Canadian Madalena reaps rewards in the Vaca Muerta

Flags of Canada and Argentina
Source: DollarPhotoClub

Canadian small-cap explorer Madalena Energy forges ahead with a strong Q2 showing and plans underway for its first horizontal multi-stage frack in Argentina, where $77 oil prices make this the most attractive venue on Earth.

It’s not only high Argentine oil prices and an $11-million-plus incentivized oil program that has spurred Madalena’s growth this year. The company’s success is highlighted by an impressive balance sheet, a new three-well, back-to-back horizontal program, the upcoming launch of a new high-impact well to test two major resource plays and preparations for the first multi-stage horizontal frac well in the prized Vaca Muetra.

And the good news keeps flooding in, with supermajors ramping up activity right on Madalena’s border. Most recently, Shell signed up to drill and exploit for 35 years on two Vaca Muerta blocks offsetting Madalena’s assets. After meeting with significant success in its initial horizontal program on Madalena’s border, Shell is now moving to the next phase with a horizontal pad development and ambitious plant infrastructure.

This news alone increases Madalena’s value proposition exponentially as Shell’s massive drilling commitment here is on land directly adjacent to and surrounding Madalena’s core Coiron Amargo acreage in the Vaca Muerta.

Madalena is focused on drilling four strategic resource plays in 2015, and has been described as a ‘sleeper’ that awakened earlier this year with successful horizontal test results on the Loma Montosa oil resource play at Puesto Morales. The company is now gearing up to drill a big well on its Curamhuele block to evaluate two additional strategic plays in the Agrio Shale (oil) and Mulichinco (liquids-rich gas).

Madalena is also underway with a three-well back-to-back horizontal drilling program on its Coiron Amargo block, which is a prime Vaca Muerta shale play that also has attractive conventional development across multiple light oil pools.

Beyond this, we’re looking at the recent Q2-2015 financial and operational results, showing steady progression with a strategy balanced nicely between horizontal development drilling to enhance future cashflows and high-impact strategic drilling to unlock large, scaleable resources.

And from a financial flexibility perspective, here’s where the Argentina oil price story gets even more interesting: Madalena realized a Q2 2015 oil price here of CDN $96.33/bbl and $6.28/mcf for natural gas. The company has also increased its oil and gas production by 155% from 2014, to 3,996 boe/d. Topping things off, Madalena saw a 30% increase in revenues to $83.50/boe, up from $64.08/boe from the same time last year. All this while corporate operating netbacks were over $37/boe in Argentina, with funds flowing from operations an impressive ~$6.2 million (not including a one-time charge).

Up next is a high-impact Curamhuele well, which will be spudded in September to test two large unconventional oil resources in the Agrio Shale and the liquids-rich gas play in the Mulichinco. Both of these targeted zones have significant upside for the company.

And as Argentina’s oil prices are coming in at $75-$77 despite low global prices, the effect is reverberating widely, incentivizing oil companies to put more money into the country’s oil and gas sector. This is a great story against the backdrop of a country that is home to the second-largest reserves of shale gas and the fourth-largest reserves of shale oil in the world.

Not only is Argentina shaping up to be the next big-time shale venue, but Madalena’s acreage is right in the middle of massive unconventional exploration by major players, including ExxonMobil (NYSE: XOM), Royal Dutch Shell (NYSE: RDS.A), Total (NYSE: TOT), Petronas, and Chevron (NYSE: CVX). And Shell’s strategic move here confirms the savvy investor’s theory that not only is Argentina THE place to be right now, but this venue is about to get even bigger. Shell’s commitment will drive more shale development and production investment in the Neuquen Basin via joint ventures and buyouts of smaller players such as Madalena.

At this point, one of the only ways to gain quality exposure to Argentina’s unconventional shales is through the last-remaining small-cap company which has the staying power to unlock significant value for investors. This is shaping up to be Madalena, which controls a significant portion of Argentina’s recoverable shale resources and is potentially sitting on what could be three 3X than all of Texas’ reserves put together.

Meanwhile, the company announced yesterday that it has posted a new corporate presentation for investors and interested parties on its website. This new presentation provides an overview of Madalena’s Argentina assets including updates related to activities in the Vaca Muerta shale, Lower Agrio Shale, Loma Montosa and Mulichinco – the Company’s Four Unconventional Resources Plays.

For more information on the energy opportunities in Argentina please click here.

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