By Dr Michael Green

The latest development update from Mayan Energy brought encouraging news from the Stockdale Field Discovery in Texas (60% working interest and 45% net revenue interest) concerning monetising the recent gas discovery at the Morris #1 well.

Just to recap, in late April 2018, investors learnt that Mayan had identified 20′ of net pay with approximately 10′ of oil/condensate below a 10′ gas cap at the Morris # 1 well.  This was located in an additional prospective zone called the Escondido Sand formation at a depth of 4,358 to 4,776 feet which the company had been evaluating using the proprietary Quad Neutron Roke tool. At the time, Mayan had estimated 3 billion cubic feet of natural gas recoverable at a rate of around 1.3 million cubic feet per day (mmcf/d) gas plus 10-11 barrels of condensate per day.

Since then, Mayan’s technical team, along with input with local vendors, has determined that on-site electricity generation based on such gas volumes from the Escondido Sand formation would be the most efficient and cost-effective solution to monetising this potential. Importantly, it apparently would only require minimal additional capital expenditure too. The production of gas from the Morris #1 well is not expected to require any meaningful additional operating cost and so the incremental new revenue stream will be seen to be highly economic to the company.

At the same time, Mayan is currently engaged in discussions with a number of municipal purchasers regarding a long-term contract which includes the additional gas to be unlocked at Stockdale on the back of the company’s development plans. In addition, this latest announcement pointed out that the board expects that the gas will attract a premium price as it is being used to generate electricity, compared to the normal practise of selling such production to a gas gathering/marketing company as is usual practise in the US.

The economics are highly compelling and, in conversation with management, we expect will help propel the company’s production beyond the top end of its 300 – 500 bopd target. Mayan is looking to lease the generation equipment to convert natural gas into electricity which is expected to be at a base cost of around US$14,000 per month. The required investment to implement this plan is approximately US$50,000 which includes: generating equipment; and the re-completion of the Morris #1 well in the Escondido Sand formation along with the co-mingling of production with the upper and lower Anacacho zones. As far as timing is concerned, the required preparatory work ahead of starting to generate electricity from the Stockdale gas discovery is planned to start soon with surface work beginning in June 2018.

We see this latest news from Eddie Gonzales as laying more groundwork to the creation of a highly profitable oil and gas production company. Indeed, there are another seven wells in Stockdale aside from the Morris #1 well, which are expected to be part of this gas play and could thus grow the resource further. These wells all have similar geology and are broadly expected to have the same attributes as the Morris #1 well. Management expects these to come on stream over the next couple of months. The key here is the infrastructure. Mayan has a trump card in its water disposal facility that has a capacity of 10,000 barrels of water a day, and which looks sufficient to handle up to 15 more wells like the Morris #1. In this area it is all about having the capacity to get rid of the water to produce oil at the higher rate.

In recent days, there was also update news from the Asphalt Ridge heavy oil sands project, where Mayan has an 17.3% interest in Deloro Energy that has invested in this project. At that time, shareholders learnt that Asphalt Ridge was proceeding well with the facility expected to be in full commissioning and start-up operations in the second and third week of June 2018.

There does seem to be so many positive developments going on at Mayan that continue to fail to be reflected in the share price. Investors really got their cards marked in mid-March 2018 when CEO Eddie Gonzalez purchased 2.2 million shares at 0.87p. With Cornhill having exercised their broker warrants and this overhang now having be sold in full, at some point the stock will have to reflect the on the ground operational progress. If it does not we would not be surprised to see a number of other companies run their slide rule over it as the economic uplift could be meaningful to many a player operating in South West of the US.

At the current price we remain highly positive and continue to reiterate our Conviction Buy stance with a medium-term target price of 2.1p.

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