Mayan Energy update – encouraging operational progress reaffirms our Buy stance

October 31, 2017 | Posted by


An operations update from Mayan Energy today brought good news from the mature oilfields of Texas and Louisiana where the new management team is seeking to grow oil production to 1,000 bopd in 2018.
This announcement brought investors up-to-date on Mayan’s activities as the team set about raising production as well as the all-important building and optimising of the producing assets in North America.

Today’s RNS illustrated clearly that Mayan now has the assets in place to deliver 300 – 500 net bopd. This level of oil production is expected to come from the Forest Hill, Stockdale and Zink Ranch fields and where there have been a number of really positive developments which gives confidence that this initial target can be satisfactorily achieved within the coming months.

A two-day well test at Forest Hill Field (70% working interest (WI) and 52.5% net revenue interest (NRI)) following the completion of the first well provided excellent results. The plan is now for production to begin within weeks (so roughly mid-November) which could reach 50 bopd gross, with stimulation once the well has stabilised. In addition, two new wells are expected to be added by the end of November.

Mayan has made no secret that it will be bringing in powerful technologies that it expects to generate increase flow rates. These new technologies are expected to be used to improve downhole information and recoveries and include the Roke Neutron Quad Tool (Roke) and the nanosurfactant ERA-3 which has improved recoveries as much as 5-fold.  Mayan’s strategic partner, Chief Technology Officer Advisor and substantial investor/shareholder Dr David Khan has developed this technology.

News is that these exciting technologies are getting an airing at the Stockdale Field (60% WI, 45% NRI) where a Roke tool has successfully identified additional pay-zones ready for Mayan to test and exploit. Initial test results were impressive with 74 barrels of oil produced over an 18-hour period over 3 days. All the signs are that the production rates are likely to be improved and maintained by these production enhancement tools, not least because, classically, there is decent reservoir pressure and the Morris well seems to be showing a high static fluid level.

The additional payzones uncovered by the Roke tool at the Stockdale Field are a potential oil zone in the Austin Chalk (Anacho) from 4,823 – 4,827ft, a gas zone from 4,358 – 4,366ft in the Taylor formation plus three thin possible oil zoned lying between 4,100 – 4,150ft. Mayan will kick off with perforating and testing the Anacho zone shortly.

It does seem that these new technologies could be well used at Zink Ranch (50% WI, 37.5% NRI) and where there is huge scope to improve production.  Zink Ranch currently produces 8 bopd gross, but the board believe this tally can be substantially increased by a workover programme alongside using enhancement technologies.

After years of lacklustre performance, it does look as though in the hands of successful US businessman Eddie Gonzalez, Mayan has finally adopted a sensible new strategy that is likely to prove transformative for this small cap oil stock. Our belief is that investors are just beginning to see the benefits of this corporate-turnaround as our in depth note outlines here.

Peer comparisons always make for good reading and in this vein it is worth looking at Pantheon Resources (PANR) which has working interests of between 50-58% in four prospects involved in several conventional projects in Tyler and Polk Counties in East Texas, and which also had an operational update out this morning. OK, Pantheon have some far bigger producing wells, but capitalised at £134 million it rather does, to our eyes, make Mayan (with a current market cap of just £2.4 million) look materially mispriced.

As detailed in our note of 6th September 2017, we applied a conservative discount rate of 12% in deriving an NPV(12) figure of US$35.75 million. Based on the current number of shares in issue (733,643,627) this equates to 3.68p per share at the current FX rate. The stock however continues to see prior placee selling and which remains an overhang on the stock price. We believe that such sellers provide opportunity to those investors willing to participate in the journey ahead over the next 12-18 months and so conclude that at the current price we remain highly positive and encouraged with the progress and reiterate our Buy stance on the stock with an initial price target of 1.6p as management moves towards the key 500 bopd level. This conviction being evidenced by the recent increasing of our stake in Mayan to over 3% (combined).


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