Mayan Energy – Simple SOTP illustrates current opportunity

August 12, 2018 | Posted by

That we have been cheerleaders of Mayan Energy from early September last year when the stock price resided at 0.28p is not in question. Indeed, we were participators in the placing last August at 0.3p. It has been quite a ride for holders over the ensuing 12 months with the shares scraping the 1p level on a couple of occasions as the chart below relays whilst the renegotiation of the Deloro/Petroteq deal and delays in permitting at their Texas fields together with creditor selling (where they were issued with shares) have weighed upon the stock over the last few months. There is extensive additional commentary in the tab HERE for newcomers to this story.

We intend to release a full and thorough update note in early September when management has further visibility on production expectations at the Stockdale, Forest Hills and the Oklahama fields at Zink Ranch but ahead of this we highlight the following evolving opportunity from a simple SOTP valuation:

Petroteq interest

Mayan now holds (following renegotiation of the original deal with Petroteq) a 17.3% interest in Deloro. Deloro itself holds 6m shares in Petroteq outright and also has an interest in 6m warrants with an exercise price of 91 US cents. The Deloro entity also holds 61m shares in Mayan. Current value of stock in PQE is @ £1.1m and the warrant “in the money” value is @ £351k.

Block Energy

Mayan also holds an interest of 8,510,241 shares in Block Energy with a value of approx £289k.

Current cash reserves

We estimate the company currently sits with @ £900,000 cash post the last placing.

De facto cash and near cash assets are thus @ £2.64m. Present market cap is £6.94m. The rump asset which is the Stockdale, Forest Hill & Zink Ranch fields are thus presently valued at @ just £4.3m. Per our blog HERE management are confident of getting to 300 bopd sustainable production in the next few months and are, with the new well package revealed last month, still targeting 500 bopd as we move into 2019. The company has confirmed average net backs at current oil prices of @ $40 a barrel. Based on just 300 bopd this equates to $3.6m p.a. with 20% well down time assumed. At 500 bopd this is $6m p.a. With central G&A and management costs of @ £400k the shares are thus trading at either 2 times or 1 times 2019 EBITDA based on management’s own representations. This excludes the monetisation of the Stockdale gas find too.

I suppose the market can be forgiven for the scepticism and thus the lowly valuation given the delays this year in getting to the originally targeted production figures and we have sympathy with this stance but, with the tailwinds of a strong dollar/GBP FX rate, continued rising oil prices and the production issues now squarely on the “resolve” front, it does not take much for the stock to begin to re-rate materially. We also believe creditor selling is coming to an end and that as per our PQE analysis HERE there is much more upside in this stake – indeed if PQE meets our price target then almost the entire market cap of MYN would be taken up by PQE (and we would push for an in specie distribution to shareholders at this point). The move to the main Nasdaq listing for PQE is now looming on the horizon and we would not be surprised to see the stock move ahead strongly into this key event.

Block’s drilling results are due soon and this is a wild card however we do not see this pushing the needle much re MYN’s valuation.

Whichever way we look at the current stock price, unless production from the company’s own fields literally falls off a cliff and management’s representations of delays to the key production targets being out of their hands (that they say are now being addressed) were just plain wrong/untruths, we fail to see how we cannot see a meaningful re-rate in the stock price as we move through the balance of this year and the company begins to generate solid cash flow excluding the investment assets. Such is our confidence in the asymmetric risk/reward profile now offered that we now hold just over 40m shares (adding recently in the placing) to be a top 5 shareholder.


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