent such a development.
Max will not be able to finish NUR-1. I doubt that anyone will want to move in. The bit is stuck again, having already been sidetracked once. It is far from clear that the well can be rescued. If anyone is interested in having a go, why don’t they simply bid for the acreage in March?
Although Max’s wells are said to be cash generative, the company has generated no net cash since September (even ignoring the spiralling costs of NUR-1)- presumably because many of the producing wells are only getting low test production prices.
Max does not look an attractive acquisition candidate.
phil,
NUR-1 was the cash burner since September. That’s over now. In the last RNS from the company they said “The Company is currently generating positive net cash flow from operations” END.
The shallows are gradually all coming online and some wells have been given full export licence thus gaining higher prices.
I think the company is working on a new reserves report which will add more depth to the assets and may surprise a few out there.
They have many cheaper exploration targets within their licences and I suspect they will target them once they have reneg’d with MacQ based on a different operational and exploration program.
I have to disagree on MXP not being attractive as an acquisition – not many companies out there that would not like a stab at a potential of 467mmboe and with a high CoS circa 29%. They have ample time within the licence period to complete NUR-1.
But as we have seen max over the last 12 months max tank on good news and oil discoveries .
Dave – They would not tank on a bid. You are missing the point.
This view has legs.
Why would UBS buy more shares? Because at these prices and wuith these licenses and opportunity it would be rude not too
Thanks.
HUB:
There is a big problem with your post, namely that KazMunaiGas has a right of first refusal to purchase MXP and its assets. If you are familiar with them and their style of “doing business” in kazakhstan, as I’m sure you are, you know that they don’t pay fair market value for anything.
Yes agreed Bill, But KazMunaiGas cannot stop bids from coming in – the question is whether they want to bid themselves. It’s not as if they would be paying top dollar for MXP is it! First refusal is only of any value if they want in. It’s not first refusal of an outside bid. It would be suicidal for KazMunaiGas to prevent a bid from occurring and then snap up the assets on the cheap – small and large IOC’s would avoid Kaz like the plague.
Worth remembering what we are talking about here… there’s 467mmboe (possibly) 1500m away. It’s like a shallow drill from here on. The well is stable, solid and a sidetrack and new entry to through the salt seal can be done. What a massive opportunity to someone with $20mln to spend. I don’t think there’s another opportunity out there at such a price.
nice scenario but how likely? market sentiment is such that any iffy news means the SP gets totally blitzed. MXP may be in enough of a bind soon enough that any predators can walk off with this for a song.
I think the shallow wells are undervalued at present – so even if MXP did sell up and threw NUR-1 in for free, the sp should be worth 4 or 5 times the current sp to a buyer.
Shell tried it on with COVE at 195p per share offer and there were plenty of brokers that were singing the praises of the deal citing it was the right thing for COVE shareholders etc. Counter bids came in as it was clear that Shell were taking the pee. COVE is fast approaching 300p as of today due to counter bids and operational progress.
So you might find the first bid (if one comes) sparks off others and whether you think MXP are desperate or not, ultimately, the larger shareholders like MacQ, UBS and henderson etc – just want the max cash they can get back from their investment.
MXP’s assets are attractive and in a relatively stable region compared to more volatile areas like Kurdistan or North africa etc.