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Madalena Ventures Brings Argentina Shale Potential Forward With More Drilling Started

Jul. 30, 2013 3:22 PM ET
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Madalena Ventures (CVE:MVN) is moving forward with its plan to unlock unconventional oil and gas resources within the prolific Nequen basin in Argentina, saying it has started a multi-well drilling program at its Coiron Amargo block while it also continues to make progress at its other two blocks in the region, where recent changes have created a more investment-friendly climate.

The upstream oil and gas company, which also has existing production in Canada, holds three blocks in the Nequen basin in Argentina, focused on delineating resources in the Vaca Muerta and Lower Agrio shales, alongside tight sand plays and conventional zones of interest. Its properties span 135,000 net acres across the Coiron Amargo, Cortadera and Curamhuele blocks, the latter of which the company is looking to joint venture.

In an operations update Tuesday, the company said that in the southern portion of the Coiron Amargo block, in which it has a 35 per cent working interest, it has started the first well of a multi-well program, with the primary target being the Vaca Muerta shale. Drilling is expected to last up to four weeks, with completion operations to follow.

At Cortadera, where Madalena holds a 40 per cent working interest, the company has agreed with its partner Apache to progress the block and re-enter the deep test originally drilled as a Vaca Muerta shale gas discovery in early 2012, in the fourth quarter. The company said the CorS.X-1 location was cased to a depth of 4,500 metres, with four zones of interest identified through log interpretation and analysis.

Meanwhile, at Curamhuele, Madalena is moving forward with RBC Capital Markets as its financial advisor to help find a potential joint venture partner to develop the asset, in which it holds a 90 per cent working interest. Of note, Chevron, Total, Exxon and Apache hold blocks that are adjacent to the Curamhuele block.

Mackie Research analyst Bill Newman reiterated his buy rating and $2.05 price target on the company on the back of the update today, saying the Canadian junior continues to make progress on all three of its blocks located in Argentina.

"A high volume test from the CorS.X-1 well on the Cortadera block or securing a partner for the Curamhuele block should be a major catalyst for the stock," he said.

Indeed, the company has received much attention from the analyst recently, in light of recent developments in Argentina, including a decree earlier this month that provides for new incentives for large investments into the oil and gas sector, with companies that invest over US$1 billion over a five year period to be allowed to sell 20 per cent of their production at world prices, without paying export taxes. This was followed by Chevron and YPF completing a US$1.24 billion joint venture deal that should see 100 wells drilled over the next 18 months targeting the Vaca Muerta shale.

Earlier this week, Mackie's Newman wrote in a report that these events make emerging companies operating in the region with prime acreage positions in the shales, including Madalena and Americas Petrogas (CVE:BOE), well positioned to benefit "from the start of a more investment-friendly environment in Argentina".

According to a Ryder Scott resource assessment from earlier this year, there are a total of 2.86 billion barrels of oil equivalent of recoverable resources (net to Madalena) across its three blocks within the Neuquen basin, of which approximately 2.0 billion boe net hails from the Vaca Muerta shale alone. The estimate also showed there are 1.3 billion barrels of oil equivalent gross prospective resources of Vaca Muerta shale potential on Madalena's Curamhuele block.

With the strengthening commodity prices, and improving investment climate, Newman wrote in his report that he believes there is a higher probability that a farm-out deal will be completed in 2013.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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