Thursday 14 February 2013

Mediterranean Oil & Gas (MOG) ... optionality

I've bought some Mediterranean Oil and Gas (MOG LN, mkt cap £42m) on the basis that the upside here could be rather high. Further, I reckon any potential downside to be limited due to strong support from cash and producing assets. I like that combination.
The group already has:
  • A solid producing asset (Guendalina) chucking off €9m or so in operating cash pa, to which I place a value of 5p/shr;
  • Other smaller producing concessions, I reckon to be worth 1p/shr;
  • Retains c. £6m of cash on its balance sheet, worth 1.4p/shr;
  • Is scheduled to receive $10m in cash from Genel (GENL LN, mkt cap £2.2bn) upon contract completion, equating to 1.5p/shr.
All this tallies to 8.9p/shr as compared to its current share price of 9.5p/shr.
And another thing. Under the terms of the agreement for MOG's Maltese asset with Genel, MOG is also in for free on 100% carry on an initial exploration well and 100% carry on the cost of a secondary exploration well up to a cost of $30m. I.e. it is exempt from capital expenditure of what is likely to be up to $75m for the development of its Maltese asset.
Ombrina Mare
MOG has a 100% interest in its Ombrina Mare development on the east coast of Italy, which is estimated to contain 40mmb 2P oil reserves. Were it to be developed today, then it is widely estimated to be worth US$400m or 60p/shr. This is derived by assuming an unrisked 2P reserve multiple at US$10/bbl.
What is holding up development is the Italian authorities, which are awaiting the result of the general election on 24-25 February 2013. There is some concern that Silvio Berlusconi will win and that he and his apparatchiks will block any development of Ombrina Mare and other prospects on the coast. Given that the development will bring with it tens of billions of euros worth of investment, thousands of jobs and greater energy security, I reckon whichever party claims power will rubber stamp approval for development quicker than expected.
I hope for EIA approval shortly after the elections, followed by the award of production concession and a pilot well drilled later this year.
MOG's other key asset is its 25% interest in Area 4 offshore of Malta. As highlighted above, the group has signed a deal, due to complete soon, whereby it receives US$10m in cash and has the first exploration well paid for and up to $30m of a secondary well also covered.
The unrisked prospects of offshore Malta are estimated to be in the region of 1,500 mmb oil. Any success there and the result could be multiples of the current share price.
In summary
I like MOG because:
  • It has no debt and its current share price is supported by cash and cash producing assets;
  • It has a strong management team;
  • It has two prospects, potentially worth many multiples of the current share price and are seemingly priced in at somewhere between 0-1p/shr. It appears cheap.
Mediterranean Oil and Gas - share price
Source: Bloomberg
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1 comment:

  1. Thanks for shearing information about Oil and Gas Malta. It is very helpful for everyone.