Maverick Drilling & Exploration (ASX: MAD) announced two weeks ago that it had discovered a potential new oil reservoir in the Blue Ridge Dome Field.
Initial testing suggests potential production rates in excess of 100 barrels of oil per day (bopd). No oil production has ever been reported in the 100+ year history of the Blue Ridge Dome Field from the Jackson formation. The company is now carrying out additional testing to determine if flow rates are sustainable from the reservoir.
In March, Maverick reported its first high impact test on the Blue Ridge Dome resulted in the well blowing out. The term refers to a situation where pressure encountered exceeds the weight of the drilling mud, resulting in the mud 'gushing out' of the hole while drilling. The well was immediately shut in and a replacement well being prepared 10m due west of the existing hole.
Chairman Don Henrich describing the development as 'exciting'.
Between September 2012 and august 2013, Maverick is targeting drilling of around 100 wells, which should result in increased production. Since October last year, production has more than doubled from an underwhelming 493 bopd to 1,062 bopd in April 2013.
Criticised for some time for focusing on increasing its reserves at the expense of actual production, Maverick appears to have refocused on what counts, including taking on a joint venture partner in Gulf South Holdings. Gulf South will participate in a 12 well program, paying US$333,333 for a third working interest in each well. With average costs of drilling a well in the Blue Ridge Dome at $250,000 well below average industry costs, Gulf South's investment means all 12 wells are fully funded, with Maverick retaining a 66.6% interest in each.
Foolish takeaway
Over the last 12 months, Maverick's shares have tumbled by more than 54%, compared to the S&P / ASX 200 Index's (Index: ^AXJO) (ASX: XJO) rise of 15%. With an incredible 100 million barrels of 1P reserves, which the market is valuing at around $2 per barrel (despite Maverick receiving more than US$100 per barrel), and close to 20,000 acres of exploration land, the company appears ridiculously cheap.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Motley Fool writer/analyst Mike King owns shares in Maverick.
