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MX Oil - Initiation of Coverage

World class Nigerian offshore oil & gas project looks set to benefit significantly from rising oil prices and rapidly falling lifting costs

MX Oil has evolved during the last couple of years to become actively involved in the “hot” Nigerian E&P space through the acquisition of a stake in the highly prized Aje field. Prospects in the West African Transform Margin look compelling moving forward and the company is now on the cusp of seeing a material return on its investment in OML 113.

• Good quality reservoir with high grade oil sold at a premium to Brent

  The Aje project in OML 113 lies within the relatively shallow waters off Nigeria, with oil being sold internationally at a premium to Brent Crude. The recent CPR has highlighted the level of reserves and resources at Aje, demonstrating the value that is being created, along with future opportunities.

• Rapidly rising oil production will allow lifting cost to fall

  The Aje field produces 3,300 bopd from two wells (165 bopd net to MXO). Drilling of new wells is likely to see a step change & importantly allow lifting costs to fall from the current $40/bbl.

• Dilution expected to be controlled by project financing the big oil & gas expansion

  As benefits a world class project, additional capex will be required, however, the increase in reserves that was demonstrated in the recent CPR should pave the way for MXO to fund its share through project financing with an offtake agreement.

• Risked NPV suggests share price upside of 641%

  Our conservative valuation illustrates the material potential upside in the stock at the current lowly valuation. We initiate coverage of MX Oil with a target price of 3.15p and Conviction Buy stance.