Salmon Partners / Justin AndersonMart excerpt from The Energy Report:
"Since its inception in 2007, the Salman Partners' Top Pick Index has made a 251% return. The index is a huge pot for investors in the international oil and gas space to bet on, but it's not for the untutored. Salman Partners Analyst Justin Anderson walkedThe Energy Report through the risks and returns of the game. Find out how he plays his hand.
TER:Mart Resources Inc. (MMT:TSX.V) is another hold and also another African operator. What's the status of its Umugini pipeline?
"IfMart Resources Inc.'s.Umugini pipeline gets commissioned, production goes past 20,000 bbl/d and the losses are cut to under 5–10%, that would be a positive thing for the stock, there's no question. It's certainly a possible scenario."
JA: It's under construction. It's been unfortunately delayed by forces beyond the company's control. Estimates are that it should be completed midyear 2014.
TER: How will the pipeline's completion benefit Mart's stock price?
JA: I think people appreciate that the company needs the pipeline to make the operation more robust. That is probably reflected in the stock. I don't actually see a huge potential from the pipeline completion alone. I think the more important thing will be production. If everything goes perfectly, the pipeline gets commissioned, production goes past 20,000 barrels/day through the line and the losses are cut to under 10% or 5%, that would be a positive thing for the stock, there's no question. It's certainly a possible scenario. The greatest concern for me is how much capacity is behind the pipe. How much can Mart ramp up production once the pipeline is installed?
Talking to investors who hold the stock, I think there are a lot of high expectations for how much capacity is behind the pipe. If you compare that to the reserve numbers, I'm a little skeptical over how much it will be able to push through there. The other issue I have is regarding the Pioneer tax status that has come to an end for the company. It started this year. Once it chews through all the tax credits, that will start to affect the cash flows in a material way as well.
TER: How will Mart ensure the Umugini pipeline will be more secure than the one it's using now?
JA: It will have to do the same things it's doing now, trying to make agreements with the government about the losses. It is encouraging see recent news that it's talking to the government and establishing a committee to review the losses. Just having two export options will be a good thing for the company. That, more than specific details of what it's going to do to protect the pipeline, is important.