From 13p/sh one year ago to 142p today, reflecting a m/cap of £220m, what has propelled this seemingly wonder share? Seems they've drilled their first well in Mongolia and registered some oil shows. Whoopee!! But what does this mean in terms of value?
This is old Soco acreage relinquished before they sold out. I admit not having looked at Petro Matad (LON:MATD) seriously for some time so I'm not up to speed with matters generally, mostly because I've long recognised the limited upside potential in Mongolia. However, I have in the past conducted detailed research into the Hailar/Tamstag Basin and think I have a pretty good understanding of what's what there. Essentially, the most productive wells c.1000+ bopd are way up north into China. The further south one goes, the less productive wells become. The best well out of about 20 successful drills Soco made, initially delivered 750 bopd. That well subsequently stabilised at about 250 bopd. Pretty well all other Soco discovery wells required fraccing, doubling the cost per well. These typically produced at around 250 bopd and tailed off fairly quickly, often suffering water cut. IIRC, Soco produced 450 bopd from about 10 wells over a couple of years, including the 'super well' of 250 bopd.
Essentially, this acreage is of the sort demanding peppering with closely spaced wells. Only the Chinese will be interested in any success MATD manage to accomplish, so they're somewhat stuffed when it comes to monetising any discovery. When one considers that the market is pricing them at £240m, you have to wonder how mad things have become when bigger E&P's valuations look so pitiful, relatively speaking!
In essence, my view is that MATD is just about the most grossly overvalued oilco you can find right now. Let's see if they DST the current well or decide to implement a frac programme first. If it's the latter, that's a big sell signal for me. If they don't conduct a DST or go for fraccing, that's an even bigger sell signal. Whatever, all eyes on the next announcement.
I thought all three of the current anticpated 3 well campaign were to be tested?
No - not at all. They are merely picking what looks to be the best of the three - allegedly because of budget constraints.
As to Optionsman's comments, I infer from that they are only on the second well at this point.......which means there is still plenty of time for the MATD proponents to head for the exits while the third well is being drilled.
I anticipate some "mystification" at future share price movements as testing times approach..... ;-)
