A strong operational update from Mayan Energy yesterday revealed an aggressive development drive in place and the prospect of rising oil production which all provides improved visibility of the immediate 300 – 500 bopd target and far higher levels of oil production going forward. There has been a period of very wet weather but now the company seems to be making rapid progress as was reflected in the highly encouraging news from both the Forest Hill and Stockdale fields.

Four wells (Gilbreath 15, 19, 48 and 49) have just been tied into the newly completed production facility at Forest Hill Field (Mayan 70% WI/52.5% NRI). This means that Mayan can produce from all of its wells simultaneously and in the first 24-hour period these four wells produced a combined total of 187 barrels of oil (98 net to Mayan). These production facilities consist of two newly installed heated oil storage tanks with a combined capacity of 510 barrels plus a water storage tank (300 barrels). In addition, the surface and pad site has been prepared to allow for the rapid expansion of the storage capacity as needed.

Forest Hill Field is well located close to crude oil purchases and the current production facility can accommodate up to four loads a day of up to 180 barrels of oil per load. That equates to 720 bopd (378 bopd net to Mayan). As new wells are brought on line, storage capacity is planned to be doubled. Reading between the lines, it does look as though Mayan is now really on the road to start generating some decent production numbers from the Forest Hill Field. All this storage capacity will ensure that the wells can continue producing oil even if the weather is bad and there are limited pick ups of oil by tankers.

In speaking with the company we are informed that the 187 barrels of oil production in the initial 24-hour period was better than had been expected and was achieved without any stimulation. Moving forward, the team are planning to stimulate these wells with a cocktail of chemicals which could further boost production from each well. Following the completion of various work and regulatory approvals, the team will be tying in four additional wells. Three of these four wells will be brought into production once the current work underway at the Stockdale Field has been completed. This eight well programme at Forest Hill Field is targeting around 35-50 bopd per well. But this is just Phase 1.

Looking slightly further ahead, for Phase 2 Mayan has its eyes firmly set on additional wells at Forest Hill. Obviously subject to doing a deal with the vendor, the company wants to initiate a larger scale workover program which is likely to involve identifying another suitable 20 – 30 wells and commencing the Phase 2 workover program over the next three months on 8 – 12 of these wells.

The work currently in progress at the Stockdale Field (Mayan 60% WI/45% NRI) involves a workover rig at the Morris #1 well. Just to recap, when we last heard about this well, it had been put on production at a rate of 24-26 bopd gross from the Upper Anacacho. That report six weeks ago was also able to highlight that the Morris #1 well had continued to consistently produce at this rate. However, the cost of trucking produced water has been prohibitive, so its good news that a workover rig is on site to complete a workover of the injection well (for the disposal of produced water) along with work on the Morris #1 well itself. Mayan is acidizing the Morris #1 well to wash out the bottom sand plug to allow the comingling of production from both the Upper and Lower Anacacho zones. Acidizing is used in the oil industry to dissolve sediments and mud solids that are inhibiting the permeability of the rock and thereby stimulation the flow of hydrocarbons.

The market can now see that there is significant and growing volume of daily production and revenue. What is fast becoming obvious is that the measured way in which oil production is now being brought on stream is being very well managed and that costs are being contained. Last night, we talked to Eddie Gonzalez, CEO and he was at pains to point out that “the company does not need a placing”.

Our medium target price currently stands at 2.1p, which is well underpinned by a conservative analysis of Mayan’s oil interests and the value of its stake in Deloro Energy (Asphalt Ridge). At the current price (0.67p), and where we believe the weakness has been driven by misplaced and ill informed speculation of an imminent placing, we remain highly positive and reiterate our Conviction Buy stance, indeed intending to follow the lead of CEO Mr Gonzalez in adding to our position in the days ahead given his purchase of stock only weeks ago at 0.88p.

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• Mayan Energy