Why Maverick Drilling and Exploration Ltd's shares are sinking

Has the oil and gas producer hit rock bottom yet?

Mike King

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Published July 8, 2014 11:29 am AEST

Oil producer Maverick Drilling and Exploration Ltd (ASX: MAD) has seen its shares fall more than 20% today to as low as 16 cents, after the company announced some major changes including how it reports oil reserves.

Oil reserves slashed

In the past, Maverick had touted that it had more than 100 million barrels of oil in reserves – worth more than US$1 billion at current oil prices – but new CEO Mike Yeager has dramatically slashed that to 27.1 million barrels from its Blue Ridge field, and a further update could see reserves cut even lower. Mr Yeager was previously BHP Billiton Limited's (ASX: BHP) petroleum boss, so has plenty of experience behind him.

Going forward, the company will exclude any proved reserves at its Boling and Nash fields, which last reported 75.2 million barrels in reserves in 2012. That will surely cast doubt over the validity of the company's oil reserves at all three of its fields.

It was one of the major concerns we had with the company – whether the reserves were credible – and it's one reason why we advised Motley Fool Share Advisor members to sell Maverick in May 2013, when the price was around 60 cents.

Asset sales coming?

Mr Yaeger has also announced a new focus for the company, and acreage that would not be drilled for many years will be released as the lease terms expire. Reviews of the Boling field suggest the company could better spend its money elsewhere, and it could be offloaded in the near future. A similar analysis is taking place at the Nash field over the next six months.

Given recent asset sales in some of the US shale regions, Maverick could realise significant value from the sale of its assets. Companies like Sundance Energy Limited (ASX: SEA), AWE Limited (ASX: AWE) and Red Fork Energy Limited (ASX: RFE), could also be sitting on valuable assets, with substantial acreages in US shales.

The New Maverick

Most of the old senior management have left, including joint CEOs Don Henrich and Brad Simmons, and Yaeger has installed virtually a whole new management team at the top. The 'new' Maverick is already looking like a completely different company, but it will likely take some time to turn around its financial performance.

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