Santos/Total decision could double Melbana’s share price
Hartleys oil and gas analyst, Aiden Bradley ran the ruler across Melbana Energy Ltd (ASX:MAY) this week, making some interesting observations regarding various recent developments and flagging the upcoming decision by Santos and/or Total to drill an exploration well in the group’s Beehive prospect (WA-488-P), offshore Western Australia.
While acknowledging that the termination of Melbana’s farmout agreement for Block 9 in Cuba, along with the departure of the group’s chief executive officer had created negative investor sentiment, essentially placing downward pressure on the company’s share price, Bradley sees the potential for a substantial recovery.
In fact, Bradley’s price target of 2.2 cents implies 100% upside to yesterday’s closing price of 1.1 cents - however this is speculative.
Bradley sees the decision regarding Beehive as the main catalyst for a rerating.
Indeed, a decision by Santos and/or Total to drill an exploration well should increase the value attributed to Beehive.
Melbana free carried for US$50 million drilling program
In terms of the proposed farmout agreement, Melbana will have a fully carried interest in an exploration well estimated to cost approximately US$50 million, a coup for a company with a market capitalisation of $20 million.
Should a decision be taken to drill the well, Melbana will still have a 20% interest in an asset with a best case recoverable prospective resource of 388 million barrels of oil equivalent.
However, the 2 October deadline for the formalisation of the agreement looms large, and there is a real ‘will they, or won’t they’ question mark hanging over Melbana.
It could be argued though that an affirmative decision isn’t factored into the share price, and in terms of weighing up the pros and cons of a green light, Bradley is of the view that the case for drilling the well is ‘quite strong’, citing the size of the potential resource.
This underpins the broker’s speculative buy recommendation he has attributed to the stock.
Short-term positions in small, early stage ASX companies,
with high potential and near term price catalysts.
Focusing on resource exploration, early-stage tech, and biotech.
Exceptional opportunities across a broad range of
early-stage growth sectors with strong management.
Seeking 1,000% plus returns across medium to long-term holds.
Longer-term positions in a variety of sectors.
Seeking strong management where traction is established and have entered into a growth phase.
S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.
Conflict of Interest Notice
S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.
The information contained in this article is current at the finalised date. The information contained in this article is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.