Max Petroleum upgraded in light of recent operational news

Merchant Securities has upgraded its target price for Max Petroleum to 35.2 pence per share in order to take account of recent positive operational news.

Merchant said that good operational news released by Max on its Zhana Makat project in Kazakhstan was consistent with the independent broker’s outlook for the project. “We now expect that Zhana Makat will produce 7.7 million barrels,” said Merchant, pointing out that this figure is “only moderately higher” than independent consultant Ryder Scott’s proven and probable reserve estimate of 6.2 million barrels for the field.

After Max announced that Ryder Scott had ascribed 0.9 million barrels of proven reserves to East Kyzylzhar I in mid-November, followed by news that the KZIE-1 discovery well produced light oil at 1,484 barrels per day, Merchant is positive about this development too. It said that it believes “our 2.7 million barrel target is more likely to be exceeded than not and that Ryder Scott’s estimates of proven and probable reserves already appear out of date”.

At Sagiz West, Ryder Scott has ascribed 4.8 million barrels of proven and probable reserves and 61.3 million barrels of contingent resources in place. “We had estimated that the field would produce 16.6 million barrels,” said Merchant. “Our estimate, combined with 61.3 million barrel estimate of contingent resources in place, would imply a recovery rate of 27 per cent, which is reasonable. We are not concerned that the Ryder Scott proven and probable reserve estimate is significantly below our 16.6 million barrel estimate because Ryder Scott has limited its reserve estimate to two well offsets from the discovery well.”

Elsewhere, Merchant said that Ryder Scott’s 0.5 million barrel proven and probable reserve estimate for Borkyldakty is close to its 0.7 million barrel estimate and that it saw no reason to adjust its estimates for the field, while at the Asanketken Jurassic field it has reduced its estimate of total production to 2.1 million barrels from 2.6 million barrels. Here, the ASK-2 well has confirmed the original reservoir discovered by ASK-1, but offered no further upside so far.

An imminent catalyst for Max’s share price, added Merchant, could be the ASK-2 well results. “Based on our pre-drill estimates a successful discovery in the Triassic target could add circa 10.7 pence to our valuation,” said the broker. “We believe that the success of the Jurassic discovery made by ASK-1 (and the presence of oil in this reservoir) de-risks the lower Triassic target, which is significantly greater in prospective scale.”