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One MAD stock still on our radar

In yesterday’s Take Stock, we let subscribers to our free email Take Stock know that Maverick Drilling & Exploration Limited (ASX: MAD) was still firmly on our radar.

Today, for a second time since listing in 2010, Maverick doubled its reserves.

I highlighted Maverick as a stock on our radar back in August last year. Maverick is a 35-year old company that has perfected a streamlined system to drill, complete, produce and sell oil.

The excitement had gone out of Maverick’s share price, despite the oil price rising to over $100 a barrel. But, as we said yesterday the long-term growth story remains on track.

Maverick’s share price is up 16% after today’s announcement further validated Maverick’s long-term growth potential. Proved reserves are now up  a massive 260% since listing.

  • Proved oil reserves (1P) have more than doubled – increasing by almost 16 million barrels to 28.1 million barrels – up 127%.
  • Maverick has also hit the milestone of 1,000 BOPD in intermittent daily flush production in late December.

What’s to like?

  • Maverick was already cheap on a reserves valuation. It just got cheaper.
  • More reserve upgrades are highly likely. Maverick is yet to provide reserves on its other salt domes, Nash and Boling.
  • Oil production will continue to increase, delivering reliable positive cash flow.
Commenting on the upgrade, Maverick’s Executive Chairman, Mr Don Henrich said:

When we listed we had around 850 acres in Blue Ridge and began conducting a pilot drilling program across our holdings. As we drilled we hoped for 2P reserves to become 1P reserves. We now hold over 1,700 net acres in Blue Ridge and have drilled almost 50 new wells since listing. This helps the evaluation process, which has clearly been a major success. These are liquid oil barrels where we are receiving over $100 per barrel and not “barrels of oil equivalent” in natural gas where six mcf gets you $18 these days. Oil has been and remains our focus and our trademark.

Cheap gets cheaper.
To highlight the fall in price per proved oil reserve I aligned the price per 1P reserves with the share price. Since listing Maverick’s price per proved barrel of oil has fallen 68%.

The price per barrel now sits at a low of $3.40. That’s cheap!

By comparison, Linc Energy Ltd. (ASX: LNC) paid $11.50 per barrel of 1P reserves for fields near Mavericks. I still expect further upgrades to Maverick’s proved reserves as drilling and production begins in earnest on its other two salt domes. With 3,200 of their 5,000 net salt dome acres yet to have reserve estimates, those increases could be substantial.

Despite the price rise, Maverick presents a compelling risk reward picture, with limited downside and excellent market trouncing upside potential.

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Disclosure: Dean Morel is long MAD.

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