What does the Kinsau-1A permit mean for MCF Energy?

Lots. Potential free cash flow positive by year end 2024

Tiny MCF Energy (MCF.V) was halted for trading most of yesterday to allow dissemination of the news that it had received the necessary permit to drill the Kinsau-1A well and the drilling will proceed in September. MCF is carried by its partner Genexco Gas GMBH for the costs of this exploration up to 5 million Euros and MCF (through a subsidiary) has a 20% interest in the prospective well and a 100% interest in adjacent lands.

Originally drilled by Mobil in 1983 and this effort is a “re-entry” well into known hydrocarbons. The 1983 drilling showed both gas at 24 mmcf/day and about 1,500 boe/day of condensates, although these metric do not guarantee production at those rates, but merely indicate significant potential.

It is always dangerous to speculate on the output of an exploration well, even when there has been a previous hydrocarbon finding, but for MCF this is a zero cost advance which seems more likely than not to result in output.

Despite the fraily of the data, it is useful to estimate how beneficial the well might be for MCF. Assume it is capable of producing somewhere around 24 million cubic feet a day of gas and 1,500 boe/day of condensate and you get a well generating annual revenue the range of US$60 million and (based on typical operating costs for European oil & gas wells) about US$40 million per year of operating cash flow, 20% of which is to MCF’s account.

The foregoing is a wild ass guess and points to MCF obtaining a source of cash flow with order of magnitude benefit to MCF of US$8 million a year. Those funds, if available, would permit MCF to fund further drilling in its adjacent 100% owned Lech acreage.

I know I am heaping guesses on top of speculation and the validity of the whole mess is pretty questionable. Nonetheless, in the case of MCF I am a rank speculator and admit my 300,000 shares are as likely to end up worthless as profitable. But the news is good news, the stock was up over 20% yesterday after the halt was lifted, and I would not be surprised to see it rise in trading value further today.

Penny stocks (home of pump and dump) artists are notoriously volatile and react (and over react) to news headlines of questionable merit. MCF is not immune to speculative excess.

But I like the risk-reward profile and while I typically only invest in companies I see as deeply undervalued by financial analysis, in this case I am taking a trip to the Casino which might see me drop my $50,000 investment down a deep hole and never hear it hit bottom, but I might wake up and find it has made me a few hundred thousand dollars.

I am an unapologetic speculator on this one.