Mako Hydrocarbons (ASX: MKE) has received a speculative buy recommendation along with a 12 month price target of A$0.32 from broker DJ Carmichael following its farm out deal with Canadian Pan Ocean.

This is more than twice MKE's current share price of A$0.12.

The following is an extract from the report.

MKE has announced a material farm-out with Canadian Pan Ocean which could fund a 15 well appraisal program over the next three years and removes a key headwind in our view.

We believe the farm-out is highly value accretive representing a see-through value of about $4,505 per acre, which is an 8.5x multiple to MKE’s current EV/Acre value.

Furtheremore, we believe the farm-out provides a compelling endorsement to MKE’s acreage and coming on the back of the recent blockbuster Encana farm-out to PetroChina highlights the growing industry confidence in the Duvernay.

Material farm-out

The farm out has secured funding for a potential 15 well program with four wells (2 verticals and 2 horizontals) expected to be drilled/spudded by end 2013.

The total funding for the work program over three phases could total $220m (MKE potentially carried for ~$150m).

We believe the deal is highly value accretive and represents a step-change for MKE providing the company with material funding to appraise its significant Duvernay shale acreage while also providing a compelling endorsement of its assets.

See-through value

The deal provides a see-through value of about $4,505/acre, representing an 8.5x multiple to MKE’s current EV/acre value of about $530.

This also represents a substantial return on MKE s original investment in the play of ~$40/acre. The aim of the substantial multi-well program is to appraise and develop the JV s Duvernay shale acreage.

New Joint Venture Partner 

CPO is a new Canadian unlisted company which has been formed as an acquisition and operational platform targeting oil and gas opportunities in Western Canada and is backed by a consortium of Asian based investors.

Key headwinds removed

The farm-out removes a key headwind for MKE by providing material funding to appraise its material Duvernay acreage. 

Furthermore, the Alberta Joint Venture is simplified with CPO entering into agreements to acquire AJV partnersTranserv Energy Ltd (TSV) and Tamaska Oil and Gas Ltd (TMK) Duvernay interests. 

We believe material cost efficiencies will be realised by MKE by moving to a non-operating business model with CPO becoming operator of the AJV.

Key near term catalysts

1) Drilling of AJV vertical wells (3Q CY 2013), 2) Spud of AJV horizontal wells (4Q CY2013) and 3) Drilling of Black Swan Energy JV horizontal well (4Q CY 2013).

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX “Small and Mid-cap” stocks with distribution in Australia, UK, North America and Hong Kong / China.

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX “Small and Mid-cap” stocks with distribution in Australia, UK, North America and Hong Kong / China.

Mako Hydrocarbon (ASX: MKE) has released an independent reserves estimate for its Dina heavy oil project in the Provost area, Alberta.

Independent experts Sproule Associates has estimated the field still holds gross Proved Reserves of 293,700 barrels of heavy oil as of 30 September 2012.

Proved and Probable Reserves have been estimated at 375,300 barrels of heavy oil.
    
These reserves have an NPV with a 10% discount of C$5.2 million (A$5.03 million).

Mako is in the process of selling the non-core project to focus its capital expenditure on the Duvernay and Rock Creek plays.

While the Dina/Provost project remains commercial, providing C$ 200,000 of net revenue per month with further development potential, it is not considered a fit with the company’s focus on liquids rich resource developments.

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX “Small and Mid-cap” stocks with distribution in Australia, UK, North America and Hong Kong / China.

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX “Small and Mid-cap” stocks with distribution in Australia, UK, North America and Hong Kong / China.

Mako Hydrocarbons (ASX: MKE) has received a buy recommendation and a 12 month price target of $0.39 from DJ Carmichael.

The target price is close to four times the last Mako traded price of $0.105. The following is an extract from the report.


Funding Secured and Material Farm-out Approaching:

MKE has announced a capital raising of $3.85m which includes a $2.2m placement and a Share Purchase Plan of $1.65m (underwritten to $1.0m).

Recent discussions with management has highlighted MKE is close to securing a material farm-out to fund the drilling of both Rock Creek and the Duverney shale which we believe will re-rate the company in the near term.

We maintain our Speculative Buy recommendation with a slightly revised price target of $0.39/share (previously $0.42/sh).


KEY POINTS:

Material farm-out approaching.

Recent discussions with management has highlighted MKE are close to securing a material farm-out to fund the drilling of both its Rock Creek and Duverney acreage. We believe a transaction could be announced in December 2012/1Q 2013 which would significantly re-rate MKE.


Farm-out terms uncertain but five wells would be ideal.

It is difficult to estimate the farmout terms which are being negotiated but MKE has consistently highlighted it would like to have a fully funded five well program to de-risk its acreage.

We assume the initial focus will be on the Duvernay given the intense industry focus on the play and estimate a five well carry could be worth ~$45m. We have assumed 3 vertical wells and 2 horizontal wells in our estimates. The see-through value to MKE (assuming MKE retains 50% of its acreage or 17,040 acres) would be $23m/$0.12/sh.


Intense industry activity supports MKE s farm-out initiatives.

We believe the recent acquisition of Celtic Exploration Ltd by global energy giant ExxonMobil for $2.9bn was a keystep change in the evolution of the Duvernay, providing a compelling endorsement of its potential.

In addition, well results continue to impress with the recent Athabasca Oil Corp well at Kaybob West, flowing at a final test rate of ~6 mmcf/d gas and 900 boe/d condensate (1,900boe/d). This intense industry activity will support MKE s current farm-out activities, in our view.


Funding secured and to be further consolidated with sale of Provost.

MKE has announced a capital raising of $3.85m which includes a $2.2m placement and a Share Purchase Plan of $1.65m (underwritten to $1.0m), both priced at 11c/share. In addition MKE plans to divest its producing Provost asset which could raise an additional ~$5m. These funding activities would ensure MKE is fully funded through 2013 if a farm-out is secured.


Black Swan Energy spuds first Duvernay well.

MKE's first Duvernay well (vertical) was spudded on its Rimbey, Alberta lands by JV partner Black Swan Energy Ltd (BSE). MKE is fully carried on this well which will be drilled to 3,000 metres and retains a 10% interest. Following drilling, the well will be cored and evaluated after which BSE will decide on whether to commit to a horizontal well.


Key near term catalysts.

1) Farm-out transaction (Dec 12/1Q 13), 2) Encana farm-out of Duvernay acreage (Dec 12) and 3) Decision on Duvernay horizontal well by BSE (2Q 13).

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX “Small and Mid-cap” stocks with distribution in Australia, UK, North America and Hong Kong / China.

Earlier, Mako had requested a trading halt.

The company had last week announced plans to sell its non-core Provost heavy oil project to focus on the Duvernay and Rock Creek plays.

It is also participating in its first Duvernay well on its Rimbey, Alberta, acreage to evaluate the shale horizon, though it is fully carried by operator Black Swan Energy for its 10% stake.

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX “Small and Mid-cap” stocks with distribution in Australia, UK, North America and Hong Kong / China.

Mako Hydrocarbons (ASX: MKE) is preparing to announce details about a capital raising and has placed its shares into a trading halt.

The company had earlier this week announced plans to sell its non-core  Provost heavy oil project to focus on the Duvernay and Rock Creek plays.

It is also participating in its first Duvernay well on its Rimbey, Alberta, acreage to evaluate the shale horizon, though it is fully carried by operator Black Swan Energy for its 10% stake.

The halt will last until the earlier of an announcement being made to the market, or the opening of trade on Monday 3rd December.

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Mako Hydocarbons (ASX: MKE) has spudded its first Duvernay well on its Rimbey, Alberta, acreage to evaluate the shale horizon.

Operator Black Swan Energy is drilling the well as a commitment vertical test well to a planned depth of 3,300 metres. 

Drilling is expected to take about 35 days and the well will be cored and after several months of evaluating the drilling results, a decision will be taken by Black Swan on drilling a horizontal well from the wellbore.

The well is being drilled at no cost to Mako, which retains a 10% working interest in the well.

Mako will also receive all well information during drilling operations and will have complete access to the Duvernay core sample and core analysis work as well as all drilling samples and logs taken during the drilling operations.

Duvernay Shale

The Duvernay Shale is an emerging world class liquids rich resource play that is the source rock for most of the conventional oil fields in Alberta that has recently attracted the attention of companies such as ExxonMobil (NYSE:XON).

It came to prominence in 2010 and 2011 when more than C$2 billion was spent in land auctions for mineral rights and is widely considered to be Canada’s analog to the highly productive Eagle Ford Shale in Texas.

Wells drilled in the Duvernay have production at initial rates ranging from 900 to 1200 barrels of oil equivalent per day with high ratios of valuable natural gas liquids. Recent horizontal wells have yield between 100 barrels and 200 barrels of natural gas liquids for every million cubic feet of gas produced.

Importantly, significant activity has been carried out near Mako’s acreage, which de-risks its acreage while giving it a better understanding of what it holds.

This has attracted the likes of ExxonMobil, which made a friendly C$2.6 billion (A$2.5 billion) takeover of Celtic Exploration (TSE:CLT) which includes a large Duvernay Shale acreage.

Mako noted that while Exxon’s transaction is an endorsement of the potential shale play in the Western Canadian Sedimentary Basin, it does not believe that there is any sufficient data to draw any analogy between the Duvernay play in the Kaybob area with Company lands in the Pembina area of west central Alberta.

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Mako Hydrocarbons (ASX: MKE) has said in response to an ASX price and volume query that it was unaware of any material information that could have sparked the rise.

Shares in the company rose to an intra day high of A$0.14 today from a closing price of A$0.08 on 16 October with more than 1.8 million shares changing hands today.

However, Mako noted that the market was aware it was seeking an industry or financial joint venture partner to participate in drilling, or funding of the drilling, of its Rock Creek and Duvernay acreage in Alberta though it had no updated information at this point.

It added that DJ Carmichael plans to release an updated research report on the Company today that is expected to re-affirm an earlier price target originally released by DJ Carmichael in December 2011.

This report is also expected to discuss ExxonMobil’s (NYSE:XON) friendly C$2.6 billion takeover of Celtic Exploration (TSE:CLT) that thanks to the inclusion of a large Duvernay Shale acreage is likely to have the market draw some conclusions as to Mako’s enterprise value based on the acreage it holds in the Western Canadian Sedimentary Basin.

Mako noted that while Exxon’s transaction is an endorsement of the potential shale play in the Western Canadian Sedimentary Basin, it does not believe that there is any sufficient data to draw any analogy between the Duvernay play in the Kaybob area with Company lands in the Pembina area of west central Alberta.

Shares in Mako last traded at A$0.13.

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Mako Hydrocarbons (ASX: MKE) has appointed former Aurora Oil & Gas (ASX: AUT) commercial manager Malcolm Bult as its executive advisor as it moves to exploit its exposure in the Duvernay Formation.

Bult’s experience in the early development of Aurora from a junior explorer into an ASX 100 oil and gas producer will provide Mako’s executives with valuable insight in relation to its activities, projects and strategies.

His active support in ongoing investor relations and marketing activities will also enhance the company’s profit in the Australian market.

Bult was Aurora’s commercial manager from January 2008 to October 2011. Prior to this, he had a successful tenure as private oil and gas company Cape Energy’s commercial manager, a member of the corporate development team at Woodside Petroleum and a business analyst with the vertically integrated energy company Energy Equity Corporation.

He has 15 years of experience in the energy industry that includes merger and acquisitions, strategic planning, public market finance, business development and financial analyses.

Mako’s private partner is set to drill the first vertical test well in the Duvernay later this year.

The company has also recently brought the first of three new wells at its Provost project into production and is completing battery facility upgrades before bringing the other two wells on stream.

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Mako Energy (ASX:MKE) today announced that the MKE HZ Provost 12-2 horizontal well has now reached its targeted total depth.

The development well is located in the Provost area of Alberta, Canada.

It is the second development well within the same pool as Mako’s successful MKE HZ 14-2, which has been producing oil since early October.

Mako expects a service rig to move on location early next week. The well will then be completed and it will begin oil production within 10 days. 

The Provost project comprises 384 hectares of land. Mako is targeting the Duvernay shale play which is still in its infancy.

Not only do the partners hold rights to the Duvernay horizon but also to a shallower tight sandstone light oil play above it - the Rock Creek formation, already proven to contain light oil and natural gas liquids. 

The investment bank Macquarie, which recently published a report on the play, its economics and its geology, has already dubbed Duvernay the new Eagle Ford, drawing parallels with the hugely prolific south Texas formation.

The development well is located in the Provost area of Alberta, Canada.

It is the second development well within the same pool as Mako’s successful MKE HZ 14-2, which has been producing oil since early October.

Mako expects a service rig to move on location early next week. The well will then be completed and it will begin oil production within 10 days. 

The Provost project comprises 384 hectares of land. Mako is targeting the Duvernay shale play which is still in its infancy.

Not only do the partners hold rights to the Duvernay horizon but also to a shallower tight sandstone light oil play above it - the Rock Creek formation, already proven to contain light oil and natural gas liquids. 

The investment bank Macquarie, which recently published a report on the play, its economics and its geology, has already dubbed Duvernay the new Eagle Ford, drawing parallels with the hugely prolific south Texas formation.

"It's still early days but we are very excited about the potential of the Duvernay shale to add significant liquids volume to the production profile of the Canadian division," Encana’s Mike Graham said in a conference call last week to discuss the company’s quarterly results. 

All three wells will drilled in the final quarter of this year at an estimated cost of US$12 million per well. The company expects to be even busier in 2012.

Encana holds about 365,000 net acres in what it believes to be some of the best liquids-rich acreage in the play. 

The Duvernay, in the Canadian province of Alberta, is still in its infancy. 

However, judging from the level of excitement it is generating, the area is about to explode into life. 

The investment bank Macquarie, which recently published a report on the play, its economics and its geology, has already dubbed it the new Eagle Ford, drawing parallels with the hugely prolific south Texas formation.

If this analogy is correct then brace yourself. 

Eagle Ford has gone from nought to 140 rigs in little over two years, while attracting all the big hitters in shale.

These companies such as Chesapeake (NYSE:CHK), Anadarko (NYSE:APC) and Petrohawk, now part of the BHP mining empire (LON:BLT).

To date only 35 wells have been drilled or licensed in the Duvernay, according to research carried out by Macquarie.

But this is merely the calm before the storm. Over C$1.4 billion has been invested on land acquisition in this foothills province – and over half of that was spent in one frenetic day. 

A further wave of crown auctions of land took place last month and is continuing this month.  

“Over the next decade, we believe the Devonian-aged Duvernay shales will emerge as one of the most promising oil and gas resource plays in Canada,” said Macquarie analyst Ray Kwan in a recent research note. 

Where the Duvernay differs from its Texas cousin is that it has so far failed to draw the interest from the shale majors mentioned earlier.

I say so far, because there are rumblings that the big boys are on their way. However, with most of Duvernay acreage taken in the land grab, the only way in will be to buy a slice of the action.

All of this creates the perfect storm for Australia-listed micro-cap Mako Energy (ASX:MKE), which along with joint venture partners Kilgore and Transerv has 90,500 acres of land in this tightly held fairway in west-central Alberta. 

They not only hold rights to the Duvernay horizon - some 82,000 acres or 128 sections - but also a shallower tight sandstone light oil play above the Duvernay horizon.

This second zone, the Rock Creek formation, comprises over 84,500 acres or 132 sections, and is already proven to contain light oil and natural gas liquids. This was the original target for Mako’s land acquisitions in the area.

The package makes the trio the 13th largest landholder in the Duvernay, and it is just approaching the right size to be picked up on the radar screens of the majors. Mako owns 50 per cent of the JV. 

The plan is to ride on the back of the wave of interest in the Duvernay to farm down. The blue-print the partners are using is the one deployed with great effect by Aussie compatriot Aurora Energy.

Its deal with Hilcorp, now part of Marathon Oil, was a farm-down of Eagle Ford acreage. 

It transformed Aurora from a small-cap to a billion-dollar enterprise that last year ranked as the ASX’s fastest growing company.

It must be remembered, however, that Aurora’s land package was smaller than that held by Mako and its partners and did not contain an additional productive zone such as Rock Creek.

In attempting to emulate the success of Aurora, the trio is targeting a farm down to retain a material working interest and the involvement of a partner with the balance sheet and expertise to properly exploit the opportunity.

A deal on the Duvernay may well be struck with just one company, and it will almost certainly be a corporation with very deep pockets.

Encana, meanwhile, is excited about the potential of the Duvernay. "With the liquids we forecast, we think anywhere from 100 to 200 bbls per mmcf, we think it's going to be a very economic project for us," said Graham in the conference call.

"It's still early days but we are very excited about the potential of the Duvernay shale to add significant liquids volume to the production profile of the Canadian division," Encana’s Mike Graham said in a conference call last week to discuss the company’s quarterly results. 

All three wells will drilled in the final quarter of this year at an estimated cost of US$12 million per well. The company expects to be even busier in 2012.

Encana holds about 365,000 net acres in what it believes to be some of the best liquids-rich acreage in the play. 

The Duvernay, in the Canadian province of Alberta, is still in its infancy. 

However, judging from the level of excitement it is generating, the area is about to explode into life. 

The investment bank Macquarie, which recently published a report on the play, its economics and its geology, has already dubbed it the new Eagle Ford, drawing parallels with the hugely prolific south Texas formation.

If this analogy is correct then brace yourself. 

Eagle Ford has gone from nought to 140 rigs in little over two years, while attracting all the big hitters in shale.

These companies such as Chesapeake (NYSE:CHK), Anadarko (NYSE:APC) and Petrohawk, now part of the BHP mining empire (LON:BLT).

To date only 35 wells have been drilled or licensed in the Duvernay, according to research carried out by Macquarie.

But this is merely the calm before the storm. Over C$1.4 billion has been invested on land acquisition in this foothills province – and over half of that was spent in one frenetic day. 

A further wave of crown auctions of land took place last month and is continuing this month.  

“Over the next decade, we believe the Devonian-aged Duvernay shales will emerge as one of the most promising oil and gas resource plays in Canada,” said Macquarie analyst Ray Kwan in a recent research note. 

Where the Duvernay differs from its Texas cousin is that it has so far failed to draw the interest from the shale majors mentioned earlier.

I say so far, because there are rumblings that the big boys are on their way. However, with most of Duvernay acreage taken in the land grab, the only way in will be to buy a slice of the action.

All of this creates the perfect storm for Australia-listed micro-cap Mako Energy (ASX:MKE), which along with joint venture partners Kilgore and Transerv has 90,500 acres of land in this tightly held fairway in west-central Alberta. 

They not only hold rights to the Duvernay horizon - some 82,000 acres or 128 sections - but also a shallower tight sandstone light oil play above the Duvernay horizon.

This second zone, the Rock Creek formation, comprises over 84,500 acres or 132 sections, and is already proven to contain light oil and natural gas liquids. This was the original target for Mako’s land acquisitions in the area.

The package makes the trio the 13th largest landholder in the Duvernay, and it is just approaching the right size to be picked up on the radar screens of the majors. Mako owns 50 per cent of the JV. 

The plan is to ride on the back of the wave of interest in the Duvernay to farm down. The blue-print the partners are using is the one deployed with great effect by Aussie compatriot Aurora Energy.

Its deal with Hilcorp, now part of Marathon Oil, was a farm-down of Eagle Ford acreage. 

It transformed Aurora from a small-cap to a billion-dollar enterprise that last year ranked as the ASX’s fastest growing company.

It must be remembered, however, that Aurora’s land package was smaller than that held by Mako and its partners and did not contain an additional productive zone such as Rock Creek.

In attempting to emulate the success of Aurora, the trio is targeting a farm down to retain a material working interest and the involvement of a partner with the balance sheet and expertise to properly exploit the opportunity.

A deal on the Duvernay may well be struck with just one company, and it will almost certainly be a corporation with very deep pockets.

Encana, meanwhile, is excited about the potential of the Duvernay. "With the liquids we forecast, we think anywhere from 100 to 200 bbls per mmcf, we think it's going to be a very economic project for us," said Graham in the conference call.

The initial flow rate is 40 barrels per day of 14 API oil from the Dina formation. 

Mako will optimise the well over the coming weeks and is targeting a stabilised flow rate of 40-60 barrels a day.

Separately, the group announced that its joint venture with fellow Australian listed explorers Transerv Energy (ASX: TSV) and Kilgore (ASX:KOG) has strengthened its position in Alberta.

It has acquired two more sections totalling 512 hectares with potential to produce light oil and gas from the Rock Creek horizon.

The three have 90,500 acres of land in this tightly held fairway, and also hold rights to exploit the highly prospective Duvernay shale play. Mako holds 50 percent of the JV.

The investment bank Macquarie, which recently published a report on the play, its economics and its geology, has already dubbed Duvernay the new Eagle Ford, drawing parallels with the hugely prolific south Texas formation.

Eagle Ford has gone from nought to 140 rigs in little over two years, while attracting all the big hitters in shale; companies such as Chesapeake (NYSE:CHK), Anadarko (NYSE:APC) and Petrohawk, now part of the BHP mining empire (LON:BLT).

To date only 35 wells have been drilled or licensed in the Duvernay, according to Macquarie.

But this is merely the calm before the storm. Over C$1.4 billion has been invested on land acquisition in this foothills province. More is anticipated to be spent in two further Crown auctions taking place at the moment.  

The package makes the JV partners the 13th largest landholder in the Duvernay, and it is just approaching the right size to be picked up on the radar screens of the majors. 

The plan is to ride on the back of the wave of interest in the Duvernay to farm down. 

A deal on the Duvernay may well be struck with just one company, and it will almost certainly be a corporation with very deep pockets.

“This may be of real interest to a major American player with experience in other significant unconventional resource plays,” says Mako executive vice-chairman Simon Owen in an interview with Proactive Investors last month.

“We are looking at various structures for the potential farm-outs to ensure an aggressive drilling program and to shelter Mako from some of the inevitable early engineering risk of the play,” Owen adds.

Mako is also hoping to announce a small Rock Creek farm out soon. Here a deal will be slightly different with a number of mid-cap partners being sought. 

Things are moving apace and the farm-out process for both plays is being handled by Macquarie.

Mako is currently gearing up for a Toronto Venture Exchange listing, which is running in parallel with the farm-out process and is also considering a OTC-QX registration as well. 

This will give it exposure to a savvy and receptive investing audience au fait with the full potential of the Duvernay.

The investment bank Macquarie, which has published a recent report on the play, its economics and its geology, has already dubbed it the new Eagle Ford, drawing parallels with the hugely prolific south Texas formation.

If this analogy is correct then brace yourself. Eagle Ford has gone from nought to 140 rigs in little over two years, while attracting all the big hitters in shale; companies such as Chesapeake (NYSE:CHK), Anadarko (NYSE:APC) and Petrohawk, now part of the BHP mining empire (LON:BLT).

To date only 35 wells have been drilled or licensed in the Duvernay, according to research carried out by Macquarie.

But this is merely the calm before the storm. Over C$1.4 billion has been invested on land acquisition in this foothills province – and over half of that was spent in one frenetic day. 

More is anticipated to be spent in two further Crown auctions to come during September and October.  

“Over the next decade, we believe the Devonian-aged Duvernay shales will emerge as one of the most promising oil and gas resource plays in Canada,” said Macquarie analyst Ray Kwan in a recent research note. 

Where the Duvernay differs from its Texas cousin is that it has so far failed to draw the interest from the shale majors mentioned earlier.

I say so far, because there are rumblings that the big boys are on their way. However, with most of Duvernay acreage taken in the land grab, the only way in will be to buy a slice of the action.

All of this creates the perfect storm for Australia-listed micro-cap Mako Energy (ASX:MKE), which along with joint venture partners Kilgore and Transerv has 90,500 acres of land in this tightly held fairway in west-central Alberta. 

They not only hold rights to the Duvernay horizon - some 82,000 acres or 128 sections - but also a shallower tight sandstone light oil play above the Duvernay horizon.

This second zone, the Rock Creek formation, comprises over 84,500 acres or 132 sections, and is already proven to contain light oil and natural gas liquids. This was the original target for Mako’s land acquisitions in the area.

The package makes the trio the 13th largest landholder in the Duvernay, and it is just approaching the right size to be picked up on the radar screens of the majors. Mako owns 50 per cent of the JV. 

The plan is to ride on the back of the wave of interest in the Duvernay to farm down. The blue-print the partners are using is the one deployed with great effect by Aussie compatriot Aurora Energy.

Its deal with Hilcorp, now part of Marathon Oil, was a farm-down of Eagle Ford acreage. 

It transformed Aurora from a small-cap to a billion-dollar enterprise that last year ranked as the ASX’s fastest growing company.

It must be remembered, however, that Aurora’s land package was smaller than that held by Mako and its partners and did not contain an additional productive zone such as Rock Creek.

In attempting to emulate the success of Aurora, the trio is targeting a farm down to retain a material working interest and the involvement of a partner with the balance sheet and expertise to properly exploit the opportunity.

A deal on the Duvernay may well be struck with just one company, and it will almost certainly be a corporation with very deep pockets.

“This may be of real interest to a major American player with experience in other significant unconventional resource plays,” says Mako executive vice-chairman Simon Owen.

“It’s a big boy’s play. It is $10 million a well and minimum three wells per section. That’s $1.3 billion drilling programme in the next four years just to retain all of the lands. With downspacing, it is conceivable that up to 6 wells or more could be drilled per section over the full life of the play”.

“We are looking at various structures for the potential farm-outs to ensure an aggressive drilling program and to shelter Mako from some of the inevitable early engineering risk of the play,” Owen adds.

Of course the Duvernay is only really half the story here. There is the Rock Creek horizon too.

Here a deal will be slightly different with a number of mid-cap partners being sought. 

“We also hope to be able to announce a small Rock Creek farm out - by that I mean less than ten sections for a three-well drilling programme - in the next four weeks,” the Mako executive vice-chairman reveals.

Things are moving apace and the farm-out process for both plays is being handled by Macquarie.

The teaser and the formal request for offers have been released, and data room will be open on September 20 for a month. 

“We would hope that we will have proposals on the table for Rock Creek and the Duvernay by second half of October,” Owens confirms. 

Mako is currently gearing up for a Toronto Venture Exchange listing, which is running in parallel with the farm-out process and is also considering a OTC-QX registration as well. 

This will give it exposure to a savvy and receptive investing audience au fait with the full potential of the Duvernay.

The only other thing to look out for is the 80 million or so options that vest at 25 cents and take the fully diluted equity base to 250 million.

However most investors who have piled in over the past month as the stock has crept up 25 per cent to 15 cents a share will be looking not at the options, but the disconnect between the company’s market cap of A$24 million and value of its land holding.  

A back-of-the envelope calculation shows Rock Creek and the Duvernay together are worth around US$390 million, valuing Mako’s holding at US$190 million.

This is based on the raw land value in recent transactions and Crown auctions of US$1,200 an acre for the former and something in the order of US$2,300 an acre for the latter. 

In the Duvernay, packages near the known NGL hotspots have been going for as much as US$5,755 an acre in the recent stampede. 

Mako’s land position cost it an average of around than C$40 per acre. “We were both clever and lucky, and the timing was right also,” Owen admits.