MMT.to - Mart Resources

[muscleman]

I am not an oil and gas expert and I suffered big losses from ATPG preferreds a few years ago, so my understanding about this sector could be completely wrong. However, I have a feeling that MMT is a better bet than SD.

1. It has very good oil content, instead of SD's 50/50 mix of oil and gas.

2. The task seem to be easier. The content is almost 99.5% oil, instead of SD's large amounts of salt water.

3. The rock formation seems more traditional. They have not had one dry hole so far, and each new well coming online has consistent result.

4. Their oil has very good quality. They can sell for $110 per barrel while the crude future trades at $100 on WSJ's quote.

5. The type curve of their first well seem to be very good. It started production in 2008 at 2400 barrels per day, and four years later it can still produce at 2000 barrels per day.

 

What I don't like:

1. Pipeline loss of 18%. That is huge. There are lots of oil theft in Africa. That is not a concern in the US at all.

2. Frequent shutdown and various disruptions. In average they shut down 20-37 days per quarter due to various issues.

 

Valuation: I have no clue how to value oil stocks. But I see when oil price was $100, they have about $55 million per year netback. They just completed a new pipeline and expect to increase the production from 13000 barrels per day to 25k-30k. Therefore the netback per year could be $110-140 million per year. The current market cap is $280 million. Therefore if oil price goes back to $100, this should be a 2 P/E. However, I have no clue when the oil price would go back to $100 and what would happen if oil price continues to be $60.

 

 

Thoughts?  :)

 

[ItsAValueTrap]

The small cap resource stocks in Canada tend to be massive destroyers of capital.  The whole system is setup against you.  You really, really need to be careful.

 

Also, you really need to understand their political situation (which I don't).

[peter1234]

I believe Tim Eriksen presented this at the Value Investing Congress New York in Sep 2014.

;)

[Jurgis]

I have owned MMT in the past and sold because of the shutdowns, delays and oil theft. Investors should apply a large discount to MMT because of these issues. At the current price it might be cheap even with discount. I have to relook at it.

 

I am not an oil investing expert although I made some money on 2009 collapse and recovery. My current E&P investments are APA, GTE, DRAGF (DGO.L), SPND. I am looking for more buys if oil continues to drop. I will sell if we runup from here.

[muscleman]

I believe Tim Eriksen presented this at the Value Investing Congress New York in Sep 2014.

;)

 

Thanks! I found it here:

http://www.valuewalk.com/2014/09/tim-eriksen-add-little-ick-mix/

 

I can't find any details though. The outline in this link is even less detailed than my original post.

[muscleman]

I have owned MMT in the past and sold because of the shutdowns, delays and oil theft. Investors should apply a large discount to MMT because of these issues. At the current price it might be cheap even with discount. I have to relook at it.

 

I am not an oil investing expert although I made some money on 2009 collapse and recovery. My current E&P investments are APA, GTE, DRAGF (DGO.L), SPND. I am looking for more buys if oil continues to drop. I will sell if we runup from here.

 

No one knows when oil will recover to $100. Assuming the $60 oil price continues, will Mart be able to survive?

http://www.martresources.com/wp-content/uploads/2014/11/Mart-MDA-Sep-2014-v11-clean-FINAL.pdf

From this table, its 9 month revenue ended 9/30/2014 is $144 Million. Now that the oil price drops from $110 to $75, its 9 month revenue will drop to 98 Million. Mart will break even in that case, assuming their D&A number is correct.

 

Does anyone have confidence in their D&A?

[muscleman]

http://www.martresources.com/wp-content/uploads/2014/11/Mart-Q3-2014-Financial-Statements-V-9-clean-FINAL.pdf

 

15. Discontinued operations and disposal group held for sale

Mart's subsidiary NRG Drilling Nigeria Limited ("NRG") provides drilling services in Nigeria.

 

They are disposing their drilling services and therefore marked a loss from discontinued operations item. Then they said the netback would have been $42 millions for first 9 months had this discontinued operation is gone.

Is that realistic? I don't think so. If they get rid of that drilling service, they still have to find other ways to drill.

On the other hand, at $100 oil price, they can get $12 per barrel net back. Then what will happen at $60 oil? I think if oil price can go back to $100, this will go up to $1.5 or $2 again. But I don't want to buy at $0.7 given that i am unable to predict the oil price.

Any oil experts would like to comment?

[Tim Eriksen]

I believe Tim Eriksen presented this at the Value Investing Congress New York in Sep 2014.

;)

 

Thanks for reminding everyone that I presented Mart.  It hasn't done very well. Down about 50% from the price when I presented it.  I have continued to buy and still like it.    At the time I noted that a number of positive events were coming soon:

1. A new pipeline is expected to be online in September reducing theft losses from 25% to near 10%.  (started filling pipeline last week, so two months late)

2. The new pipeline should also mean fewer shutdown days (from 27 per quarter to 15) starting in Q4.  (should still be true but starting Q1 2015)

3. Overall production will increase rapidly as already drilled wells will be brought on line. (should still be true)

4. High probability of additional horizontal wells (UMU-4 tested at 4,700 bopd, UMU-12 at over 5,300 bopd, UMU-13 found 220 feet of gross pay in 11 sands)

5. Company is bidding on additional marginal fields, which could further increase production.  (were part of consortium that was high bidder on OML 18 which they financed via debt.  Production is partially hedged.)

 

The pipeline delay hurt management's reputation, but most of the problem has been oil falling from $110 to about $65.  I expect the higher production rates to result in lower production costs per barrel.  G&A shouldn't rise much, so on a per barrel basis it will fall.  The success of UMU-13 should result in additional reserves which would lead to a lower depletion cost per barrel (it may take a little bit of time to be incorporated since it was a test well).

 

Mart is still in cost recovery (Mart funds drilling and gets a higher % of production until costs are paid back) but increased production should offset reduced allocation.  I currently project cash flow in 2015 of about US$0.44 per share.  The share price is $0.60 so that is quite attractive.  If there are no hiccups, the stock should do well if oil stays around $65 (2 to 3x).  If oil trends back toward $100 in the next two years it could be a five to eight bagger.  Having said that it definitely carries risk. 

 

[Tim Eriksen]

Here is the presentation from September's VIC.

ECM_CCP_Sep_2014_VIC_Final.pdf

[ItsAValueTrap]

UMU-13 found 220 feet of gross pay in 11 sands

 

You may need to read their press releases more critically.  They may have found a dry hole and may be trying to spin the news.

 

Here's the press release:  http://www.martresources.com/wp-content/uploads/2014/12/MMTPR-UMU-13-Well-120414-final.pdf

 

The technical data that they choose to present is different than that for previous wells.  Selectively choosing (cherry picking) favorable technical data is a sign of spin doctoring.  If this well was good, they would tell you the flow rate like they did for previous wells.  I would guess that UMU-13 is a dry hole.

[muscleman]

I believe Tim Eriksen presented this at the Value Investing Congress New York in Sep 2014.

;)

 

Thanks for reminding everyone that I presented Mart.  It hasn't done very well. Down about 50% from the price when I presented it.  I have continued to buy and still like it.    At the time I noted that a number of positive events were coming soon:

1. A new pipeline is expected to be online in September reducing theft losses from 25% to near 10%.  (started filling pipeline last week, so two months late)

2. The new pipeline should also mean fewer shutdown days (from 27 per quarter to 15) starting in Q4.  (should still be true but starting Q1 2015)

3. Overall production will increase rapidly as already drilled wells will be brought on line. (should still be true)

4. High probability of additional horizontal wells (UMU-4 tested at 4,700 bopd, UMU-12 at over 5,300 bopd, UMU-13 found 220 feet of gross pay in 11 sands)

5. Company is bidding on additional marginal fields, which could further increase production.  (were part of consortium that was high bidder on OML 18 which they financed via debt.  Production is partially hedged.)

 

The pipeline delay hurt management's reputation, but most of the problem has been oil falling from $110 to about $65.  I expect the higher production rates to result in lower production costs per barrel.  G&A shouldn't rise much, so on a per barrel basis it will fall.  The success of UMU-13 should result in additional reserves which would lead to a lower depletion cost per barrel (it may take a little bit of time to be incorporated since it was a test well).

 

Mart is still in cost recovery (Mart funds drilling and gets a higher % of production until costs are paid back) but increased production should offset reduced allocation.  I currently project cash flow in 2015 of about US$0.44 per share.  The share price is $0.60 so that is quite attractive.  If there are no hiccups, the stock should do well if oil stays around $65 (2 to 3x).  If oil trends back toward $100 in the next two years it could be a five to eight bagger.  Having said that it definitely carries risk.

 

 

Thank you Tim. I viewed your presentation but I have a few questions:

1. Why is the operating cost $43 per barrel? You didn't include G&A, interest expense, tax and royalty and pipeline theft. Is that a realistic number? MMT's own presentation shows that the netback is only $12 per barrel at $100 oil price. Now the oil price is $65. I wonder how much netback they can get. If oil stays at $65, it seems like they will not have much netback at all. Why did you say they will do well at $65?

2. Why are they disposing the drilling services department? How will they drill after selling this department?

[Tim Eriksen]

UMU-13 found 220 feet of gross pay in 11 sands

 

You may need to read their press releases more critically.  They may have found a dry hole and may be trying to spin the news.

 

Here's the press release:  http://www.martresources.com/wp-content/uploads/2014/12/MMTPR-UMU-13-Well-120414-final.pdf

 

The technical data that they choose to present is different than that for previous wells.  Selectively choosing (cherry picking) favorable technical data is a sign of spin doctoring.  If this well was good, they would tell you the flow rate like they did for previous wells.  I would guess that UMU-13 is a dry hole.

 

You could be right.  It is not central to the thesis.  I would say that it is different from the other wells.  The others were mostly existing wells where the went in and did a horizontal.  This was a vertical exploratory well.  We should know more in a few weeks.  I am not an expert in oil and gas.  I have typically owned one or more over the last ten plus years (PetroKazakhstan, Chapparral Resources, Trek Resources). 

 

(edit - I went back and read the initial UMU-10 release and it reads similar to the UMU-13.  What difference are you seeing??)

[muscleman]

UMU-13 found 220 feet of gross pay in 11 sands

 

You may need to read their press releases more critically.  They may have found a dry hole and may be trying to spin the news.

 

Here's the press release:  http://www.martresources.com/wp-content/uploads/2014/12/MMTPR-UMU-13-Well-120414-final.pdf

 

The technical data that they choose to present is different than that for previous wells.  Selectively choosing (cherry picking) favorable technical data is a sign of spin doctoring.  If this well was good, they would tell you the flow rate like they did for previous wells.  I would guess that UMU-13 is a dry hole.

 

I like your acute sense!  ;D

[muscleman]

UMU-13 found 220 feet of gross pay in 11 sands

 

You may need to read their press releases more critically.  They may have found a dry hole and may be trying to spin the news.

 

Here's the press release:  http://www.martresources.com/wp-content/uploads/2014/12/MMTPR-UMU-13-Well-120414-final.pdf

 

The technical data that they choose to present is different than that for previous wells.  Selectively choosing (cherry picking) favorable technical data is a sign of spin doctoring.  If this well was good, they would tell you the flow rate like they did for previous wells.  I would guess that UMU-13 is a dry hole.

 

You could be right.  It is not central to the thesis.  I would say that it is different from the other wells.  The others were mostly existing wells where the went in and did a horizontal.  This was a vertical exploratory well.  We should know more in a few weeks.  I am not an expert in oil and gas.  I have typically owned one or more over the last ten plus years (PetroKazakhstan, Chapparral Resources, Trek Resources).

 

Just be careful that finding one cockroach usually implies more cockroaches on the way.

I am concerned why they are disposing their drilling services department and mark it as "discontinued operations". People usually add the losses of "discontinued operations" back because it is one-time charge. But they clearly need drilling services, so it really can't be discontinued.

My point is that even if their Depletion and Depreciation is accurate, which i have no way to know, they only make 0.08 per share at $100 oil price. If oil goes back to $100 and their production increases to 30000 barrels per day, they will earn 0.3 per share, but that's blue sky assumptions.

 

I don't think EPS is that important from owner's point of view. What's really important is the rate of return on these projects. Do you know the all in cost for building one producing well? What's the total number of barrels that can be produced from that well? What's the total net profit from that well?

[Tim Eriksen]

 

Thank you Tim. I viewed your presentation but I have a few questions:

1. Why is the operating cost $43 per barrel? You didn't include G&A, interest expense, tax and royalty and pipeline theft. Is that a realistic number? MMT's own presentation shows that the netback is only $12 per barrel at $100 oil price. Now the oil price is $65. I wonder how much netback they can get. If oil stays at $65, it seems like they will not have much netback at all. Why did you say they will do well at $65?

2. Why are they disposing the drilling services department? How will they drill after selling this department?

 

Good questions.

1. Operating cost and netback are different.  I know Canadian companies use netback.  They each serve a different purpose.  Operating costs helps understand the marginal profit of an additional barrel.  Both include theft and royalties. If theft drops from 20% to 10% that has no associated costs other than taxes.  Royalties are based on production so that should not change as a percentage of revenue.  If production triples what will happen to G&A?  I don't think it will rise much at all.  What will happen to production costs to tie in four or five additional wells?  Fixed costs are spread over a larger base so I would expect per barrel costs to fall from $19 per barrel to something around $15.  I could be wrong.  Depletion should also drop significantly.  For example, having only 10% stolen versus 20% would lower it by 12%.  More importantly if UMU-13 is successful it will go down further.  Another way to look at it  is if you project out production using the current $22.74 depletion rate you would fully deplete existing capitalized assets in just six quarters.  Granted there will be additional cap ex but basic math says it has to decline.  I expect depletion to drop significantly over the next two years.  As for taxes some of it is for JV partners which only happens if they are profitable.

 

I am a numbers guy.  I try to look at what costs are fixed and what are variable and see what will most likely happen over the next few years.  Evenutally you have to make some assumptions in the process.  I think Mart's variable costs should drop a lot.  After incorporating lower oil prices ($70 in 2015 and $75 in 2016) I still see a good chance for a triple from here. 

 

2. They are getting rid of it because it stinks.  It was costing more to do it in house than contracting it out.  So they shut it down.  They are using a sub now and it seems better and cheaper.   

 

[Tim Eriksen]

UMU-13 found 220 feet of gross pay in 11 sands

 

You may need to read their press releases more critically.  They may have found a dry hole and may be trying to spin the news.

 

Here's the press release:  http://www.martresources.com/wp-content/uploads/2014/12/MMTPR-UMU-13-Well-120414-final.pdf

 

The technical data that they choose to present is different than that for previous wells.  Selectively choosing (cherry picking) favorable technical data is a sign of spin doctoring.  If this well was good, they would tell you the flow rate like they did for previous wells.  I would guess that UMU-13 is a dry hole.

 

You could be right.  It is not central to the thesis.  I would say that it is different from the other wells.  The others were mostly existing wells where the went in and did a horizontal.  This was a vertical exploratory well.  We should know more in a few weeks.  I am not an expert in oil and gas.  I have typically owned one or more over the last ten plus years (PetroKazakhstan, Chapparral Resources, Trek Resources).

 

Just be careful that finding one cockroach usually implies more cockroaches on the way.

I am concerned why they are disposing their drilling services department and mark it as "discontinued operations". People usually add the losses of "discontinued operations" back because it is one-time charge. But they clearly need drilling services, so it really can't be discontinued.

My point is that even if their Depletion and Depreciation is accurate, which i have no way to know, they only make 0.08 per share at $100 oil price. If oil goes back to $100 and their production increases to 30000 barrels per day, they will earn 0.3 per share, but that's blue sky assumptions.

 

I don't think EPS is that important from owner's point of view. What's really important is the rate of return on these projects. Do you know the all in cost for building one producing well? What's the total number of barrels that can be produced from that well? What's the total net profit from that well?

Well so far there is not a cockroach, just a warning from someone.

 

I really don't see the big issue with drilling operations.  Why did they ever have it in house.  It is absolutely a discontinued operation.  They are selling the rig.  I wouldn't get hung up on what they earned in the past that was the whole point of my presentation - decreased down time, decreased theft, production tripling, etc.  All I can say is that I project out the numbers and really like what I see.    I estimate cash flow (net income plus depreciation) at $0.45 for 2015 and $0.60 for 2016 versus a $0.60 share price.

[ItsAValueTrap]

UMU-13 found 220 feet of gross pay in 11 sands

 

You may need to read their press releases more critically.  They may have found a dry hole and may be trying to spin the news.

 

Here's the press release:  http://www.martresources.com/wp-content/uploads/2014/12/MMTPR-UMU-13-Well-120414-final.pdf

 

The technical data that they choose to present is different than that for previous wells.  Selectively choosing (cherry picking) favorable technical data is a sign of spin doctoring.  If this well was good, they would tell you the flow rate like they did for previous wells.  I would guess that UMU-13 is a dry hole.

 

You could be right.  It is not central to the thesis.  I would say that it is different from the other wells.  The others were mostly existing wells where the went in and did a horizontal.  This was a vertical exploratory well.  We should know more in a few weeks.  I am not an expert in oil and gas.  I have typically owned one or more over the last ten plus years (PetroKazakhstan, Chapparral Resources, Trek Resources). 

 

Here's an excellent oil and gas backgrounder:

http://www.geomore.com/

 

(edit - I went back and read the initial UMU-10 release and it reads similar to the UMU-13.  What difference are you seeing??)

No flow rate.

They start talking about productive sands, whereas in previous press releases they didn't.

 

The part about 11 sands is kind of misleading.  In most normal wells, only a few of them will actually turn into a productive zone.  (In this case, it is likely that the well is a dry hole so none of the 11 sands are economic.)  If you start reading enough bullshit press releases you start to figure out the game.

 

[Tim Eriksen]

UMU-13 found 220 feet of gross pay in 11 sands

 

You may need to read their press releases more critically.  They may have found a dry hole and may be trying to spin the news.

 

Here's the press release:  http://www.martresources.com/wp-content/uploads/2014/12/MMTPR-UMU-13-Well-120414-final.pdf

 

The technical data that they choose to present is different than that for previous wells.  Selectively choosing (cherry picking) favorable technical data is a sign of spin doctoring.  If this well was good, they would tell you the flow rate like they did for previous wells.  I would guess that UMU-13 is a dry hole.

 

You could be right.  It is not central to the thesis.  I would say that it is different from the other wells.  The others were mostly existing wells where the went in and did a horizontal.  This was a vertical exploratory well.  We should know more in a few weeks.  I am not an expert in oil and gas.  I have typically owned one or more over the last ten plus years (PetroKazakhstan, Chapparral Resources, Trek Resources). 

 

Here's an excellent oil and gas backgrounder:

http://www.geomore.com/

 

(edit - I went back and read the initial UMU-10 release and it reads similar to the UMU-13.  What difference are you seeing??)

No flow rate.

They start talking about productive sands, whereas in previous press releases they didn't.

 

The part about 11 sands is kind of misleading.  In most normal wells, only a few of them will actually turn into a productive zone.  (In this case, it is likely that the well is a dry hole so none of the 11 sands are economic.)  If you start reading enough bullshit press releases you start to figure out the game.

 

Glad you challenged me on this.  It really reinforced my belief.  I read all the releases on UMU-6, 7, 8, 9, 10, 11, and the two horizontals.  Their releases follow the same pattern.  Initial release on depth and total pay and sands.  One to two months later is a release on flow from some of the sands.  Then later a final summary release.  This was the initial release.  There is nothing unusual at all. 

 

So I must ask if you have actually read all their releases?  Or are you just making an assumption? 

[Tim Eriksen]

Here are the press release dates and results

Mart_Resources_well_results.pdf

[muscleman]

Here are the press release dates and results

 

Thanks! I read through the past PRs and I have the same feeling as you do.

They started drilling UMU-13 around October 27th. This is only 40 days after that. You can't expect drilling plus flow test to complete all within such a short time frame.

 

This is an example from the UMU-10 PR.

http://www.martresources.com/wp-content/uploads/2013/04/MMT-PR-UMU-10-Update-11-5-12.pdf

[ItsAValueTrap]

So I must ask if you have actually read all their releases?  Or are you just making an assumption?

 

No.  My bad.

 

See the thing is that technobabble from an oil and gas company is a red flag.  Some of the information they give you is a red herring.  Some of the older press releases say that only X number of sands will eventually go into production and that only Y number of sands can be producing at one time.  The total number of sands is not particularly relevant.

 

I guess what they're doing is finding a reason to issue a press release to keep the news flow going.

 

Mart Resources pays Streetwise Reports for stock promotion:

http://www.streetwisereports.com/pdf/quote/24279.pdf

Suppose you made a basket of companies that pay Streetwise Reports for stock promotion.  I would not expect that basket to perform very well versus the S&P TSX index.

 

Rightly or wrongly, I very quickly put these companies into the "too hard" pile.  I do not spend much time researching them.  The promotional aspects make things very difficult (difficult to research, difficult to make money when it's spent on stock promotion).  Insiders may (or may not) be the type of human beings who would run off with your money if they were presented with the opportunity.

[muscleman]

So I must ask if you have actually read all their releases?  Or are you just making an assumption?

 

No.  My bad.

 

See the thing is that technobabble from an oil and gas company is a red flag.  Some of the information they give you is a red herring.  Some of the older press releases say that only X number of sands will eventually go into production and that only Y number of sands can be producing at one time.  The total number of sands is not particularly relevant.

 

I guess what they're doing is finding a reason to issue a press release to keep the news flow going.

 

Mart Resources pays Streetwise Reports for stock promotion:

http://www.streetwisereports.com/pdf/quote/24279.pdf

Suppose you made a basket of companies that pay Streetwise Reports for stock promotion.  I would not expect that basket to perform very well versus the S&P TSX index.

 

Rightly or wrongly, I very quickly put these companies into the "too hard" pile.  I do not spend much time researching them.  The promotional aspects make things very difficult (difficult to research, difficult to make money when it's spent on stock promotion).  Insiders may (or may not) be the type of human beings who would run off with your money if they were presented with the opportunity.

 

Thank you. Do you know if MMT pays StreetWise for the promotion, or is StreetWise just some investment bank that covers MMT?

If MMT pays someone for stock promotion, I would definitely stay away.

 

I reread the PRs. The UMU-13 PR is indeed different from the other ones. The other ones like UMU-10 usually issues an initial PR right after drilling reached a certain depth.

[Tim Eriksen]

So I must ask if you have actually read all their releases?  Or are you just making an assumption?

 

No.  My bad.

 

See the thing is that technobabble from an oil and gas company is a red flag.  Some of the information they give you is a red herring.  Some of the older press releases say that only X number of sands will eventually go into production and that only Y number of sands can be producing at one time.  The total number of sands is not particularly relevant.

 

I guess what they're doing is finding a reason to issue a press release to keep the news flow going.

 

Mart Resources pays Streetwise Reports for stock promotion:

http://www.streetwisereports.com/pdf/quote/24279.pdf

Suppose you made a basket of companies that pay Streetwise Reports for stock promotion.  I would not expect that basket to perform very well versus the S&P TSX index.

 

Rightly or wrongly, I very quickly put these companies into the "too hard" pile.  I do not spend much time researching them.  The promotional aspects make things very difficult (difficult to research, difficult to make money when it's spent on stock promotion).  Insiders may (or may not) be the type of human beings who would run off with your money if they were presented with the opportunity.

 

Thank you. Do you know if MMT pays StreetWise for the promotion, or is StreetWise just some investment bank that covers MMT?

If MMT pays someone for stock promotion, I would definitely stay away.

 

I reread the PRs. The UMU-13 PR is indeed different from the other ones. The other ones like UMU-10 usually issues an initial PR right after drilling reached a certain depth.

 

Can you show me the differences because it sure doesn't jump out at me?

 

UMU-10 release on 11/5/12

 

As previously announced, the UMU-10 well has reached a final total drilling depth of approximately 9,757 feet. UMU-10 is an appraisal well targeting the sands encountered in the UMU-9 exploration/step-out well, including the deep sand discoveries. Based upon comprehensive open hole logging, the UMU-10 well encountered 479 feet of gross pay in 20 sands. The reservoirs encountered are consistent with the findings in the UMU-9 well, with one additional oil-bearing discovery in the UMU-10 well that was wet in UMU-9. The five deep sand discoveries encountered in UMU-9, along with the additional oil sand encountered in UMU-10, have not previously been flowed to surface.  These deep sands are the primary testing and completion targets for the UMU-10 well.

 

Downhole pressure and fluid sample tests were taken over all reservoirs. Preliminary evaluations based on log and drilling data for the UMU-10 well show 19 light oil reservoirs and one gas/condensate reservoir. These conclusions are consistent with results of tests on the UMU-9 well. The down-hole fluid samples have confirmed hydrocarbon type, and will provide critical information for reservoir management and field development planning.

 

UMU-13 release on 12/4/14

The UMU-13 well has reached a final total drilling depth of 9,300 feet. UMU-13 is a vertical appraisal well with exploration prospects drilled on a seismically defined structure located east of the existing and producing Umusadege field. Preliminary evaluations based on well logging, pressures, and drilling data indicate that the UMU-13 well encountered approximately 220 feet of gross pay in 11 sands. The sands encountered by the UMU-13 well are consistent with the

findings of UMU-9 well, which was previously drilled west of the UMU-13 well on the main structure of the Umusadege field. The preliminary evaluations indicate nine light oil sands and two gas/condensate sands with total gross pay of 162 feet and 58 feet respectively. Down-hole fluid samples have been taken and laboratory results are pending. The down-hole fluid samples will be used to confirm hydrocarbon type and will provide critical information for reservoir

management and future field development planning.

 

The primary testing and completion targets for the UMU-13 well will be finalized upon receiving the down-hole fluid sample results. The completion program and production testing operations on the UMU-13 well will continue through December 2014.

 

[ItsAValueTrap]

So I must ask if you have actually read all their releases?  Or are you just making an assumption?

 

No.  My bad.

 

See the thing is that technobabble from an oil and gas company is a red flag.  Some of the information they give you is a red herring.  Some of the older press releases say that only X number of sands will eventually go into production and that only Y number of sands can be producing at one time.  The total number of sands is not particularly relevant.

 

I guess what they're doing is finding a reason to issue a press release to keep the news flow going.

 

Mart Resources pays Streetwise Reports for stock promotion:

http://www.streetwisereports.com/pdf/quote/24279.pdf

Suppose you made a basket of companies that pay Streetwise Reports for stock promotion.  I would not expect that basket to perform very well versus the S&P TSX index.

 

Rightly or wrongly, I very quickly put these companies into the "too hard" pile.  I do not spend much time researching them.  The promotional aspects make things very difficult (difficult to research, difficult to make money when it's spent on stock promotion).  Insiders may (or may not) be the type of human beings who would run off with your money if they were presented with the opportunity.

 

Thank you. Do you know if MMT pays StreetWise for the promotion, or is StreetWise just some investment bank that covers MMT?

If MMT pays someone for stock promotion, I would definitely stay away.

 

I reread the PRs. The UMU-13 PR is indeed different from the other ones. The other ones like UMU-10 usually issues an initial PR right after drilling reached a certain depth.

 

The report states:

The following companies mentioned in the interview are sponsors of Streetwise Reports: Mart Resources Inc. Streetwise Reports does not

accept stock in exchange for its services.

 

Mart is currently listed on the front page of The Energy Report.  theenergyreport.com

If you click through to mart's page on that site, you clearly see that they more or less only highlight good news about mart.

[muscleman]

Well so far there is not a cockroach, just a warning from someone.

 

I really don't see the big issue with drilling operations.  Why did they ever have it in house.  It is absolutely a discontinued operation.  They are selling the rig.  I wouldn't get hung up on what they earned in the past that was the whole point of my presentation - decreased down time, decreased theft, production tripling, etc.  All I can say is that I project out the numbers and really like what I see.    I estimate cash flow (net income plus depreciation) at $0.45 for 2015 and $0.60 for 2016 versus a $0.60 share price.

 

Regarding cash flow per share, I have a different view. This is not a bank or a restaurant where you don't need much capex to consistently get free cash flow. This is oil and gas where you have to keep spending and the ONLY way to increase your shareholder value is to successfully discover new proved reserves through exploration. You may get $0.6 cash flow this year and next and then if you cut off capex, the year after, you suddenly get no more cash flow.

 

Looking at the reserves:

http://www.martresources.com/wp-content/uploads/2014/09/Mart-First-Energy-conference-15-16-Sep-2014-vcompr.pdf

 

If we assume $12 per barrel pure profit (netback, they call it), and we assume the entire 3P reserves are extracted with no problem, which is 23 Million barrels, then the total cash flow from the reserves is just 276 Million. I haven't applied discounted cash flow yet, which will drive the total value even lower. If we apply a generous $20 per barrel netback, then the total profit is $460 million. Still not impressive.

 

Instead of EPS, I am more interested in the actual economics of this project. Their balance sheet says that "Petroleumproperty interests" is $215 Million. My understanding is that "Petroleumproperty interests" plus "accumulated DD&A" plus "dry hole expenses" equals the total amount of cash thrown into this project. We don't seem to have any dry holes so far, and I don't know what's the accumulated DD&A. It seems to be around $35 million this year's first 9 months and $17 million last year. I assume the accumulated DD&A is $100 from 2008.

 

That means from 2008, a total of $315 million have been thrown into this project. Now the total reserves will produce total profit of $276-460 million after recovery of the $315 Million initial costs, at an oil price of $100. Please point out if I am wrong in any of such calculations.

 

Now we assume the oil price recovers to $100 and $276 million net profit is made over the next 5 years and $315 million initial cost is recovered. What's the rate of return on this investment if you buy at $217 Million market cap? The rate of return seems to be around 20%. Agree? Disagree?

 

Now the next question is what will happen if oil stays at $60. Let's look at slide 7 for netback.

http://www.martresources.com/wp-content/uploads/2014/11/MMT-Conference-Call-November-2014-v2.pdf

How will the numbers adjust when oil is $60? Sales will drop from $110 to $70. Royatlies drop from $16 to $11. Production cost stays at $17. G&A drops from $7 to 4 (As they ramp up production).Net finance expenses drop from $4 to $2 (As they ramp up production). Discontinued operations can't totally disappear because they now need to hire contractors to drill, and this goes into their operating expenses. I assume drilling costs $3 now instead of $6.4. Income tax drops from $9 to $2. Tax on venture production drops from $9 to $2.

How does the netback per barrel look like now? They make $2 per barrel netback, right? This means drilling new wells at this time will be totally uneconomic.

Regarding existing wells, this figure means they can recover the original $315 million cost of the project and make $46 million on the total reserves. That's pretty much it. Do you want to buy at $217 million market cap, wait for 5 years and receive a total of $315+$46 million cash? The rate of return is only 7%.

 

 

Please point out where I am wrong. I am a numbers guy as well. I believe this is a much better view of the true economics of oil companies, instead of getting the next year's EPS and apply a 10 multiple and say the stock should trade there.