MPO - Molopo Gas

[financial chat]

The Managing Director Stephen Mitchell has transferred some shares to his super fund. He has also exercised 250k options.

However what is very interesting about these transactions, and something that we can speculate about is this:

Why were the options exercised now given that they did not expire until August? Are they trying to get their hands on as many shares as possible, as soon as possible

Why transfer some of those shares to his super fund now? Is he expecting the share price to dramatically rise between now and August, and wanted to get them into his super fund as soon as possible, so as to minimize the capital gains tax impost on the gains.

All very positive activity as far as I am concerned.

[pointr]

Hope you're right Financial Chat. The fact MPO has some of its biggest projects in low tax Canada instead of Comrade Rudd's super profit tax environment is perhaps also a good thing.

[financial chat]

Following Shell's most recent acquisition, Ivor Ries has commented as follows:

The flurry of US shale gas transactions is relevant to Molopo as the company owns 2.2 million acres of shale gas lease covering most of the Utica and Lorraine shale formations in Quebec. While at an earlier stage of development, many petroleum geologists consider the economics of the Utica and Lorraine shales to be as good as if not better than the Marcellus.

Molopos high grade thermogenic Quebec acreage totals 375,000 acres and is estimated to contain up to 6Tcf of recoverable gas. Based on the Shell-East Resources deal valuation, MPOs Quebec project should have a market value of approximately US$800 million once the company has proven the production characteristics of its lease holdings. Molopos first exploration wells in Quebec are expected to spud in the next few months.

Shale gas land grab heating up. Over the past six months the US oil and gas industry has been in the throes of a shale gas land grab of unprecedented proportions. The race to acquire unexploited shale gas stems from the widely held view that the current over-supply of natural gas in the North America is a product of the explosion of unconventional gas drilling that occurring prior to the Global Financial Crisis.

While Molopo seems determined to push ahead with sole risk exploration wells in the Utica Basin, the farm-out of some or all of the companys shale gas acreage cannot be ruled out. In our view any firming of the North American gas price over the next 12 to 18 months would see MPO besieged by larger players seeking access to its extensive acreage.

[financial chat]

looking more bullish

http://www.buysellsignals.com/BuySel...a_pdf_1432.pdf

[financial chat]

The following (minus any tables) is the latest from Credit Suisse:

Molopo Australia
INCREASE TARGET PRICE - upgraded our target price to $1.70/share

FY results

MPO announced on 27 August its FY10 results with a headline NPAT of $2.6mn coming in slightly ahead of Credit Suisse forecast ($1.8mn). We have increased our target price to $1.70/share.

While the result was reasonably positive at the bottom line, it was buoyed by oneoff items, namely proceeds from asset sales amounting to $14mn in the year.

Catalysts for the stock moving forward will continue to be drilling activity, particularly on Canadian oil, with the resultant increases in production rates towards target volumes. In the longer term, drilling activities should lead to increased reserves and commercial definition in a number of its assets.

We have had made minor adjustments to our production and costing assumptions, which along with rolling forward our valuation, has slightly changed our earnings estimates over the forecast period.

As a result of our changes to our forecast earnings, we have slightly upgraded our target price to $1.70/share (from $1.65/share), which is underpinned by our 1.69/share valuation.

Our rating remains OUTPERFORM.

FY10 results

MPO announced its FY10 results with a headline NPAT of $2.6mn coming in slightly ahead of Credit Suisse forecast ($1.8mn).

Details
Headline NPAT of $2.6mn;
Revenue from oil and gas sales of $6.1mn;
Net cash balance of $65.7mn (including a $15mn term deposit);
EPS of $0.01/share; and
No dividend declared.

While the result was reasonably positive at the bottom line, it was buoyed by one-off items, namely proceeds from asset sales amounting to $14mn in the year.

Although MPO still has a thematic as a long-term gas story, the short- to medium-term interest is its Canadian oil play, which continues to build.

Catalysts for the stock moving forward will continue to be drilling activity, particularly on Canadian oil, with the resultant increases in production rates towards target volumes. In the longer term, drilling activities should lead to increased reserves and commercial definition
in a number of its assets.

Reserves

We have written previously that Molopo.s growth is becoming increasingly linked to its Canadian portfolio, particularly the acceleration of the work programme on the Bakken/Spearfish oil plays. On 10 August, Molopo announced a significant reserves upgrade on its Canadian oil plays.

Operations

Canada

Spearfish
MPO is looking to spend 2011 drilling extensively in the Spearfish project with the back-end of the 2011 programme to be determined once results from its initial 25 well portfolio are reviewed (expected in October). The company noted that it expects costs to decrease from >$20/b to c.$10/b over the next several years noting that the economics of the project are looking robust at or around current oil price levels.
We have slightly adjusted our modelled assumptions to reflect these comments.

Bakken
Results remain encouraging (oil found in five of six wells drilled thus far) and 2011 will see MPO continuing to assess results over what is a very large acreage (42,420 acres).

New South Wales and China
Concluded sales of assets during the period.

Queensland CSG
Although the main focus for the company has been pursuing its high-margin oil play, we note there has been significant movement on other parts of the portfolio.
The company has executed a purchase in relation to the ATP564P and 602P JV securing an additional equity stake and operatorship. As a result, MPO has increased its equity
positions in these permits to 67.12% (ATP564P) and 62.88% (ATP602P), respectively, from 50% for a total cost of A$7mn.

Indicatively, this gives the company additional leverage and control of work programmes.

Although the company maintains an .asset development. attitude to its Queensland CSG holdings we see their relevance as becoming less important, initially from the ramp-up of Canadian oil and later from the development of the company.s shale gas plays.

South African gas
Molopo (through its subsidiary company) has signed a GSA with Novo Energy (Pty) for the supply of gas on an .as available. basis for approximately 0.6mmcfd from the Virginia gas field. The contract term is for ten years. First gas is expected in March 2011. Ultimately,
Novo has the right to purchase additional gas up to 8.2TJpd.

A small but perhaps significant first step in the establishment of a South African business, although we see it at this time in the same context as Queensland CSG . small and likely to remain small when weighed against the upside opportunities potentially to emerge from the Canadian assets.

Earnings changes
We have had made minor adjustments to our production and costing assumptions, which along with rolling forward our valuation, have slightly changed our earnings estimates over the forecast period. We note that while the numbers are significant in percentage terms, they are not significant changes in real dollar terms.

We have increased our expected NPAT for FY11F by 18% from $14.5mn to $17mn. There is a flow-on effect to FY12F earnings of 4%.

Valuation and target price
As a result of our changes to our forecast earnings, we have slightly upgraded our target price to $1.70/share (from $1.65/share) which is underpinned by our $1.69/share valuation.
Our rating remains OUTPERFORM.