MMEX Resources Corp (OTCMKTS:MMEX) Bets Are Starting To Pay Off

The most recent go-ahead granted to MMEX Resources Corp (OTCQB:MMEX) has seen its share price surge upwards. This good news comes in the wake of a lot of capital expenditure investment by the company in the oil and gas industry: a move which seems to have paid off quite well for them.As seen in the chart below, the company’s share price is seen to trend upwards: MMEX Daily ChartThis article will review the stock, assessing its potential upside based on its strategy and financial performance. We want to bring out our view on the benefits accruing to an investor investing in this stock for either the short or long term.Having said this, it is important for us to briefly review the company for readers with rudimentary knowledge of its operations.MMEX Resources Corp: An OverviewMMEX was founded in 2010 and is a publicly traded company in Texas, United States. It prides itself in being a player in the oil and gas industry, taking part in the acquisition, development and financing of oil, gas, refining and electricity projects in Texas, Peru and other Latin American countries.Its management is similar to that of Maple Resources Corp with the founder: Jack W. Hanks having founded both companies. Maple Resources Corp is also a player in the oil and gas industry, though a much bigger player, with 1 gas processing plants and approximately 770 miles of natural gas gathering lines and transmission infrastructure.In 1992, Maple Resources sold substantially all of its U.S.-based assets and began to pursue energy projects in Latin America.The management of MMEX corporation seem to be leveraging on their experience in the US market as well as the Latin America front to venture back into oil refinery in the US. This will be achieved through obtaining and retaining the contract in Texas and venturing further into the US economy. Their strategy seems well defined with significant upside potential for them.The Texas Refinery Go-aheadOn September 1, 2017, MMEX received its first major breakthrough with a go-ahead from regulators to continue with its plans to distill 10,000barrels of crude oil per day at Fort Stockton, Texas. The company, having invested significantly in this project, with an investment of $333,111 in refinery start-upcosts (refinery rights, planning, designing and permitting) over the period till June 2017. The company expects to begin reaping the benefits through commercialization in the fourth quarter of 2018. The output from this refinery will, however, only be diesel.This plan goes in line with the entity’s plans to build a large-scale refinery that can distill up to 100,000 barrels of oil per day. According to their SEC filings for the quarter ended July 2017, from this refinery, they can increase their product line to products other than diesel and well as boost their production capacity by over 90,000 barrels per day to the above stated 100,000 barrels per day.The location of the oil refinery is also very strategic given the steady crude oil supply available in the Texas Permian Basin.The company’s Chief Executive, Jack W. Hanks was quoted saying:

“MMEX joins with its strategic partners, Trinity Consultants, its environmental consultants, and VFuels, its design and engineering firm, in announcing that TCEQ has approved the MMEX air permit application, allowing construction to begin. The efficiency of the permitting process speaks volumes to the professional approach of all parties in the application preparation and technical review process, including TCEQ staff and administration.”

Source:The strategy and statement above speak to the professionalism within the company as well as their output driven approach. The entity’s growth is inevitable given their drive and firm standing in the sector they work in and the positive output they have exhibited so far.Growth financing: Is it possible?The oil and gas industry is highly capital intensive as well as heavily regulated. For production to begin, an entity is required to have engaged with regulators to ensure they meet set prerequisites over which period all their equity is invested in projects. These projects generate no revenue till a go-ahead is given by regulators.MMEX, being a player in this sector, has run the ropes described above. The value of their property, plant and equipment rose by over $75,000 in the refinery over a period where they made no revenues. This had negative implications on their cash flows as well as their profits respectively with the company making losses in the period till April 2016. However, the company made over $3.9 million in profits for the period till July 2017 courtesy of gains on derivative liabilities of over $4.5 million during the same period.The company’s assets have grown by over $65,000 from $54,513 in April 2016 to $121,619 in July 2017. This is attributable to the capital investments that have taken place over this period in readiness for the commencement of oil distillation in the near term.Despite the above, the construction of the 10,000 barrels per day distillation unit will cost the company about $5 million. Management in their filings to the SEC stated that they expect to harness their subsidiaries to raise this capital with 65% being raised through debt and 35% through equity. Moreover, the price of their dream of the 100,000 barrels per day distillation unit is about $450 million. The management, however, remains focused and hopeful in their objective of raising this money and growing the company.ConclusionMMEX is a great story by a company to venture back into a market it once was a player in. They exhibit grit and professionalism, both which are paying off quite well for them. While MMEX remains a speculative investment considering the amount of capital that needs to be raised, the reward far outweighs the risks in this author's opinion.We will be updating our subscribers as soon as we know more. For the latest updates on MMEX, sign up below!Image courtesy of nicepicsnapper via FlickrDisclosure: We have no position in MMEX and have not been compensated for this article.