David Pescod's Late Edition We wouldn't say Union Securities oil and gas analystWarren Verbonac has been whining lately...but it’s somethingclose to that. With oil at $100 a barrel, he figures weshould be having a lot more fun in the markets and thatsome of his favorite stories should be more appreciated...i.e.: trading at higher valuations.You’ve heard of some of them like Ithaca Energy (if youcould buy only one...that’s the one!) Sterling Resources anda few others. One of those others though is Mart Resources, ajunior with more than a few shares outstanding, but withclimbing oil production and absolutely dirt-cheap by virtuallyall financial comparisons, is also on Verbonac’s list.Why so cheap? Well it’s assets are in Nigeria. We willrepeat that...that all their oil and gas production is in Nigeria.For those that like to search the world for opportunities,countries like Egypt, Tunisia, Argentina and the like, do offerpossibly better rewards although the trick is that there usuallyis a bit of higher risk involved as well than if you wereoperating in Alberta or North Dakota. But again, one is lookingfor those higher rewards.Yesterday on big volume Mart Resources got up to itspre-ugliness levels (it has had a two-for-one sale over thelast few months like so many other natural resource stocks)and much of the credit for yesterday’s move is being givento the 321 Energy website that carried an interview withstock picker Chen Lin entitled “Energy Stocks on Year-EndClearance Sale”.Why don’t we just repeat the meat of that interview:TER: In June you mentioned that your biggest holding, atthat point was Mart Resources Inc. (MMT:TSX.V). Is that stillthe case? What's been going on with the company sincethen?CL: That's still the case. I'm holding a lot of Mart Resources.During the summer when the market turned south, I was stillholding the stock because I really believe in this project. Iheard the company was making presentations at conferenceswhere it was talking about the potential for very largedividend payouts, starting next year. Right now it's tradingabout one times after-tax cash flow, according to the management.So, it can basically pay out any dividend it wants. It willprobably start low—maybe
.05 or
.10. A
.10 dividendis almost a 20% yield at the current share price.Then it will start going higher because it is going to accumulateso much cash from its oil drilling program. Everywell in this year's drilling program is a successful well—every well! I think two are around 10,000 bpd. One is6,000–7,000 bpd. In North America, if you have 600 or 700barrels, it's a very good well. These are much bigger. So,Mart is just waiting to reach a deal with the pipeline companyso it can start pumping more oil out. It's supposed tobe very soon. Once it reaches that stage, it will be cash flowingat one times market cap. That will be a huge catalyst.Plus, the dividend payout will be another big catalyst.I'm looking for a much higher stock price.TER: This is Umusadege Field in Nigeria you're talkingabout, is that right?CL: Right. Mart just found an amazing amount of oil. Itswell production in the past 2–2 ½ years has shown no decline.In North America, after a month or two it could dropin half, like in the Bakken. The steady production meansthe company is sitting on a much larger pool than peoplecan imagine. The next catalyst will be its reserve calculation.With all the production it's had and all the successfuldrilling, this year's reserve will be much higher than lastyear's. With last year's reserve, if I remember correctly,the 3P net asset value (NAV) of 2010 is way over $1.00 pershare. This year it could easily double that, maybe evenmore. Meanwhile the stock is still at
.64. That tells youhow much upside it has just from the NAV. Then you canlook at it from cash-flow side and the dividend side andyou can see that the stock is very, very undervalued.TER: So, what's the market cap for the company at thispoint?CL: I think it's about $200 million (M) and they will probablycash-flow more than $200M.TER: Boy, that is a real bargain, isn't it?CL: I've been holding this as my largest position because Ifeel so compelled. It's been undervalued for a long time.Partly it's because the market was very bad this year. Nobodyreally paid attention. In the meantime, the companyhas had one drilling success after another. Not just successfulbut very successful. The market has shown noresponse to that. But the company can immediately sellthe oil and get into cash-flow. So, if the market doesn'trespond now, it will respond later.Mart ResourcesPan Orient Energy