PetroMatad cheap as chips

With royal wedding fever alive and kicking I thought it might be worth revisiting Kate & William’s more formal day. It was roughly 7 years ago (time flies doesn’t it?), in April 2011, when couple tied the knot. Around the same time, Chariot Oil & Gas raised a further £100m in cash from investors to fund an exploration drill in Namibia. Small change at the time? UBS thought so.

From 2009 through to 2011 (approx) Chariot Oil & Gas jumped from 16p to test 300p+. UBS at the time (2011) were giving out targets of 450p a share or roughly £800m market cap ahead of drilling.

Times have changed since then… or have they? Back in 2011 Brent averaged around $110 for the year. However, OPEX was nearer $75pb in those days giving $35pb or so towards profits. Today, Brent is shy of $80pb but OPEX on most producers is just below $40pb. Some have lower OPEX’s near $30pb. The profitable upside is actually higher now than it was in 2011.

So why is PetroMatad priced at £60m market cap when CHAR back in 2011 was priced at £400m?

A lot has to do with ‘market conditioning’ and ‘sentiment’. It’s been a while since we’ve had a mega discovery. Billion barrel discoveries are rare. The chances of success are low. So how does this compare to Premier Oil’s Mexico discovery? Or Hurricane Energy’s North Sea discoveries? Both are in the billions. Both have delivered the largest discoveries in the last decade yet the today’s market treats them like minnows. And as for ‘sentiment’. Well after a few dark years post OPEC’s Dec 2014 decision to flood the market, things are looking better again. Sentiment has improved although you wouldn’t know it looking at some minnows targeting big exploration.

Whilst I think many would agree that in the days of 2009 through to 2011 CHAR’s move from 16p to test 300p+ was a little premature, the point here is that UBS and other analysts at the time were comfortable with banging out broker notes with even higher targets.

Today, At 12p a share, PetroMatad is priced at just £61m. If it were to rise to the lofty heights of 50p a share, it would still be priced at half of what CHAR achieved 7 years ago when profit margins on oil production was indeed lower than they are today. As per usual, the market spins its own web of uncertainty but the truth is… billion dollar discoveries actually are possible as proven recently by PMO and HUR.

PetroMatad (MATD) are due to kick off a 4 x well exploration plan in the next 6 to 8 weeks. It is likely to be back to back drilling and assuming the summer fever is upon us, the usual non-stop AIM style excitement should run all the way through to October. It could be exhausting but with 4 x high impact drills lined up (100% owned), I reckon they stand a better chance of hitting the black stuff than CHAR ever did. If sentiment continues to improve, it might not be too long before PetroMatad’s share price improves too.

PetroMatad (MATD) is part of the ShareHub ‘heads up’ stocks for 2018. Usual risks apply. Please read the risk warnings in the sidebar.

2 thoughts on “PetroMatad cheap as chips”

  1. Does the Share Hub not find it strange that PetroMatad say they are having issues with working visas that are likely to put them back a month. Would they not have checked all that out at the very start. They must have had people in and out of Mongolia for some time. They must know the procedures. It sounds like a lame excuse and that creates uncertainty.

    1. There’s a great deal involved when getting a licence area ready for Exploration. From staff to preparing the drill pad. PetroMatad have always said that they planned to drill the first well in June/July and they are very much on track to achieve this. Earlier in the year, PetroMatad flipped around the drilling order of wells and this likely brought with it knock on effects. The ShareHub doesn’t see anything ‘strange’ in this and it’s par for the course with early exploration especially in outer Mongolia. The share price at 12p perhaps reflects some investor unknowns so one would presume that once PetroMatad confirm a firm spud date (and I believe they will soon) that should ignite the stock and remove some of the discount currently in place. No guarantees of course, but with 4 x wells lined up in 2018, PetroMatad should certainly be hot stuff for AIM penny share followers.

Comments are closed.