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bobwins, Cross Border (XBOR) -- I certainly hope you're right about 2Q averaging around 750 boepd but I'm expecting them to come up short of that, maybe more like 650 bopd. They only have a handful of small-interest wells that are getting completed this quarter and not much in the way of new drills. Recall that they can't drill in the Bone Spring play from around March -- June due to the prairie chicken mating season or something like that.
Not that all this matters much, given that the market has decided to wait to see what our buddy Allan B. ends up doing now that he controls the board.
swanlinbar, its great to see the pieces finally starting to fit together here. As impressive as this quarter's production growth was I believe 2Q will show even more growth, mostly due to adding another rig at Rantoul.
The only troubling issue is why they didn't get their bank line increased. They had a healthy degree of interest coverage with $788K of adjusted EBITDA with only $65K of interest expense, which would seem to leave room for a healthy increase to the bank line. If they don't get a bump in their availability maybe its time to start looking for another bank.
So this management group increased their company's production 150% in 15 months and then in return for their phenomenal performance they get fired.
I'm holding tight right now. With the trading all but suspended I have little choice in any event.
I am encouraged by the provision in the settlement agreement that the new directors will not seek to merge XBOR with RDMP prior to 12/31/12. This means that we will get a chance to see how this company will do for 3Q. 3Q is going to be huge since that will represent the first full quarter of production for this latest round of Bone Spring wells.
Its been quite awhile since the last ops update, hopefully we get one soon.
Bobwins, thanks for your thoughts and kind words. I still have a mental block about buying stocks of companies that are traded in Australia for some reason, to my detriment it appears.
Let's keep exchanging ideas and good luck with your investing!
More bullish Miss. play comments from Devon in their earnings CC today:
"In the Mississippian oil play, located in North Central Oklahoma where the partnership has assembled 230,000 net acres, we are encouraged with the results of our first well. The Matthews 1H had a 30-day IP rate of 590 oil equivalent barrels per day, and is among the best wells reported in the play to date. We currently have 2 rigs running and 2 wells completing. We expect to drill or participate in roughly 50 wells on this acreage by year-end. It including tests of additional formations."
The fact that they are accelerating their activity in this play is a strong vote of confidence in it to say the least. This may have had something to do with today's rally in OEDV.
This latest financing is great news, Apollo is very highly regarded and the fact that they have gotten involved with such a small investment (for them) strongly implies that they must think that this company will be doing a lot bigger and better things in the coming years. What a world this is now, where a tiny company can get some leases, do a farmout, and then, after drilling a single well, completely finance its drilling obligations for a quarter interest in a multi-year 2-well drilling program, all with only increasing the number of its FD shares outstanding by less than 5%. A few months ago I had introduced Kim Bradford (Osage CEO) to my buddy Alex Montano of CK Cooper with the thought that Alex might be able to help him do an equity raise to partly finance this next round of growth, but after they met, Kim just blew Alex off, and now I see why.
Apollo has now done our due dilligence for us. There's no way they would have gotten involved in this project unless they thought they would not only get their money back but also make a big profit on the Osage stock they are getting. Actually, to be more precise, they are getting penny warrants, not actual stock, and there is a subtle yet significant difference between those 2. The 6-month hold period for privately issued stock does not start until the consideration is paid for the stock. So that stock that Apollo is getting by virtue of receiving the penny warrants is not tradeable by them until 6 months after they fork over the penny per share exercise price of the warrants.
A recording of Osage's presentation at the Energy Prospectus luncheon in Houston tomorrow will be available to all a few hours after the presentation has taken place, at www.energyprospectus.com .
kozuh, Osage Exploration (OEDV.OB) -- this latest financing is great news, Apollo is very highly regarded and the fact that they have gotten involved with such a small investment (for them) strongly implies that they must think that this company will be doing a lot bigger and better things in the coming years. What a world this is now, where a tiny company can get some leases, do a farmout, and then, after drilling a single well, completely finance its drilling obligations for a quarter interest in a multi-year 2-well drilling program, all with only increasing the number of its FD shares outstanding by less than 5%. A few months ago I had introduced Kim Bradford (Osage CEO) to my buddy Alex Montano of CK Cooper with the thought that Alex might be able to help him do an equity raise to partly finance this next round of growth, but after they met, Kim just blew Alex off, and now I see why.
Apollo has now done our due dilligence for us. There's no way they would have gotten involved in this project unless they thought they would not only get their money back but also make a big profit on the Osage stock they are getting. Actually, to be more precise, they are getting penny warrants, not actual stock, and there is a subtle yet significant difference between those 2. The 6-month hold period for privately issued stock does not start until the consideration is paid for the stock. So that stock that Apollo is getting by virtue of receiving the penny warrants is not tradeable by them until 6 months after they fork over the penny per share exercise price of the warrants.
A recording of Osage's presentation at the Energy Prospectus luncheon in Houston tomorrow will be available to all a few hours after the presentation has taken place, at www.energyprospectus.com .
kozuh, Osage Exploration (OEDV.OB) -- yes that's when they sold down 75% of their interest in 5,000 acres in the Miss. Lime play to 2 private companies, with Slawson Exploration as operator.
Another source of non-production revenues last year was from their 9% interest in an oil pipeline in Colombia. That's been generating about $475K in revenues per quarter recently, and the expenses to operate that are negligible (say $25K per quarter). I'm hoping that they will be able to find someone that would be willing to lend money on this cash flow.
Wildbilly, our good buddy Hoffman just filed another Form 4 announcing that he blew out another 67K shares @ $1.03. Hopefully this brings in some more selling like it did the last time, I missed the boat the last time and all I ask is for one more shot a this turkey, hopefully under $1....
NEAA Presenting Company Enerjex Resources CEO Robert Watson Jr. on The George Jarkesy Show – 3.29.12
6 April 2012
4.6.12
On March 29th, 2012 The National Eagles and Angels Association was proud to have the CEO of EnerJex Resources, Robert Watson Jr. as one of the presenting companies. After the NEAA meeting, NEAA Chairman George Jarkesy had Mr. Watson on The George Jarkesy Show as a guest. EnerJex is a domestic oil producer with over 500 producing oil wells and they trade on the NASDAQ Bulletin Board as Symbol ENRJ.OB. Below is the full interview:
George Jarkesy: Listen, I am so excited. Today at the National Eagles and Angels Luncheon, we had a very special guest, Robert Watson, Jr. He is the president and CEO of EnerJex, Inc. Their symbol on the OTC is ENRJ. Robert is a graduate of Southern Methodist University. EnerJex is a domestic onshore oil company in Kansas and in Texas. They have majority interest in over 500 producing oil wells. What I have to tell you is this fits one of my investing criteria. These guys own the majority of the company, they put up their own money, you are investing alongside them. There’s not a CEO or management team that owns two percent and is looking for a handout with options. These guys put up their money, they own a big percentage of the company, they’ve got a lot of upside and I think that’s why they’re going to win. So, Robert, welcome to the show.
Robert Watson: Thanks, George.
George Jarkesy: So, give our listeners an overview of EnerJex.
Robert Watson: Sure. We’re an oil production company as you mentioned. We’ve got two producing projects in Kansas that would be considered long-lived stable oil production where we have over 500 locations that we still need to drill; those locations would be considered proven locations. Then we’ve got a higher impact project in Texas, it’s a little bit earlier on in its life, but I’m very excited about its potential, we currently have seven wells producing there, and we’re still trying to delineate the economic limits of the field, but we have a ton of drilling to do, and in this environment, it’s very exciting.
George Jarkesy: But you’ve rapidly grown this company. When did you take over the company and tell us about the progress from where you started and where you are today.
Robert Watson: My partners and I took a significant equity interest in the company at the end of December 2010. At that point in time, the story was very much a turnaround story, so we spent last year working really hard to fix a lot of things and start a capital program and fixed a lot of balance sheet and liquidity issues. We’ve done that. So, today we sit here and I believe we’re poised for significant growth. We’ve made that turn. Throughout last year, we significantly increased our production revenue, cash flow while delivering the balance sheet. Now, we’re positioned to be pretty aggressive with our drilling program.
George Jarkesy: And so your revenues right now are running what?
Robert Watson: A little over $6 million.
George Jarkesy: In this environment, you’ve heard me talk about it here on the show; this environment is very difficult to get capital to grow. Now, with oil companies, it has been getting a little easier for oil companies, but you guys are pretty much set on capital right now with lines of credit and equity you’ve done. Tell us about that.
Robert Watson: A couple of things, we have raised common equity through pipes during 2011; some of that capital was used to fund our drilling program. We used some of it to repurchase shares in a very creative way for our shareholders. We also have a $50 million line of credit. We only have $4.5 million outstanding on that which we plan to use once we get a little bit more critical mass; we can use that to develop our assets. Then another very creative thing we did, it is a challenging environment for a company our size to raise capital, we created a very unique structure by forming a partnership, contributing assets to that partnership and using that partnership to pass the tax benefits to our investor. So, we effectively monetized a net operating loss carried forward that we had by doing it this way, and the benefit to us was we were able to raise capital at a cheap cost to capital, and our investors are very happy because their after-tax returns are phenomenal.
George Jarkesy: That’s very creative. I’ve spent some time with Robert today at the meeting, and it’s not often that you have a guy who understands oil and gas and understands complex M&A. But he started out and cut his teeth a CIBC, right?
Robert Watson: That’s right. I started as an energy investment banker and then spent about six years in the private equity world and had an entrepreneurial edge and walked away from that and started out on my own.
George Jarkesy: He grew up in an oil family which a lot of the families in Texas, second and third generation oil, so he understood it and he just put up his hand third generation of oil. So often, those guys, even though they’re brilliant, don’t get the finance game. He’s doing things on both sides. He’s growing by the drill bit, he’s bringing on reserves, he’s bringing on proven reserves, and he is bringing up production. But in addition to that, he’s maximizing shareholder equity and raising capital creatively which is good for the shareholders. You don’t hear of a young company like this where the group put up the money, and not only did you put up all this money alongside the investors and now the management owns its piece, but you did a stock buyback. That tells you, this guy is buying back the stock so that there’s less out there because he believes it’s going a lot higher, right?
Robert Watson: That’s right. I think the message we try to communicate to the investment community is we are big shareholders, we’re long-term value creators and we’re going to look at every way we possibly can to drive per share growth and shareholder value. It governs every decision we make whether it’s a bit decision, repurchasing some shares, how we raise capital. We want to make sure that every dollar we raise that we’re getting a return on.
George Jarkesy: It looks like you’re doing a great job. I was looking at your PV10; your PV10’s running around $50+ million. Your current market cap is $50 million, so that means that his present value is $51 million and that’s about what your market cap, it’s not giving credit to all the future things you’re doing and all the things you’re working on.
Robert Watson: That’s right. That number, it’s kind of interesting timing, but we’re going through our 10K process right now and our reserve redeterminations, all that information ought to be coming out within the next week. But the number you referenced, that $50 million is as of December 2010. It excludes one of our Kansas properties, it excludes our Texas properties, and it excludes all of the work that we’ve done since we took over. It also does include some assets that we sold, but I think at the end of the day, if you’re buying our stock at this current price, you’re basically buying at our net asset value as of 2010 before we did all this work.
George Jarkesy: That’s a net asset value in an inflationary environment where I think oil is going to go a lot higher. We’ll talk about that again on the show later. President Obama will have you believe that he’s been great for the oil business, but tell us the truth. Really, it’s technology that’s gotten so good that’s made you effective in Kansas, right?
Robert Watson: In both areas and contrary to what he said in the State of the Union address, I don’t think that the government invented fracking, but we are using frack and stimulation technology in our project in Texas. What we’re doing in Kansas is all secondary recovery; it’s a water flood technology. I kind of equate it to a manufacturing operation. We have very little expiration risk. We just have to keep our costs down as we bring these barrels of oil to market.
George Jarkesy: Our listeners will want to know how to learn more about EnerJex. How do they do that?
Robert Watson: First off, read anything that we publically disclose, we’re a public company, ENRJ. Also, we’ve just completed a redesign of our website that should be up soon. That website’s www.enerjexresources.com EnerJex.com. We communicate regularly with the marketplace through press releases and through our website
George Jarkesy: Robert, thanks for being on the George Jarkesy show. You can learn more at ENRJ or enerjexresources.com. Thank you so much for being on.
Disclosure: Mr. Jarkesy nor his affiliates does not own any holdings in Enerjex and have no plans to initiate holding in the next 72 hours of open market trading. EnerJex Resources was the sponsor of Mr. Jarkesy’s affiliate company luncheon on March 29th, 2012.
seaoh, you must be in Hog Heaven right now. Are you loading up on more of this stock at this point? Where do you see the stock in say 3-6 months?
seaoh, "anyone can repost company propaganda/proposals" and PRs.
KiK, Enviro (EVTN.OB) -- thanks that looks interesting, I've added them to my radar screen and will definitely check them out.
Increased Fracking Creates a Burgeoning Water Services Industry By G Joel Chury
Hydraulic fracturing or fracking is the process whereby hydrocarbons are freed from within shale rock deposits by pressurized water and additives. Such is the hunger for energy that 80% of all new North American oil and gas drilling now utilizes this technique, which, in its current form, is barely a decade old. Fracking requires enormous amounts of water, which has midwifed the birth of a highly lucrative water services industry.
For every horizontal well that is drilled, the fracking involved uses two to six million gallons of groundwater. This year, in the United States alone, the industry is projected to use anywhere from 70 billion to 140 billion gallons. Water services can amount to up to 30% of the initial costs of a new well.
These services include supply, transportation, disposal and treatment. Currently, about 60% of fracking water is recycled, 30% directly and another 30% over the life of the well. The big money is in continuous water reuse, especially when a water services company forms a relationship with a major producer with extensive drilling activities. For example, the relationship between Ridgeline Energy Services TSXV:RLE and EOG Resources NYSE:EOG.
“[A young EOG manager] identified four years ago that there were some problems coming down the pipe here,” recalls Tyler Heathcote, President of Ridgeline Energy Services and Ridgeline Water. “So he wanted us to start researching different technologies for him, and that’s how it all got started.”
Heathcote continues, “The big focus for our business is to provide a service where we can take the client’s contaminated water and recycle it so that they can reuse it over and over again, while not putting a strain on the surface water. Of course we’d like to charge on a per-gallon, per-litre or per-cubic-foot basis—[basically] to just charge on per-volume rate for treated water.”
Oil and gas newsletter writer Keith Schaefer has dubbed the idea of per-volume billing the “ Holy Grail” model. This model has yet to be monetized, but best guesses suggest $3 to $7 per barrel (42 gallons) of water.
Ridgeline began its work primarily in the natural-gas heavy Horn River Basin in northeast BC, only to concentrate later on oil plays after the gas-price collapse. Today, the company operates across North America, including such highly-productive regions as Texas’s Eagleford Shale and Pennsylvania’s Utica Shale. Each region has its differences, but all are faced with the need to reduce water consumption.
The potential is huge. I’ve never seen anything like it over my entire 20-year career in the industry —Tyler Heathcote
Water requirements for the fracking industry have increased almost exponentially over the last five years. So the challenge is obvious. “The potential is huge,” Heathcote declares. “I’ve never seen anything like it over my entire 20-year career in the industry. Companies need to continue developing these resources, but water remains a primary concern. This is coming as a result of the governing bodies finally implementing some very strong water-usage regulations, which were non-existent 10 years ago. It has all led clients to looking for ways to manage their water properly so that they can maintain their economic viability.”
Ridgeline helps maintain that viability in two ways. First, by recycling the water that has come out of the well for future use, reducing dumping costs and providing a supply for future drilling activities. And second, by separating oil and gas from the water during treatment, thereby providing greater production and efficiency.
Heathcote concludes, “The oil markets are extremely busy, and we’re in a situation right now where we’ve got more demand than supply for our services. We’re looking to rectify that scenario by ramping up and getting to a steady-state manufacturing situation where we can build a lot more of our systems and get them out in a shorter time frame. That would enable us to meet a lot of our budget projection.” In short, “Things are looking very good.”
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Above from "Resource Clips" with a web page showing today's date,
http://resourceclips.com/2012/04/03/liquid-gold/
Great to see RLE.V finally start to leak their ties to EOG to the media.
REASONS TO REJECT THE DISSIDENT GROUP CONSENT PROPOSALS
The Board Size Proposal, the Vacancy Proposal and the Election Proposal, taken together, are designed to enable Red Mountain to take control of the Board. The Bylaw Amendment Repeal Proposal is designed to remove a provision in the Bylaws that the Board recently adopted protecting you, as stockholders, from a large stockholder effectively controlling the stockholder decision making process without your or the Board’s consent to such stockholder exercising such power. If the Bylaw Amendment Repeal Proposal is adopted and the applicable bylaw amendment is repealed, all stockholders, including large stockholders, would have the ability to vote shares of common stock owned by them and have such votes tallied as they would be in any election, whether or not a large stockholder existed. This would mean, for instance, that a stockholder who accumulated just slightly more than 50% of the Company’s common stock would have the ability to single-handedly approve all matters that require a simple majority vote of stockholders, even though up to 49.9% of the stockholders might oppose that action. Even a stockholder who only accumulated 45% of the Company’s stock would only need to convince a few other stockholders to vote their shares alongside those of the 45% holder in order for the 45% holder to be able to effectively control the stockholder decision making process. The Bylaw Restoration Proposal is designed to nullify unspecified provisions of the Company’s Bylaws which may be adopted by the Board in its efforts to act in and protect the best interests of the Company and its stockholders. The Board believes you should reject the Dissident Group Consent Proposals for the following reasons:
The Dissident Group Consent Solicitation is an attempt to seize control of the Board from the directors who are acting in the best interests of Cross Border’s stockholders.
· The Board believes that the Dissident Group is attempting to pressure stockholders into making a rushed judgment about the future of Cross Border by soliciting written consents immediately in advance of the Company’s 2012 Annual Meeting. All of the current members of the Cross Border Board will be up for election at that time and the Board believes that ALL stockholders should have the opportunity to participate in the election of the full Board at that time. One of the primary purposes of an annual stockholders meeting is to provide a forum for open discourse among stockholders, the board and management as to the future direction of the Company. Stockholders will have an opportunity to voice any concerns they may have regarding the Company’s present direction and leadership, and other stockholders, members of the Board and management will have an opportunity to respond. Following that discourse, stockholders will have an opportunity, considering in part the information they gather from the dialogue at the Annual Meeting, to vote on the matters subject to vote at the Annual Meeting, including the election of directors.
Please be advised, however, that while the Company will not seek to prohibit any proxy solicitation conducted by the Dissident Group at the 2012 Annual Meeting, the Company will enforce the amendments to the Bylaws adopted on November 14, 2011 which added a new Article XIII, “Acquisition of a Controlling Interest.” The amendments (the “Control Share Amendments”) generally provide that any person or associated group of persons who acquire 30% or more of the outstanding Common Stock of Cross Border (a “controlling interest”) obtains only such voting rights with respect to any shares of Common Stock such person(s) acquired after acquiring a controlling interest and any shares of Common Stock acquired within 90 days immediately preceding the date when such person(s) acquired a controlling interest as are conferred by a resolution of the stockholders of Cross Border approved by the holders of a majority of the voting power of Cross Border, excluding certain shares of the acquirer and any person that has agreed to act in concert with the acquirer with respect to the Common Stock of Cross Border.
The Board believes that the solicitation of proxies by the Dissident Group for the Company’s 2012 Annual Meeting, in and of itself, will result in RMR and Black Rock being deemed “Acquiring Persons” under the “Acquisition of a Controlling Interest” provision in the Company’s Bylaws thereby restricting the voting rights of all shares acquired or controlled by RMR and Black Rock after or within the 90 days immediately preceding the date they became “Acquiring Persons.” The Board believes that, in the event a stockholder delivers a proxy to RMR and Black Rock in connection with the 2012 Annual Meeting, that stockholder becomes “associated” with RMR and Black Rock for the purposes of exercising voting rights. In light of such stockholder becoming “associated” with RMR and Black Rock for such purpose, to the extent that such stockholder’s proxy, together with all other proxies granted by other stockholders, would cause RMR and Black Rock to possess voting rights with respect to 30% or more of the outstanding common stock of Cross Border, the Company believes that the Control Share Amendments operate to restrict the voting rights of such stockholder’s shares with respect to any proposals or director nominees the Dissident Group puts forth at the Company’s 2012 Annual Meeting unless and until such voting rights are granted by the holders of a majority of the Common Stock not included in the “association.” The Company believes that as a result of the Control Share Amendments, any stockholder whose shares would have been subject to restricted voting rights based upon their delivery of a proxy to RMR and Black Rock will only be able to vote in favor of any proposals or director nominees that the Dissident Group puts forward at the 2012 Annual Meeting by actually attending the 2012 Annual Meeting in person. As described in further detail below under “Background,” the applicability of the Control Share Amendments to the solicitation of proxies by RMR and Black Rock is currently the subject of litigation in the State of Nevada.
· A consent in favor of the Dissident Group Consent Proposals would be a consent to reconstitute the Board such that your duly elected directors will no longer represent a majority of the members of the Board. Instead, the Dissident Nominees would comprise a majority of the Board and would effectively have the power to control all decisions of the Board.
· The existing Board has a strong track record of acting in the best interests of Cross Border’s stockholders. A majority of the members of the Board are independent and disinterested directors who are committed to enhancing value for all of the Company’s stockholders.
· Red Mountain is neither providing other stockholders with a control premium nor a clear and defined path to realizing value for their investment in the Company. The Board believes that it is not in the best interest of all stockholders to turn over control of the Company to any individual stockholder or group of stockholders. We want to emphasize that your Board is firmly committed to acting in the best interests of the Company and all its stockholders.
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· From the Board’s perspective, the Dissident Group’s Consent Solicitation Statement provides no indication as to how the Dissident Nominees would operate the Company different from the current Board. It is possible that the Dissident Group’s intent is to effect a change in the composition of the Board with an aim to, subject to the Dissident Nominees’ fiduciary duties under Nevada law, facilitate a sale of the Company or its assets (in whole or in part) to RMR on terms favorable to RMR. Your Board believes you have a right to be advised of RMR’s ultimate intentions with respect to its proposed changes to the Board and the strategic direction of the Company before RMR asks you to consent to a change in the composition of the Board.
· Prior to RMR first filing a preliminary version of its Consent Solicitation Statement with the SEC, RMR had never provided the Company with any nominations for directors, proposals for stockholder resolutions or suggestions for business combinations. Had RMR approached the Company with constructive proposals prior to waging a consent solicitation, the Company would have gladly engaged in productive discussions with RMR.
· The solicitation itself is consuming time and resources that would be better spent on improving the Company’s business and strategic position, thereby undermining the Company’s implementation of its goal of maximizing stockholder value. With that goal in mind, the Board has been engaged in an evaluation of numerous strategic alternatives including capital raising and other financing opportunities, asset divestitures, joint ventures and/or a corporate sale, merger or other business combination.
The Dissident Nominees have conflicts of interest and are not in a position to best serve the interests of the Company’s stockholders.
· The Dissident Group would like you to believe that the Dissident Nominees, if elected, would be able to oversee the Company’s business and pursue the best interests of the Company’s stockholders free from conflicts of interest. However, the Board believes that the Company’s stockholders should have serious concerns that the Dissident Nominees would have substantial conflicts of interest and would not be in a position to independently evaluate the Company’s business and undertake a review of all of the Company’s strategic options.
· Five of the six Dissident Nominees are current officers or directors of RMR. In addition, both Cross Border and RMR are engaged in the business of oil and gas exploration. While if elected to the Board, the Dissident Nominees would be subject to their fiduciary duties under Nevada law, given the tremendous overlap between Cross Border’s and RMR’s lines of business, your Board believes you should have significant concerns regarding the Dissident Nominees’ ability to effectively govern both Cross Border and RMR concurrently, and have access to confidential information of both companies, without conflicts of interests or divided loyalties.
· Your Board has always acted with integrity, and believes that integrity is an essential condition to Board membership. With that in mind, your Board believes that you should have significant concerns relating to the disclosure in the Dissident Group’s Consent Solicitation Statement regarding certain allegations made by the National Association of Securities Dealers, Inc. (“NASD”) against Alan W. Barksdale. According to the Dissident Group, in 2004 the NASD alleged that Mr. Barksdale solicited an attorney to make contributions to officials of an issuer with which Stephens Inc. was engaging in municipal securities business. Mr. Barksdale was an investment banker of Stephens at the time. Without admitting or denying the allegations, Mr. Barksdale entered into an acceptance, waiver and consent decree that provided for a 30-day suspension from associating with any NASD member and a $5,000 fine.
Cross Border has already addressed, or is in the process of addressing, the core business and governance concerns communicated by RMR.
· The Dissident Group’s complaint about the lack of a recent annual meeting of the Company’s stockholders is moot. The Company has already scheduled the date for its 2012 annual meeting of stockholders for May 9, 2012. At that meeting, all of the current members of the Board will be up for election. While the Dissident Group’s complaint regarding holding of annual meetings may relate to the Company’s predecessor, the Company was formed in January, 2011 with a shareholder vote, and in the Board’s view, May, 2012 is a very reasonable timeframe for the Company’s first annual meeting as it will be a reasonable period of time after the Company’s first annual audit is completed. The Dissident Group is forcing the Company to waste valuable time and financial resources fighting a consent solicitation when the Dissident Group, as well as ALL other stockholders of the Company, will have an opportunity to voice their concerns at the ballot box at the Company’s 2012 annual meeting.
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· The Board is committed to enhancing stockholder value by exploring all strategic options available to the Company. The Company entered into a letter of intent relating to a potential merger with American Standard Energy Corp. (“American Standard”) in furtherance of that goal. Ultimately the Company determined that it would not be in the Company’s or its stockholders’ best interests to consummate a merger with American Standard at this time, and the Company broke off discussions with American Standard prior to entering into a binding agreement to consummate a transaction. The Board believes it acted in the Company’s and the stockholders’ best interests in pursuing what appeared to be a promising opportunity, and similarly acted in the Company’s and the stockholders’ best interests when, after further investigation and due diligence, it determined that a merger with American Standard would not be beneficial to stockholders at this time. The Dissident Group apparently concurs with the Board’s ultimate decision to not pursue the American Standard transaction, and is apparently upset with the Company’s determination to even consider a potential value enhancing proposition in the first place.
· Cross Border has executed its business strategy in its first year as a public company to increase reserves, production and cash flow. To facilitate this, the Company raised private capital, a strategy that was embraced by the Dissident Group as evidenced by its participation in the capital raise. In 2012, the Company plans to raise capital to support the numerous low to moderate risk drilling and workover oil opportunities that have been identified and already proposed by many of the Company’s operating partners. The Company believes that successful execution of this strategy will further add value to the Company and its stockholders. However, the Company remains attentive to alternative strategic opportunities such as a merger with, or acquisition of, another company or companies, including with members of the Dissident Group.
The Dissident Group Consent Solicitation is an attempt to disenfranchise Cross Border’s stockholders with respect to a recent voting right granted to them pursuant to a Bylaw amendment adopted by your Board.
· On November 14, 2011, your Board adopted the Control Share Amendments. The Control Share Amendments generally provide that any person or associated group of persons who acquire 30% or more of the outstanding Common Stock of Cross Border (a “controlling interest”) obtains only such voting rights with respect to any shares of Common Stock such person(s) acquired after acquiring a controlling interest and any shares of Common Stock acquired within 90 days immediately preceding the date when such person(s) acquired a controlling interest as are conferred by a resolution of the stockholders of Cross Border approved by the holders of a majority of the voting power of Cross Border, excluding certain shares of the acquirer and any person that has agreed to act in concert with the acquirer with respect to the Common Stock of Cross Border. The Board believes that the Dissident Group Consent Solicitation, in and of itself, results in RMR and Black Rock being deemed “Acquiring Persons” under the “Acquisition of a Controlling Interest” provision in the Company’s Bylaws. The Board believes that, in the event a stockholder delivers a consent to RMR and Black Rock, that stockholder becomes “associated” with RMR and Black Rock for the purposes of exercising voting/consent rights with respect to the Dissident Group Consent Proposals. In light of such stockholder becoming “associated” with RMR and Black Rock for such purpose, to the extent that such stockholder’s consent, together with all other consents granted by other stockholders, would cause RMR and Black Rock to possess voting/consents rights with respect to 30% or more of the outstanding common stock of Cross Border, the Company believes that the Control Share Amendments operate to restrict the voting/consent rights of such stockholder’s shares with respect to the Dissident Group Consent Proposals unless and until such voting/consent rights are granted by the holders of a majority of the Common Stock not included in the “association.” On December 13, 2011, RMR and Black Rock jointly filed a complaint in the Eighth Judicial District Court, Clark County, Nevada (the “District Court”) seeking, among other things, a declaration by the District Court that a proxy solicitation conducted by RMR and Black Rock would not, in and of itself, result in either RMR or Black Rock being deemed an “Acquiring Person” under the “Acquisition of a Controlling Interest” provision in the Company’s Bylaws. RMR and Black Rock subsequently amended their complaint to seek a declaration by the District Court that the Dissident Group Consent Solicitation would not trigger the “Acquisition of a Controlling Interest” provision in the Company’s Bylaws. The District Court dismissed RMR’s and Black Rock’s request for declaratory relief on the grounds that it was not properly plead as a derivative claim. The Company anticipates that RMR and Black Rock will amend their complaint and continue to pursue their arguments. The Company plans to vigorously contest any such action.
6
· Your Board adopted the Control Share Amendments to prevent any single stockholder from effectively controlling the outcome of all stockholder votes without your approval. If the Dissident Group Consent Solicitation is successful, you will lose the protections that your Board recently provided to you by the addition of this provision in the Bylaws. If the Bylaw Amendment Repeal Proposal is adopted and the Control Share Amendments are repealed, all stockholders, including large stockholders, would have the ability to vote shares of common stock owned by them and have such votes tallied as they would be in any election, whether or not a large stockholder existed. This would mean, for instance, that a stockholder who accumulated just slightly more than 50% of the Company’s common stock would have the ability to single-handedly approve all matters that require a simple majority vote of stockholders, even though up to 49.9% of the stockholders might oppose that action. Even a stockholder who only accumulated 45% of the Company’s stock would only need to convince a few other stockholders to vote their shares alongside those of the 45% holder in order for the 45% holder to be able to effectively control the stockholder decision making process.
FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS OF THE COMPANY STRONGLY BELIEVES THAT THE DISSIDENT GROUP CONSENT SOLICITATION IS NOT IN THE BEST INTERESTS OF THE COMPANY’S STOCKHOLDERS.
WE URGE STOCKHOLDERS TO REJECT THE DISSIDENT GROUP CONSENT SOLICITATION AND REVOKE ANY CONSENT PREVIOUSLY SUBMITTED.
DO NOT DELAY. IN ORDER TO HELP ENSURE THAT THE EXISTING BOARD IS ABLE TO ACT IN YOUR BEST INTERESTS, AND TO PRESERVE YOUR ABILITY TO PREVENT A SINGLE STOCKHOLDER FROM GAINING UNREASONABLE CONTROL OVER ALL FUTURE STOCKHOLDER VOTES WITHOUT YOUR PRIOR CONSENT, PLEASE SIGN, DATE AND RETURN THE ENCLOSED BLUE CONSENT REVOCATION CARD AS PROMPTLY AS POSSIBLE.
The 10K came out late Friday, nice to see that behind them. Now the deck is clear to put out an ops update, so I'm expecting something next week. At this point the first well has been producing for well over 30 days and we might even get a 30-day IP rate on the 2nd well also.
They ended up the year with more cash than I thought, about $1.9M, and that's even after adding to their acreage a bit. This combined with the fortuitous pause in the Miss. play drilling is why they haven't had to get any more financing this quarter. But now that they have no doubt gotten the AFEs for the next 2 Miss. wells, I would think the time for more financing is nigh.
The 10K reminded me that one of the things I like about this company is its squeaky-clean capital structure. No debt (yet), just under 50M shares of common stock out, only 1.1M warrants exercisable at $1.25, and zero options. This is very rare for such a small company as Osage.
Researcher, as the saying goes, "watch what they do, not what they say". Many thanks to you who dug this info up. This corroborates what I had heard recently from the company CEO and has several implications IMO:
1) Most importantly, the fact that they are continuing to lease even after seeing the first well flow for a month or more, and after seeing the IP for the 2nd well, speaks volumes of what they think of this project at this time. Normally by this point I would be thinking "no news is bad news" but not now. If in fact they have a good flow rate to announce in one or both of these first 2 wells then it would obviously behoove them to lease up as much more acreage as they can get their hands on prior to publicly announcing any flow rates.
2) The fact that they have chosen to go "all-in" on this project with their remaining funds, even though they have been advised by Slawson that the 2-well drilling program is only a few weeks from getting restarted, speaks volumes of their confidence in getting additional financing. I know they were still thinking about some sort of "debt with warrants" deal as of a few weeks ago but with the stock skyrocketing since then I wonder if they might be reconsidering and just do a pure equity raise instead.
3) These don't appear to be large blocks and I believe the large blocks are probably all taken at this point, but there are probably plenty of small parcels still available. A company the size of Devon Energy can only work with the large blocks of acreage. The small stuff is just not cost-efficient for them to deal with. This creates a great opportunity, where a tiny company such as Osage can walk behind a giant such as Devon and pick up all the crumbs that Devon leaves behind. This is how it worked up in the Bakken, where the smaller companies were able to build large non-operated portfolios of small interests in wells, by picking up small pieces of acreage that the larger companies just didn't bother to pick up.
It would not be a huge surprise to hear that Osage is a partner (albeit for a small W.I.) in wells to be drilled by the likes of Devon or Chesapeake in the coming months, by virtue of Osage picking up these little acreage parcels.
The thing that bugged me the most about Osage when I first started researching them was, why was their area of the Miss. play, Logan County, not even on SandRidge's map? SD was the company that really opened this play up so you would think that they knew where the play boundaries were. Thankfully I was able to get my head around this issue thanks to help from the consultant that I use for O&G projects, who sat down with the Osage geologist, and I bought a huge amount of the stock.
Logan County has now been pushed front & center on the Miss. play stage thanks to Devon's Matthews 1-33H well, which Devon announced in their 4Q CC last week. In that CC, Devon had this to say about this well and their Miss. play in general:
"In the Mississippian oil play located North Central Oklahoma, the partnership has now secured approximately 230,000 net acres. We drilled our first vertical well in the second quarter of last year to gather data and have since drilled our first horizontal Mississippian producer, yielding very encouraging results. The Matthews 1H was brought online in the fourth quarter and achieved a 24-hour sustained IP rate of 960 barrels of oil equivalent per day, of which greater than 80% was oil. Through the first 30 days of production, the well averaged 590 barrels of oil equivalent a day. These results are among the best reported in the play to date. And with an API gravity of around 40 and low sulfur content, this appears to be some of the best-quality crude oil in the lower 48. We are obviously very encouraged with these results and plan to drill or participate in approximately 15 Mississippian wells by year end."
This is a blockbuster well, about double what the average SandRidge well is doing in the north. When I was at NAPE, I happened upon a great map of the Miss. play that actually showed Logan County on it, which can be downloaded from http://finance.groups.yahoo.com/group/EnergySectorInvesting/files/ (you need to join the group to download files, its free & easy to do so). As shown on the lower left of that map (zoom required), Devon's well is located in Logan County, about 9 sections (or 7 miles) to the east of Osage's northern well (25% non-op interest, operated by Slawson).
Devon has nearly a quarter million acres in the Miss. play and where do they choose to drill their first Hz. well in that play? Right there in Logan County, 7 miles from Osage's well. And the damn thing comes in at double what SD is doing up to the north!
But wait, just like the Ginsu Knives it gets better. Word has it that the site Devon selected for their 2nd Hz. well in this play, which I believe is drilling as we speak (or may have already finished), is a only 2 miles from some of Osage's acreage. Its hard to conceive of a better vote of confidence on Logan County than this. Word also has it that on the first 2 Slawson wells, they copied Devon's frac design on the Matthews well to a T.
So in case you were wondering why this stock has been on a tear in the last month or so, here's why.
Osage Exploration trying to make its mark in Oklahoma oil play
Tiny Osage Exploration & Development may be primed to cash in on its efforts to identify the edge of the developing Mississippian oil play.
By JAY F. MARKS | Published: March 9, 2012
An ambitious six-person oil and natural gas company based in California is out of make a name for itself in Oklahoma's growing Mississippian oil play.
But while other operators have concentrated their efforts closer to the Oklahoma-Kansas border, Osage Exploration & Development chose to strike off on its own.
Osage focused on the area around Crescent in Logan County after turning its attention to the Mississippian in 2009 based on geologist Greg Franklin's analysis of data from about 300 earlier wells.
CEO Kim Bradford said the key feature of Osage's acreage is the Nemaha Ridge, an underground fracture that occurred when Oklahoma was still a tropical area in the Southern Hemisphere.
Franklin's studies indicated the rocks near the ridge were porous, meaning they could hold more oil than tighter formations.
“This was the promised land,” Bradford said.
Osage got in early enough to amass its acreage at reasonable prices, which is important for such a small company.
Bradford said Osage, which started less than a decade ago, built its asset base in South America to fund its domestic exploration efforts.
Osage was among the early companies looking at acreage in south Texas' Eagle Ford Shale, but Bradford said it didn't have the cash to compete for leasehold with larger companies like Chesapeake Energy Corp.
That is why Osage was eager to find its own piece of the emerging Mississippian plan.
“We got way in front of the wave,” said Bradford, a California resident who spends about 25 days a month living in an Oklahoma City hotel.
Jack Zedlitz, Osage's investor relations and capital markets adviser, said the company figured to figure out where the Mississippian would be, instead of where it was a couple of years ago.
That gave the little company a jump on its larger competitors.
“We got there a year ahead of them,” Zedlitz said.
Narrow focus
Osage, which has its operations office in downtown Oklahoma City, owns about 20,000 net acres in the Crescent area, with Devon Energy Corp. surrounding its position, so officials are optimistic about the company's holdings.
Osage has partnered with Slawson Exploration Co. and U.S. Energy Development Corp. in its drilling program. Bradford said the partnership has drilled and fracture stimulated two wells.
The wells are 12 miles apart, on opposite ends of Osage's acreage. Production results should begin coming in soon.
Bradford said company officials are excited about the prospect of proving their theories about the area were correct.
“We've done an extraordinary amount of work in very, very fine detail,” Bradford said. “We've got an understanding of our area that is second to none.”
He said producers have not drilled any dry holes since they began drilling horizontal wells in the Mississippian, so it becomes a matter of economics.
“These are some of the most economic wells in America,” Bradford said.
He said he expects Osage's wells to return 100 percent of their cost to the company in a year, based on current expenses.
Osage expects to begin drilling two wells a month in the next 30 days or so, with plans to drill as many as 15 wells on its acreage, he said.
Bradford said Osage's narrow focus is not typical for such small companies, but it is on the verge of paying off.
“We picked this 200 square miles, and we've tried to own it,” he said. “This is our universe.”
http://newsok.com/article/3655839
*****************************************************
Above was an article in today's Oklahoman, first posted by 16bit on the SIBBR.
The reference to the fact that Osage's acreage is surrounded by Devon's no doubt had a lot to do with today's move in the stock. In spite of Devon having gotten caught with too much gas vs. oil in the last year or so, that company remains very highly regarded in the E&P world. There's a lot more to that story, and at some point when I have little more time I'll get that out.
In the meantime we sits & waits for the the flow rate for the first well. Kim (Osage CEO) remains adamant that he wants to just put out one PR on that well, which would include a 30-day IP rate. Assuming he sticks to his guns and if I'm recalling the frac date correctly I believe that would mean they would be announcing something during the week of 3/19. In the meantime hopefully they can get the 10K filing out of the way (which will be pretty boring since it won't have anything related to their Miss. play in the results). Folks that have missed the boat on this may want to have some dry powder ready to buy on any dip that might ensue if in fact they file the 10K before announcing the first well's the flow rates.
MACD, Ridgeline (RLE.V) -- great to see this stock make it to this fine board. With the recent runup in the stock price folks may be wondering what the LT potential of this business is.
The best discussion of the potential market for RLE's technology to treat oil & gas frac flowback and produced water is at pages 20-21 of Mackie's initiation report on them (see full report at http://stockgroup.stockhouse.com/baimg/img/newshotline/Ridgeline%20Mackie%20Research%20Capital%20report%20Jan%2016%202012%20.pdf ) . Making fairly reasonable assumptions (but see next sentence) Mackie concludes that if RLE were to capture 5% of that market they would generate just under $1 B a year in revenues and just over half a $B in EBITDA. A large # of the oil & gas wells drilled in this country are drilled in areas where water is not much of an issue so to capture 5% of the total drilled would be quite a challenge I believe.
The above analysis omits 2 material potential markets which could also make this stock a huge winner from here:
1) Water treatment for polymer floods in heavy oil projects in Canada. See the "October 2011" entry at the bottom of this page of the RLE website, http://www.ridgelinecanada.com/s/Water.asp?ReportID=504169&_Type=Ridgeline-Water-Inc.&_Title=Commercialization . Alberta has been having a drought so projects such as this one can't work unless they figure out a way to re-use the water. RLE's water treatment method, which you would recall uses low amounts of heat, is the only one that doesn't screw up the chemical properties of the water thus allowing it to be re-used for polymer hydration. Since in this application RLE's technology is basically the sole "enabling technology", it would seem reasonable to conclude that their margins in this project would be substantially higher than for the normal water treatment work in the US. This polymer flood is expected to be huge, with peak production at 80,000 bopd. For more info see PR dated 10/20/11, http://www.ridgelinecanada.com/s/NewsReleases.asp?ReportID=503533&_Type=News&_Title=Ridgeline-Signs-a-Fifth-Development-Agreement-with-A-Major-Oil-and-Gas-Comp... . In Ridgeline's latest presentation (dated 2/23), at slide 14, they list "Chemical Flood Pilot Results" as a milesone to be announced sometime early this year. I suspect that that is referring to the polymer flood project initially announced in October.
2) Industrial wastewater treatment. See Mackie's description of this market below (from pg. 21 of their report). Using their figures we are looking at one treatment site that, if acquired by RLE and modified to utilize their technology, could generate $9M/yr. in revenues with 90%+ margins, and there are over 150 of these in California alone.
"LAKELAND: AN EXAMPLE OF A POTENTIAL NEW LONGER-TERM
MARKET
"While the oil & gas sector in North America presents an extremely large and attractive market
opportunity for Ridgeline, its technology lends itself to multiple applications, including treating
other industrial waste waters. An example of a potential future market for Ridgeline would be an
acquisition or development agreement similar to that with the Lakeland Processing Company
(private) in Los Angeles, California. On September 13, 2011, Ridgeline announced a Development
Agreement with Lakeland, whereby Ridgline has deployed a Mobile Development Laboratory
(MDL) onsite. The MDL has been used to test incoming waters, with results to date validating the
effectiveness of the technology."
"Lakeland is a water treatment facility that accepts and processes non-hazardous liquid waste
from a broad spectrum of petrochemical, contracting, industrial, marine, and commercial
operations. The facility has one of the largest discharge permits in Los Angeles County at 75
million gallons annually. While currently the relationship between Ridgeline and Lakeland is
only a development agreement, we believe that this facility or one of the 150+ similar sites in
California presents a longer-term opportunity for Ridgeline. The processing of industrial waste at
sites similar to Lakeland generally carries a higher processing fee than for oil & gas water
treatment, in some cases at a rate of $40-$60/m3 compared to $4.50/gallon for the oil & gas
sector. The cost structure is similar in both cases, providing for a potentially significantly higher
margin per gallon of water processed. Using the revenue metrics above, a site like Lakeland
could have annual revenue capacity of roughly $9 million at +90% EBITDA margins. At the
moment, the site is running well below full capacity, closer to 11-12 million gallons based on our
estimates due to the site having to turn away water due to an insufficient
infrastructure/technology base. There would also be an opportunity to add biofuel production to
this site to exploit some of the fats, oils and greases (FOG) that is mixed in with waste water
brought to the site."
boomer, this talk about whether they "promised" to drill 25 wells or not is pretty silly and unfortunately shows how pollyanna-ish that both of you guys are. Companies make forward-looking statements, and we're all (or maybe most of us are) big boys & girls here and we know that things might not turn out like the company thinks or hopes they will. We especially know this to be the case for a non-operator vs. an operator. If we don't then we probably shouldn't be investing in this industry.
Above being said, has anybody actually tried to count all the wells that XBOR participated in last year? Not sure if it got up to 25 (gross) but they drilled a helluva lotta wells. I'm very pleased with how the company performed in the field last year. It would have been foolhardy to participate in any more wells than they did because if they did, they would have run out of cash even sooner than they did and backed themselves up against the wall having to beg borrow & steal to meet AFE's.
seaoh, pray tell, what are said "real issues" with Stearns, thanks in advance for any help.
May the best man win!
My money (literally & figuratively) is riding with Will "The Thrill" Gray, let's see what happens....
In round #'s I believe the company should get sold for something like $3/share in a cash transaction or more if a share-for-share exchange (and the amount more would depend on how large the acquirer was and how liquid their stock was). At $3/share the acquirer would be paying about $51M. With about $9M of XBOR debt currently outstanding (now that their 4.5M bank line is fully drawn), that would mean that including the assumed debt the acquirer would be paying $60M. Putting reasonable risk discounts on the probable & possible reserves you can get to a value of about $50M for their 3P reserves, and then if you assume that 20K of their 30K acres in the Permian is something other than goat pasture, put $500/acre on those acres and you get to total value of $60M.
Cross-checking for value per flowing barrel, XBOR's production reached 500 boepd a few weeks ago and they have guided to 750 boepd @ year-end, so if you paid $60M, at $100K per flowing barrel you are right around the middle of those figures. In straight oil property sales (i.e. not under a corporate shell), Permian properties are going for about $150K per flowing barrel these days, but XBOR would have to take a haircut because they are not selling the properties directly but rather under a corporate shell.
Note that in addition to having 16.1M shares out they have 3.6M warrants out that can be exercised at $2.25, and essentially no options. 2.1M of the warrants are held by a subsidiary of Red Mountain Resources (RDMP.OB), and can only be exercised in certain events, as follows (excerpt from Sched. 13D filed 1/10/12):
"Black Rock is deemed to be the beneficial owner of 4,272,328 shares of the Issuer’s Common Stock, or approximately 23.4% of the Issuer’s Common Stock. This represents 2,136,164 shares of the Issuer’s Common Stock held by Black Rock and warrants to purchase 2,136,164 shares of the Issuer’s Common Stock held by Black Rock for which the exercise period began on November 26, 2011. The warrants, however, are subject to a cap that precludes the holder from exercising the warrants if after such exercise the holder alone or with its affiliates would be the beneficial owner of more than 19.99% of the Issuer’s Common Stock unless the holders of the Issuer’s Common Stock approve such exercise."
sagedono, I was able to get a partial answer from the audio interview that came out last week. He said that they were able to get it financed with little dilution to shareholders if I recall correctly. This is great news.
Now the only remaining hurdle is getting that S1 filed to start the process of becoming fully reporting. Does anyone know when that is expected at this point? I believe they've been working on it for over a year or so.
Now that their drilling program in into full swing its time to get down to what the value proposition is here and how they will get to the promised land:
The Size of the Prize
For starters, see a report issued last March on Osage's Mississippian acreage by a PE firm called Pinnacle Energy Services at http://finance.groups.yahoo.com/group/EnergySectorInvesting/files/ (you need to join the group to download files, its easy & free to do so). In that report, which Osage used to shop its farmout deal and which was good enough to get Slawson to buy in a month later for 45%, Pinnacle concludes that of the 37,760K acres that comprise Osage's whole project, they believe there is 58,526 mbo and 209,652 mmcf of gas that is recoverable. So far Osage and its partners have leased up 20,000 acres in this project and Osage has a quarter of that. So let's keep the math simple and just divide Pinnacle's #'s by 2 to get a figure for gross recoverable hydrocarbons on the 20K acres that have been leased up so far.
This means that net to Osage, assuming a 78% NRI, they could be sitting on 5.7 mmbo and 20 bcf of gas. Using $25/bbl. for oil and $1/mcf for gas for in-ground values we then arrive at a potential value of $163M. Not too shabby for a company with a market cap at just above $20M!
How Do They Finance Their Drilling
OK, so we see they could be sitting on the mother lode. That may be great but if they can't figure out a way to finance their drilling without diluting the hell outta everyone by issuing cheap stock, it will all be for naught. As of the end of last quarter they had about $2.9M of cash but that's probably only going to be enough for their share of the first 4 wells, including one paired SWD well per producer. Since the operator of the project, Slawson, has 2 rigs going, that doesn't leave much time before Osage will run out of money.
This is where their Colombian Connection comes in. They own a small but very valuable interest in a pipeline in Columbia that currently is generating about $450K/qtr. in cash flow net to Osage. Also they own a small interest in a mature oilfield there that has an after-tax PV10 value net to them of about $5M. Right now Osage has zero debt. I believe these 2 assets alone could support a loan of $2-5M.
A loan of even just $2M would get them through the next 3 wells. By that point they would have 7 wells producing. Assuming Osage is able to generate 30-day IPs the same as what SandRidge has been getting, which is about 300 boepd, 50-50 oil vs. gas, this means their first month's production revenue will be about $90K per well, and then it will taper off from there. So with 7 wells cranking away they should then have no problem in borrowing more money, to keep the drilling going.
The Bottom Line
So net-net I believe they can get this entire multi-year project done without issuing much if not any more stock. If they do have to issue any it will probably be very soon and will not need to be very much (maybe a couple million $$ worth). So 3 years from now we could be looking at a company that is so far along in drilling out its $160M worth of reserves that the market has decided to give it value for all of them, with say 55M shares out and maybe something like $20M of debt. The stock could be had today for under $.50/share but it could be a $2.50 stock in 3 years.
The stock price has gone up more than 10-fold in the past year so it would not be an immense surprise if we see some indiscriminate selling going on in the first few weeks of this year, from profit-taking. If in fact this occurs this would provide an excellent opportunity to build a position in this stock.
Osage Exploration (OEDV.OB) -- now that their drilling program in into full swing its time to get down to what the value proposition is here and how they will get to the promised land:
The Size of the Prize
For starters, see a report issued last March on Osage's Mississippian acreage by a PE firm called Pinnacle Energy Services at http://finance.groups.yahoo.com/group/EnergySectorInvesting/files/ (you need to join the group to download files, its easy & free to do so). In that report, which Osage used to shop its farmout deal and which was good enough to get Slawson to buy in a month later for 45%, Pinnacle concludes that of the 37,760K acres that comprise Osage's whole project, they believe there is 58,526 mbo and 209,652 mmcf of gas that is recoverable. So far Osage and its partners have leased up 20,000 acres in this project and Osage has a quarter of that. So let's keep the math simple and just divide Pinnacle's #'s by 2 to get a figure for gross recoverable hydrocarbons on the 20K acres that have been leased up so far.
This means that net to Osage, assuming a 78% NRI, they could be sitting on 5.7 mmbo and 20 bcf of gas. Using $25/bbl. for oil and $1/mcf for gas for in-ground values we then arrive at a potential value of $163M. Not too shabby for a company with a market cap at just above $20M!
How Do They Finance Their Drilling
OK, so we see they could be sitting on the mother lode. That may be great but if they can't figure out a way to finance their drilling without diluting the hell outta everyone by issuing cheap stock, it will all be for naught. As of the end of last quarter they had about $2.9M of cash but that's probably only going to be enough for their share of the first 4 wells, including one paired SWD well per producer. Since the operator of the project, Slawson, has 2 rigs going, that doesn't leave much time before Osage will run out of money.
This is where their Colombian Connection comes in. They own a small but very valuable interest in a pipeline in Columbia that currently is generating about $450K/qtr. in cash flow net to Osage. Also they own a small interest in a mature oilfield there that has an after-tax PV10 value net to them of about $5M. Right now Osage has zero debt. I believe these 2 assets alone could support a loan of $2-5M.
A loan of even just $2M would get them through the next 3 wells. By that point they would have 7 wells producing. Assuming Osage is able to generate 30-day IPs the same as what SandRidge has been getting, which is about 300 boepd, 50-50 oil vs. gas, this means their first month's production revenue will be about $90K per well, and then it will taper off from there. So with 7 wells cranking away they should then have no problem in borrowing more money, to keep the drilling going.
The Bottom Line
So net-net I believe they can get this entire multi-year project done without issuing much if not any more stock. If they do have to issue any it will probably be very soon and will not need to be very much (maybe a couple million $$ worth). So 3 years from now we could be looking at a company that is so far along in drilling out its $160M worth of reserves that the market has decided to give it value for all of them, with say 55M shares out and maybe something like $20M of debt. The stock could be had today for under $.50/share but it could be a $2.50 stock in 3 years.
The stock price has gone up more than 10-fold in the past year so it would not be an immense surprise if we see some indiscriminate selling going on in the first few weeks of this year, from profit-taking. If in fact this occurs this would provide an excellent opportunity to build a position in this stock.
MWM, thanks for bringing these guys up. They happen to have some wells in the same county as where Osage (OEDV.OB) is drilling. By any chance do you know how many acres they control over there, the website doesn't specify.
geo, maybe so, but I don't think the learning curve will be too significant for Slawson. Slawson is considered one of the most highly regarded drillers up in the Bakken Shale. Granted the Miss. Lime is carbonate not shale but there are a lot of similarities -- both involve drilling long-lateral horizontal wells that need multi-stage fracs.
Its been almost a week since Hoffman filed his last Form 4, which has me wondering whether he is finished (or maybe he's just taking a vacation?). I'm quite impressed with how he was able to blow out almost 400K shares in 2 weeks and still not crater the bid. As long as he behaves himself I don't mind it a bit that he is taking some profits here. The guy's got at least a 10-bagger, what more do you want? Also, the more shares in the float the better, IMO. We need more trading volume in order to attract the Big Boys and its easier to generate more volume when there's more float.
Hannibal, first of all Hoffman sold only a very small amount of his position and still has something like 5.7M shares left. From what I understand he bought most if not all his position for a few pennies per share a coupla years ago so he would be a complete idiot not to be taking a few chips off the table at this time. There is little geologic risk to the wells that Osage is participating in the drilling of but there is a fairly wide range of possible logged pay and/or production results.
No telling whether Hoffman is finished or not but in as little as a few weeks from now that will be somewhat moot since we will hopefully be starting to hear results of their first well. I believe SandRidge has drilled some of their wells to the north in as little as 20 days. This is not Slawson's first rodeo, they in fact are currently considered "best in class" for the horizontal drilling in the Bakken, so even though this is Slawson's first horizontal well targeting the Mississippian in OK it would not be an immense surprise if it hit TD in 20 days or so, which would mean we could be hearing of logging results as soon as the first week of the year.
These wells take a bit more than 3 days to clean up so I hope that XBOR waits a bit longer than the 3 days that FPP waited before issuing a 24 hour IP rate for their Lusk well.
sage et al, just starting to look into this company and have recently bought a small starter position in it. The story seems great but I have a very basic question -- has anyone figured out how the company is financing the recent expansions, given that they ended last quarter with just about $600K in cash plus have no bank line as far as I can tell?
bobwins, its a gallant thought even if its unrealistic. If you look at ASEN's situation you'd note that:
1) they are pretty well maxed out on their debt;
2) just about every equity raise they've done in the last year is now under water or very close to being so;
3) to get their last equity raise done, last July, they needed to include some of the most toxic, investor-friendly, provisions I've ever seen.
Given the the above it seems unrealistic to expect that ASEN would be able to raise a significant amount of cash at this time, whether by issuance of debt or equity. Will may be a superstar negotiator but he can't squeeze blood from a stone.
Many of the warrants that have been issued by ASEN are subject to having their exercise price reduced due to subsequent "down round" stock issuances. ASEN recently announced another acquisition that is expected to close by the end of this month, and for some of the consideration they intend to issue stock. Assuming their stock price stays where it is today that would mean that, upon that transaction closing, the exercise price of these warrants will get reduced.
Also, the equity offering that ASEN did in July had some particularly toxic provisions in it, viz.:
" On July 15, 2011, the Company closed a private placement offering of $12,980,003 through the issuance of (i) 2,260,870 shares of our common stock at a price of $5.75 per share, (ii) Series A warrants to purchase 1,130,435 shares of common stock at a per share exercise price of $9.00; and (iii) Series B warrants to purchase a number of shares of common stock, which shall only be exercisable if (A) the market price (as defined below) of our common stock on the 30th trading day following the earlier of (i) the effective date of a registration statement to sell the shares of common stock and the Series A warrant shares, and (ii) the date on which the purchasers in the private placement can freely sell the shares of common stock pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended, without restriction (the “Eligibility Date”) is less than the purchase price in the offering or $5.75; and (B) upon certain dilutive occurrences."
My take-away from this is that come 1/15/12 (i.e. the date that the shares issued in this offering become free-trading), I would fully expect that the placees in this offering to start blowing out their stock over the next 30 days, knowing that they will get more free shares to replace the stock sold by virtue of how that Series B Warrant provision
works.
I believe that the reason that ASEN is trying to rush to lock up XBOR now vs. later is that they realize that the value of their stock is about to head south starting on 1/15, so this will be the best shot they have at getting this nice prize before their stock price goes all to hell.
I fervently hope that XBOR management, in the course of their due diligence, realizes what is going on here and walks away from any deal that may be proposed by ASEN, at least for the time being. Once all this weird financing stuff that ASEN has done gets sorted out (maybe in the spring?) then it might make some sense to talk to them.
My impression on looking at ASEN is that they are true oil & gas superstars but have unfortunately gotten some very poor financial advice regarding how they structured their financings. Yes, maybe the results in the field will be so phenomenal that it will overcome all these financing screw-ups but I wouldn't bet on it.
cliffvb, SARA -- FWIW, the 2 analysts following Saratoga are calling for 4Q revenues to come in at just $23M and earnings of $.09/share. I haven't seen either model so I don't know what they are using for commodity prices, etc.
Bob, Saratoga (SARA) -- given that only about 11% of their revenue is being generated by the sale of gas I'm a bit befuddled why so many folks are focusing on that part of their business. This is an oil company that sells a bit of gas as a byproduct of its oil. The gas revenue partially offsets the company's production costs.
The Acadia well which is expected to spud in January should increase their production by about 10% or so.
Folks who may have passed on this name previously due to insufficient trading activity should look at volume in the last month or so -- it's increased dramatically thanks to the April PP shares hitting the float. Due primarily to this fact I like the stock more now than I ever have, and would be buying it aggressively here if I didn't already have as large a position in it as I do.
Rawnoc, this is turning out perfectly, the Brits are behaving very civilly and are waiting to be matched up with buyers that the Tom & Andy show is finding.
I saw in the 10Q that Wayzata, the company's former financier (whose debt forced them into bankruptcy), exercised about 800K penny warrants in September. Not sure whether the shares underlying those warrants are free-trading or not but I believe they are. If so, those are now in the overhead supply also. This would actually be a good thing -- we need as many shares in the float as possible, to allow for greater trading volume (which, in turn, will allow the big boys to take positions in the stock).
3Q production ended up coming in at 320 boepd, somewhat higher than their earlier estimate of 308 boepd. Maybe in the future, when providing an estimate of a number that has not been fully hacked out yet, they might provide a range, to underscore the fact that its just an estimate.
The 320 boepd figure is just 5 boepd lower than what Redchip had been calling for, not too shabby. It will be interesting to see in tomorrow's call if they can provide us what their exit rate was for 3Q or even better, what their average production was for the month of October.
The DD&A rate went way up this quarter but I suspect it had something to do with the recent reserve report, and will probably self-correct next quarter when they do the year-end reserve report. As we know from an earlier presentation, none of the Wolfberry reserves were included in the earlier reserve report.
Great to see that the first Lusk well with Cimarex has finally started drilling. It would really be great if they could get that sucker online or at least at the point of flowing back frac water by year-end. If its not producing yet, it would be interesting to see if they would be able to include the reserves discovered by that well in their year-end reserves.
They added a lot of gas production this quarter -- gas production increased by 32% over 2Q. Not sure where this gas is coming from, but in any event its getting an excellent price ($6.34/mcf in 3Q) so I'm not going to complain. It must be very rich in liquids and/or have a very high btu content.
Zen, great point, maybe they'll get there after all. Even if they "only" get to 3,800 boepd that would still constitute tremendous growth in sequential quarterly production.
From the 10Q I note that Wayzata, their former lender, exercised 800K of their penny warrants. I believe the shares underlying those warrants are registered, which means they could be hitting the market together with the April PP shares. Hopefully the upcoming road show will engender some crosses where one or more big buyers could be found to take down big chunks of this overhang in one (or a few) shot(s).