This is more than twice MKE's current share price of A$0.12.
The following is an extract from the report.
MKE has announced a material farm-out with Canadian Pan Ocean which could fund a 15 well appraisal program over the next three years and removes a key headwind in our view.
We believe the farm-out is highly value accretive representing a see-through value of about $4,505 per acre, which is an 8.5x multiple to MKE's current EV/Acre value.
Furtheremore, we believe the farm-out provides a compelling endorsement to MKE's acreage and coming on the back of the recent blockbuster Encana farm-out to PetroChina highlights the growing industry confidence in the Duvernay.
The farm out has secured funding for a potential 15 well program with four wells (2 verticals and 2 horizontals) expected to be drilled/spudded by end 2013.
The total funding for the work program over three phases could total $220m (MKE potentially carried for ~$150m).
We believe the deal is highly value accretive and represents a step-change for MKE providing the company with material funding to appraise its significant Duvernay shale acreage while also providing a compelling endorsement of its assets.
The deal provides a see-through value of about $4,505/acre, representing an 8.5x multiple to MKE's current EV/acre value of about $530.
This also represents a substantial return on MKE s original investment in the play of ~$40/acre. The aim of the substantial multi-well program is to appraise and develop the JV s Duvernay shale acreage.
New Joint Venture Partner
CPO is a new Canadian unlisted company which has been formed as an acquisition and operational platform targeting oil and gas opportunities in Western Canada and is backed by a consortium of Asian based investors.
Key headwinds removed
The farm-out removes a key headwind for MKE by providing material funding to appraise its material Duvernay acreage.
We believe material cost efficiencies will be realised by MKE by moving to a non-operating business model with CPO becoming operator of the AJV.
Key near term catalysts
1) Drilling of AJV vertical wells (3Q CY 2013), 2) Spud of AJV horizontal wells (4Q CY2013) and 3) Drilling of Black Swan Energy JV horizontal well (4Q CY 2013).
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