Max Petroleum. The case for Max!

plate tectonics 230 ma (Triassic, Ladinium stage)

I’ve had a lot of emails and comments on the Blog for an update on Max Petroleum.

Lots of queries from investors who can’t understand why an oiler that has announced some excellent drilling results over the last six months is still at such a lowly position re’ their share-price.

Going through the recent announcements its quite apparent that Max are on a roll and that this isn’t being reflected in the sp. They have hit the lofty heights of 34p and are currently trading down some 70%. I would urge holders of the stock to read thoroughly the latest company epistle which should enlighten and provide reasons for the current low value.Which can be found by clicking this link.

The Group’s strategy is to significantly grow its reserve base through the exploration and development of a diversified portfolio of shallow, post-salt and deeper, pre-salt prospects high graded using approximately 5,000 km2 of exploratory 3D data acquired over the Group’s extensive onshore acreage position in one of the most prolific petroleum bearing basins in the world. (Kazakhstan). Their main emphasis/asset base consists of Blocks A+E.  Revenue has increased by 28% ($55million dollars),cash flow has increased and sales volumes have also increased with their bopd expected to hit 3500 per day Max recently completed an institutional placing at 17p raising $85 million dollars. With recent drilling success’ you’d think that the sp would be flying however Max’s current 2P reserves of 7.8 mmbbls with proved reserves of 5.7 falls far short of expectations what the company lack is a headline discovery. This could come from their remaining post-salt exploration portfolio which currently consists of seven prospects, including two additional Triassic rim prospects moved into the portfolio in August 2011, with unrisked mean resource potential of 144 million barrels of oil, plus six Triassic leads. Now the problem Max have at the moment is their debt position. The recent Restructuring of the Group‟s revolving credit facility with Macquarie Bank Limited and its convertible bonds to defer principle payments until 2013, after the end of the exploration period of the Group‟s Blocks A&E Licence should on the face of it bode well for the company unfortunately calling a credit facility credit is a play on words this is DEBT! And therein lies the gamble for investors if Max bring home headline discoveries such as the above then this credit facility will be seen as nothing more than one step in their evolution however if they don’t then life as an explorer/producer will become financially problematic. The reported loss of US$253.4 million in 2010 seriously undermined confidence. However Max reported a  drastic reduction to £18million dollars for the year ended March 2011 And in total the company have now funded their exploration campaign through various financial agreements to evaluate approximately 1.2 billion barrels of unrisked mean resource potential over an 18-month period. Max themselves believe that a 100 million barrel+ base is achievable based on the interpretation by their data crunchers.

There’s lots going on here for Max over the next 6 months and no doubt their sp will rise as news of drills/spuds comes on stream. Bearing in mind the current Global uncertainty I think the sp has held up rather well. They are certainly well worth a look at. Any major success in the upcoming drills should ignite the sp.

Decent punt in my opinion. Well worth a look at. They could very easily hit 100p on a headline discovery.



PS Make sure you read the RNS of 24th August 2011 line by line several times. There’s a lot of information in there that needs to be ingested.

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  1. Wong says:

    Any thoughts on RRL especially after todays RNS a couple of minutes ago? Thanks

  2. Dan says:

    Thanks dan
    But you dont mention UTS which is 130m
    We dont really need a headline discovery although it would be nice on the deeps, we just need to prove up the existing finds and get them flowing – stitch together the revenue possible from the shallows alone ! Quite substantial compared to DES who flew to 180p without a headline discovery or flow rates or oil or revenue or production – why must max have all these yet DES does not ?

  3. Dan says:

    Anyway – the debt is defered until 2013 so is not a worry at the moment as no payment is due, debt is only a problem if you cannot service it, most business’s have some debt or credit facility

    Even without the deeps max could be 100p and producing 10,000 bopd once all the shallow discoveries are appraised and flowing – the chief aim at the moment it drilling though

    Consider 2,000 bopd gives us 4.5m revenue per month when exported. So we would be making 22m revenue per month just on these shallows alone , just do the maths and stitch together this Grest small portfolio. 93m debt won’t be a problem on these figures – and by the time the debt is due , these shallows should be near complete

    This is them alone without the jackpot deeps, one hit on them and debt will be a non event

  4. Dan says:

    The 22m figure is based on todays discoveries

    We will

    No doubt make more discoveries between now and 2013 so the revenue could be even higher

    If we carry on striking oil at the same success rate , we could be makjn serous money from these shallows come 2013

  5. Dan says:

    Even Buffett doesn’t call it right all the time
    MTD was a buy at about 5p according to some so called experts.

  6. Dan says:

    Sou / another Buffett echo, we can’t them all right