LONDON, February 4, 2016 /PRNewswire/ --
As Argentina's prized Vaca Muerta shale play promises to match North American production levels - but at regulated $68 prices - and supermajors line up for billion-dollar deals, the only junior with a strategic position on this scene has become the main attraction.
Madalena Energy (CVE: MVN; OTCQX: MDLNF) has been oversold in the downturn, presenting an opportunity for big returns as some analysts reiterate a C$0.75 share price target--a tripling of today's price from the current C$0.25 level.
Supermajors are upping the ante in Argentina's Vaca Muerta shale with new investment deals ranging from US$500 million to over $3 billion per block, right in the backyard of Madalena, which is well positioned here with over 950,000 acres covering 12 blocks in the country-three of them strategically positioned in the Vaca Muerta and Lower Agrio shales.
With great horizontal drilling results by Shell, Chevron and YPF offsetting Madalena's acreage per acre land valuations in the Vaca Muerta are set to hold strong. Implied per acre valuations in the oil window have ranged from $5,000 to $17,000, and up to $5,000 per acre in the liquids-rich gas window. And Madalena's prime land value alone looks great against a current market cap of just over $100 million.
Shale gas assets are also starting to attract attention, as seen by the latest American Energy Partners (AEP) deal right next to Madalena's Cortadera block.
Last week, Argentina's state-run YPF announced a new joint venture deal for $500 million in investment in Madalena's backyard in the Neuquen basin. The deal is between YPF and AEP, which is the brainchild of the founder and former CEO of U.S. giant Chesapeake Energy--a pioneer of the U.S. shale boom.
AEP's bet on Argentina's shale at a time of tanking oil prices gives further credence to the theory that Argentina-home to the second-largest reserves of shale gas and the fourth-largest reserves of shale oil in the world--is ground zero for the next shale revolution. It's the first major Vaca Muerta shale deal since the inauguration of Argentina's new pro-industry government led by Mauricio Macri.
Pretty much everyone agrees now that Argentina is the place to be. Home to 27 billion barrels of recoverable oil and 802 trillion cubic feet of natural gas, its two shale basins could end up being bigger than the Eagle Ford and Bakken.
Chevron, Shell and ExxonMobil all see Argentina's Vaca Muerta shale as one of the world's top-tier unconventional plays.
Incentive is around every corner. Not only are Argentina's regulated oil prices set at a premium to Brent, at US$67.50/bbl of oil, but gas prices are two to three times those of North America. It's a trend that is set to continue with a new, pro-oil president at the helm as of November run-off elections.
Against this backdrop, Madalena's Best Estimate Contingent Resources attributed to the Vaca Muerta Shale at Coiron Amargo (a prime oil block in the sweet spot of the shale fairway) are 152 Million barrels of oil equivalent, and the block has over 500 horizontal multi-frac Vaca Muerta shale locations in inventory.
On the Curamhuele block, which is a strategic land block for the Lower Agrio Shale and the Vaca Muerta shale (gas and oil), Madalena's Lower Agrio Shale Best Estimate Prospective Resources are 365 Million barrels of oil equivalents, with over 570 horizontal multi-frac locations in the Lower Agrio Shale alone. In addition, the Vaca Muerta Shale at Curamhuele bodes over 1.1 Billion boe of potential recoverable resources and a massive inventory of horizontal locations.
Add in Madalena's gas block in the Vaca Muerta at Cortadera--where the company has exposure to highly over-pressured gas in the Vaca--and likely over 500 million boe of prospective resources, and an even more interesting picture emerges.
Simply put, the opportunity on these strategic acreage positions and Madalena's remaining 9 additional blocks in Argentina is significant for a supermajor like Exxon or Shell, not to mention a junior like Madalena. And it far exceeds the company's current market cap of just over $100 million.
The ducks are all lining up in a frenzy of activity-from the recent discovery by YPF and Chevron of a super well with impressive initial production, to great results from nearby horizontal drilling by Shell and hundreds of millions in new deals that mean the drilling frenzy will continue.
All of this, plus solid financials and land holdings worth way more than its enterprise value, makes Madalena the most attractive backyard in Argentina-and Argentina the most attractive venue on the planet.
By. James Burgess of Oilprice.com