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Event
Max Petroleum Plc published its annual accounts for the year ended 31 March 2010.
The Company posted revenue of US$43.3m, up 11% from US$39.2m in 2009 from
total sales volumes of 756,000 bbl of crude oil, up 6% from 710,000 bbl sold in 2009.
Average realised price was US$57.35 per bbl, up 4% from US$55.21 per bbl in 2009.
Net cash flow from operations amounted to US$10.1m, compared to US$14.1m in
2009. The Net attributable loss was US$253.4m, compared to a loss of US$12.3m in
2009. The current year loss includes US$116.2m of impairment charges related to
writing down the Astrakhanskiy Licence, and US$101.9m of non-cash charges arising
from the restructuring of the Group's mezzanine credit facility with Macquarie Bank
and the Group's outstanding convertible bonds. There is also a recognised liability
for tax claim in Republic of Kazakhstan of US$16.7m, which can be paid over nine
months beginning July 2010. In June 2010, the Company appealed the tax claim to
the Supreme Court of Kazakhstan, which has agreed to review the case. It is expected
to take up to six months to resolve from the date of initial appeal.
Max Petroleum Plc announced that the Ministry of Oil and Gas of the Republic of
Kazakhstan has advised the Company that they will extend the exploration period of
the Company's Blocks A&E Exploration and Production Licence for two years until
March 2013. The extension will become effective upon final agreement of an
addendum to the Licence specifying the mandatory work programme commitments
through the extended exploration period, which the Company expects to occur on or
before 31 December 2010.
Comment
The results are broadly in-line with expectations. Costs of sales increased as more of
the crude production was exported instead of being sold locally, with low impact on
actual netbacks. As specified in the report Macquarie has expressed the desire for
Max to bring additional capital in the group, either through an equity placement or
proceeds of a farmout. The process to farmout an interest in the pre-salt play has
been ongoing since late 2009 and has not been concluded yet. We see the slow
progress of the farmout as negative and believe that the equity market might soon
be the only option left to raise the capital needed for pre-salt exploration.
The two-year extension granted until 2013 enables the Company to complete the
exploration programme of the post- and pre-salt plays and removes the uncertainty
attached to the previous deadline.
The spudding of the KAW-1 exploration well on the Karsak West prospect in Block E,
the fifth of 13 post-salt exploration prospects scheduled to be drilled by the
Company on Blocks A&E, is seen as a test of the investment case on the post-salt
play. With only one discovery out of the first four wells drilled, the Company could do
with good news and a second discovery would bring confidence to the assigned
probability of success of 40% attached to the play, even tough a failure would not
rule against it. The total depth of the well will be approximately 1,870m, targeting
potential Jurassic and Triassic reservoirs at depths below 1,200m.
Recommendation
We remain buyers with an unchanged price target of 50p.
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