Maha Energy - Ending ’20 on a low

Guidance lowered after disappointing new well ’20e EBITDA –21%, and ‘21e –17% Elevated risk on growth plans Maha-1 well a disappointment The “Maha-1” well on the Tartaruga block has been tested, and the results are disappointing. It did not flow oil from two of the four intervals, one interval flowed at uncommercial levels and the last interval had a high water cut and generally low flow rates. In addition to the poor performance on the “Maha-1” well, Maha’s Q4 production has been lowered by the 2nd wave of COVID-19, causing delays to completion activities in Brazil. Maha has consequently lowered FY’20 production guidance from 3,700-4,000 to 3,250boe/d.

This is the third time in this troublesome 2020 that Maha has lowered its FY production guidance. EBITDA down 21% and 17% for ‘20e-‘21e The implied negative revision to Q4 production guidance (from the previous low-end FY’20 guidance of 3,700boe/d to the current 3,250boe/d) is ~40%, with implied production for the quarter of ~2,550boe/d. We lower our 2020 estimates accordingly.

Further, we lower our estimates for ’21 production by 15%, reflecting a lower ’20 exit rate and a phased ramp-up in 2021. Elevated risk to growth plans With higher geological risk following the soft Maha-1 performance, we see somewhat elevated risk in the growth plan. That said, we think it is fair to view the COVID-19-related impact to Maha’s 2020 operations as one-off effects.

We estimate an oil price of USD 44/bbl is discounted.