This is good news for MXP shareholders but make no mistake about it – it’s a situation that should have been avoided and the buck firmly ends with the management team.
A 5p placing might look like a great results against a closing sp of 3.75p, but the reality is that MXP’s assets are worth north of 14p based on the shallows alone. Today’s sp is a whopping 50% down from the shareprice average for 2012.
However, the deal is done and many will say that it could have been more costly to MXP shareholders has MacQ (chief debt owner) pressed ahead for a lower price. The latter still needs to reneg terms with MXP on the debt repayment model. Today’s short term funding news takes MXP through to March 2013 in terms of drill costs on 4 x wells.
These shallow wells are fast and very cash generative once placed on production. With the first well set to spud within a week, shareholders should be able to look forward to drill results every 4 to 6 weeks from here on till March when the exploration phase expires.
MXP have also awarded the rig tender for 2 further rigs to Zhanros but as yet has not secured finance for these. It’s unclear whether these will be used for additional wells or to speed up the current exploration phase.
It would be sensible to see how the 4 wells go before committing more cash funds.
MXP is currently producing/exporting around 5500bopd which is a very strong cash generator for a company with a market cap of less than £40mln. That said, the debt balance of circa $150mln clearly has an influence on that number.
At present, MXP is generating around $6mln to $7mln per month (rough calcs) in cash with a large portion of that paying down the debt interest as well as small incremental chunks off the balance. Ideally, the company needs to get the daily production up to nearer 8kbopd to 10kbopd which would enable them to pay down debt and fund development wells after the exploration period expires.
As for the deep wells such as the unfinished NUR-1 well, it’s still unknown whether they will raise the required funds to complete this well. Clearly the priority is in securing further shallow well successes and thus boosting cash generation and production in the future.
A new CPR or Reserves report would be welcome as MXP have made great progress on the shallows. Last numbers in 2011 indicated a 2p of around 13.3mmboe. This number should have increased and shareholders will be keen to know where the reserves/2p stand at present.
Several Institutional investors have been buying recently and the placing at 5p suggests that the fall to sub 4p may have been over done.
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08 August 2012, Max Petroleum Plc
Drilling and Financing Update
US$7 million Equity for Services Agreement with Zhanros Drilling LLP
Max Petroleum Plc, an oil and gas exploration and production company focused on Kazakhstan, announces that it has entered into an agreement with Zhanros Drilling L.L.P. (“Zhanros”), one of its drilling contractors, whereby Zhanros will fund up to US$7 million of drilling and workover services in exchange for ordinary shares in the Company.
Under the terms of the Agreement, Zhanros will drill up to four shallow, post-salt, wells and fund related ancillary services in exchange for up to 90,322,581 ordinary shares in the Company (“Shares”) at a price of 5p per share in lieu of cash payment. Zhanros will be issued Shares on a monthly basis as payment for the drilling and workover services provided under existing service contracts between the Company’s operating subsidiary, Samek International LLP, and Zhanros as services are completed.
The Company expects to begin drilling the BCHW-1 well on the Baichonas West Prospect using Zhanros’ ZJ-20 drilling rig currently on location. The Company is mobilising the drilling and service company personnel out to the rig and expects to spud the well in approximately one week. The Baichonas West Prospect is a four-way anticline targeting unrisked mean resources of 10 million barrels of oil in Jurassic and Triassic reservoirs with an expected total depth of 1,400 metres.
The Company has also awarded a tender to Zhanros for two additional shallow drilling rigs to facilitate the completion of the Company’s post-salt exploration programme before the March 2013 expiry of the exploration phase of its Blocks A&E Licence. Contracting and mobilising any additional shallow rigs is subject to obtaining additional financing to drill the wells.
Michael Young, President and Chief Financial Officer of Max Petroleum commented:
“It has been our top priority to get financing in place to enable us to drill the remaining shallow exploration prospects in our portfolio. We believe they are some of the best shallow prospects we have generated and it is crucial for Max Petroleum and our shareholders that we test them before the exploration period of our licence expires in March next year. The agreement with Zhanros allows us to continue with our post-salt exploration programme at a critical time as we work towards a broader financial solution.”
Looks like MXP is now in recovery mode. Spudding, then further financial positives should provide good positive upside momentum.
The tender was for two additional rigs, not two additional wells. Hopefully a few successes over the next few months and we’ll get those rigs at a much higher share price or, heaven forbid, actually get funding…