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Edison says Mediterranean Oil & Gas 'materially undervalued', raises NAV to 150p

Edison Investment Research welcomed this week’s update from Mediterranean Oil & Gas (AIM: MOG), which said that the 2P (proven and probable) reserves in its Ombrina Mare field in Italy doubled to 40 mmboe (million barrels of oil equivalent), raising its core NAV (net asset value) from 84 pence to 150 pence with a RENAV (risk exploration net asset value) of 223 pence assuming a US$60/barrel long term oil price.

The research house called Ombrina Mare a potentially value-transforming asset and said that news on project financing or farming out would be a major catalyst for the stock, adding that shares were materially undervalued at around 42 pence and trading at an EV (enterprise value)/2P of £0.64.

The company has already received field development plan (NYSE:FDP) approval and expects environmental approval to be completed by Q3 2010 with final grant of the full production license by the end of the year.

Edison estimated the future investment at €150-180 million, which, given the company’s current cash balance of €9.6 million net debt and €7.6 million in cash, pointed to further funding needs, which could possibly be covered by a combination of debt and farm-out, adding that the current funds will be sufficient to finance day to day operations.

The company was recently awarded the production concession for the Guendalina gas field (operated by ENI), which is expected to come on-stream mid 2011 to further lift MOG’s production.

Shares in the company had rallied nearly 12% to 47 pence by early afternoon.

Disclosure: The author holds no positions in the company