Mart Resources Stock Analysis
Mart Resources – TSX (CVE:MMT)
Mart Resources Stock Analysis
One of my favourite feel good stories is Mart Resources (CVE:MMT). On the brink of bankruptcy and/or being acquired just 5 short years ago, the company struck oil in a big way, turned the ship around and has been reaping the benefits ever since. The Umusadege oil field is part of OML56 block in Nigeria. For the most part, and especially since the ceasefire, the area has been stable and relatively quiet compared to the northern part of the country. Of course, there are always bumps along the road and that’s where Mart find themselves today. There are plenty of catalysts for the remainder of 2013 and I will elaborate on them, as well as some of the pitfalls.
First a little background:
Mart Resources (CVE:MMT), Midwestern Oil and Gas and Suntrust Ltd., entered into an agreement back in 2006 whereby Mart would provide technical and financial services for this joint venture. Mart does not hold any rights to the Umusadege field (~3700 acres) per se, but enjoys 50-82% of the oil produced there depending on cost recovery of their capital program. Considering the Umusadege field estimates could top 100mmbl, would mean about 50mmbl net to Mart.
Current conditions affecting Mart Resources
Currently only the 48km AGIP pipeline is servicing the field (~13k boed allocated to Umusadege)
The AGIP pipeline has been experiencing ongoing pipeline losses of between 10-17%. Theft? Sabotage? Natural Causes? All of the above.
Pipeline downtime in the last two quarters has topped 11 weeks, in my estimate
The stock price is down about 40% since establishing a new high in February
Only one drilling rig available
Hmm, after looking at that list I don’t blame you if you stop reading the rest of this report, but I urge you to bear with me a little longer.
Positive’s for Mart Resources for the remainder of 2013
Construction has begun on a new 12inch 50km pipeline (Umugini) to the Shell Eriemu Manifold
Pipeline will be buried and encased in concrete
Mart will be a 15% owner in this new pipe
Capacity should be in the 35-45k boed range, possibly doubling Mart’s output by yearend on this new pipe alone
Current obligations require
Construction is estimated to take 90 days (Nigerian time), but my estimate would be Q4, possibly up and running in October
Mart recently announced an arrangement of US $100 Million Secured Term Loan Facility which will be used to purchase another drilling rig as well as their share of funds for the completion of the Umugini pipeline
A crude handling agreement with Shell is overdue, but forthcoming
Mart continues to pay a .05 quarterly dividend (~12% yield) and by all indications, most of that money is being reinvested in the company. With a cost of ~17 million per quarter, the dividend is sustainable
Updated reserve report should be released first week of May
Planned drilling of two horizontal wells should double reserves
Umusadege is the largest marginal field producer in Nigeria
Government is dragging their heels but another round of marginal field bidding could happen this year
Mart has the cash, knowledge and experience to partner up and win multiple fields
With 2/3 of Nigeria’s revenue attributed to the oil industry, the Gov’t has to act in order to increase output
The Umusadege field has produced over 5 mmboe in the last 5 years with high output wells and low decline rates. Mart also enjoys a premium to Brent pricing.
Yes, there are issues arising like the 3 dozen communities along the 50km new pipeline route demanding settlement and their fair share. In the end the anticipated 36mm cost of the new pipeline will at minimum double, but in the grand scheme of things that money will be recouped quickly. Also, Because AGIP had to declare “Force Majeure” – a legal step that protects a company from liability when it cannot fulfill a contract for reasons beyond its control, Mart still got paid for what they would have produced, and in fact “owe” the deliveries at a future date.
As you can see, there are plenty of catalysts going forward and I fully expect another bump in the road when year-end and Q1 results are announced. A lot of that negative news is already built into the share price but I will be adding to my holdings when it happens. I am long on MMT and fully expect the SP to hit $3 by yearend. I am a shareholder and have been since the lean years, and have been accumulating and enjoying the ride. It took Mart longer than I expected to get to this stage but that’s the cost of doing business in that part of the world. This is your typical high-risk, high-reward play.
Price Target – $3
Rating – Strong Buy
Stars – 9.5/10
Disclaimer