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With 3,350 boepd production for October it now looks like Saratoga will fall a bit short of averaging 4,000 boepd for 4Q as was being projected by Imperial. Also 1Q '12 will probably not be all that much better than 4Q given that they will not start drilling again until that quarter, given that it takes 2-3 months to get a well online from the date it was spudded.
But I still see some great possibilities for stock price appreciation here in the coming months so that is why I've added to my already large position in the stock. For one, I'm expecting to see some new analyst coverage soon, maybe even in the coming weeks. By that point a large chunk of the overhang will have been chewed through so the buying that comes in from that could really move the stock price.
The biggest catalyst would be an announcement of a JV to drill out their deep gas prospects. In the 10Q that just came out they stated that they are now in active negotiations to put something together. An announcement of a JV with the likes of McMoran would make the crowd go wild.
If you haven't seen the Imperial report, let say "a lot!" <g>
Rawnoc, after backing out the $7.7M gain on debt payoff plus the $3.8M of exploration expense for the dry hole, they actually made a little money. Imperial Capital was calling for $21M of revenue and a loss of $.03 per share. Production came it a little light to Imperial's call for 2,833 boepd, but I'm not surprised given the tropical storm that ripped through there in August.
Imperial had pegged their 4Q production at 4,000 boepd and I still think they have an excellent shot at hitting that, especially given the latest ops update.
Real-time quotes for XBOR are available for free at http://www.otcmarkets.com/stock/XBOR/quote . All XBOR fans should have this page bookmarked IMO.
I was talking oil stocks with a buddy of mine the other day, who follows these stocks very closely, including the junior companies, and I mentioned XBOR, at which point he laughed. When I asked him why he laughed he said they have a great story and have huge potential but they basically don't trade since no one is making a market for the stock. At that point I mentioned the fact that XBOR is listed on the OTCQX and thus has several very active market-makers posting quotes on the stock. The bid/ask spread was pretty wide initially but it's tightened up substantially in recent weeks and currently is not much different than, say, a thinly traded Amex stock.
He then said "what are you talking about --- when I go onto Yahoo it says "NA" next to the bid/ask". I responded that Yahoo doesn't pick up the quote feeds for the OTCQX stocks for some reason, and that you have to go directly to the otcmarkets.com site to get the quotes. He was stunned, and said that he definitely would be buying some XBOR stock now that he sees that there's a real market being made in the stock.
This started me thinking (I know, that could be dangerous!). I wonder how many other potential XBOR investors out there are shying away from the stock just because Yahoo and other financial websites have dropped the ball and have failed to pick up the OTCQX quote feed. In light of this, I wonder if XBOR should add some sort of statement to its next PR, which would reiterate that they are listed on the OTCQX market and that it has come to the attention of company management that not all the financial websites are picking up the OTCQX quote feed, so that interested parties should go to the otcmarkets.com site for free real-time quotes on XBOR. Also, XBOR should consider adding a statement to this effect at the tag lines which come at the end of every PR they put out.
Sentiment : Buy
woje & Bobw, I agree with the thought that the report is very conservative. I have found that the first analyst that initiates coverage on a stock is almost always excessively conservative, I guess its just human nature. Hopefully the next round of analysts that initiate coverage will show a little more guts.
Given that it appears that SARA will have succeeded in increasing its production by about 1,000 boepd this quarter sequentially vs. 3Q, and that they expect to maintain around the same cap ex spend rate in the coming 4 quarters as they have in recent ones, I don't see why we shouldn't be able to expect similar production increases for next year. That is, 1Q average of 5,000 boepd, 2Q 6,000 boepd, etc. for full yr. '12 average production of 6,500 boepd.
See a great report that Enercom put out on Cross Border recently at http://www.oilandgas360.com/crossborder/103111_XBOR.pdf . The author of this report obviously understands the oil business and its clear that some thought went into this report. They conclude that XBOR's current NAV is somewhere between $2.16 and $3.82 per basic share, figures that are significantly greater than the current quote.
From the report we can glean that XBOR has recently completed 2 more Woflberry wells, in which they have a 20% W.I., and if memory serves, as of the 10/20 ops update they still had yet to bring on a previously drilled Wolfberry well in which they had a 10% W.I. in . So by now they should have seen IP rates for essentially a half of a Wolfberry well, net to their interest. In the report they estimate that the average Wolfberry well should come on at 110 boepd gross, so if I'm right about this stuff figure about 40 boepd of incremental production net to XBOR for these 3 wells. Given that 3Q average production was all of 308 boepd it would seem that a 40 boepd ramp in production would have to be considered "material". It will be interesting to see whether they try to hold this info out until they announce 3Q or whether they put it out sooner, say right before they present at the Redchip conference in NYC on Wednesday. One thing they might decide to do is announce October's average production, which is almost certainly lower than what the current run rate is, in order to save some of the fireworks for the 3Q earnings release. Doing it this way ought to dampen the impact of the "sell on the news" crowd, since we all would know that better news is just another week into the future.
The stock has now traded over the April PP issuance price of $1.50 for the last 9 trading days straight. I'm still not ready to declare victory but if its still over $1.50 by the end of the week I would say that we finally chewed through the financing overhang.
About a month ago Imperial Capital, SARA's financier, initiated analyst coverage on both SARA's bonds and stock.
See Imperial's initiation report on a list of files at http://finance.groups.yahoo.com/group/EnergySectorInvesting/files/ . You need to join the group to be able to download files, its fast & free to do so.
Great news indeed, I wasn't expecting them to get to this production level so soon. I believe they now have an outside shot at ending the year over 5,000 boepd and should be able to get to 4,500 boepd without too much problem.
The PR didn't mention where they were in their drilling program, which makes me wonder if they laid down their rig for some reason. Hopefully they haven't.
Now we just have to sit back and wait to see how the Tom & Andy show does --- I'm hearing they are about to embark on a multi-week multi-city non-deal road show. Also I believe we should be getting some new analyst coverage at some point in the next few months -- the story is just too compelling for them to ignore at this point.
I get around $15M of EBITDA per quarter based on a 4,000 boed run rate (taking into account that a large amount of the recent production adds are gas not oil). This means they are trading at an Enterprise Value of only around 4 x annualized EBITDA, a rediculously low multiple given their growth prospects.
Raising this up to a Strong Buy now.
Saratoga Resources finds Louisiana offers abundant low-risk opportunities
AN INTERVIEW WITH THOMAS COOKE, CHAIRMAN AND CEO, AND ANDY CLIFFORD, PRESIDENT, OF SARATOGA RESOURCES
From left: Andy Clifford, president; Thomas Cooke, chairman and CEO
Photo courtesy of Saratoga Resources
Don Stowers, Editor, OGFJ
EDITOR'S NOTE: I first talked with Tom Cooke and Andy Clifford several years ago and was impressed with their business model for Saratoga Resources. As explained below, the company was forced into bankruptcy in 2009 but emerged in good shape a year later. They invited me to meet Louisiana Gov. Bobby Jindal when he was in Houston for a fund-raiser a year ago, and this set the stage for this month's interview.
OIL & GAS FINANCIAL JOURNAL: I see that Saratoga Resources recently made a corporate presentation at the IPAA OGIS West investment conference in San Francisco on Sept. 27. What message do you want to get across to investors?
TOM COOKE: Well, Don, we have a new listing on NYSE Amex under the symbol SARA. Saratoga has now positioned itself for vastly improved access to capital. This will allow us to further accelerate our future capital expenditure requirements and pursue more expensive acquisition opportunities and drilling projects in the near future. We have strong institutional and retail participation in our equity and a growing market capitalization. We have attractive, conventional assets located in state and parish lands of Louisiana with an abundance of low-risk development opportunities. We are converting our reserves with an active development drilling program and there are no permit delays or obstacles, and we are weighted towards oil in our current production with LLS/HLS premiums to WTI at up to $28 per barrel. In addition to all this, we have tremendous upside with shallow exploration targets above 5,000 feet with 50 bcf of potential and deep exploration targets with 10 tcfe of potential, all under our large HBP (held-by-production) lease holdings.
OGFJ: As many people know, Saratoga Resources was forced by one of its creditors to file bankruptcy in March 2009. My understanding is that Saratoga emerged from that bankruptcy in May 2010 stronger than ever. The company not only paid off all its creditors, but you increased production during that time. How did you manage to accomplish this?
TOM COOKE: First, let me say that we went to the mat for our shareholders during the recent bankruptcy and prevailed, preserving shareholders' equity. We also paid all of our vendors in full with interest and legal fees. We exited bankruptcy in a little over one year with unprecedented results. When we filed Chapter 11 in March 2009, we had experienced a "perfect storm" of collapsed commodity prices, two named storms in late 2008, a severe downturn in the credit markets, and a hostile lender who blocked our ability to draw funds from a recently renewed revolving credit facility. We had never had a monetary default. We continued to stockpile cash throughout bankruptcy and prevailed in litigation during which time valuation of the company's assets was successfully defended. During bankruptcy, we spent enough capital on low-risk recompletions, through tubing plugbacks and workovers, to keep production steady. This was essentially maintenance capital of between $6 million and $7 million. We took advantage of the period in bankruptcy to continue our field studies and that led to, not only a deeper understanding of our asset base, but also to increases in our reserves. Prior to seeking protection under Chapter 11, we had about three months of relatively normal, and unhindered, operations during which time we increased production, drilling development wells, doing recompletions, plugbacks and workovers, even during a management transition.
OGFJ: You alluded to the advantages that come with your recent listing (this past July) on the NYSE Amex exchange. What impact has this had on the company financially and in terms of how Saratoga is perceived by the investment community, analysts, and potential lenders?
TOM COOKE: Our move to the NYSE Amex has had a tangible positive effect on our company. We have been looking forward to this move for a number of years. In fact, we had applied to Amex prior to the bankruptcy. We have now increased our investor base through equity offerings on the West Coast and in Europe and welcome the involvement of quality, institutional investors like GSO/Blackstone, among others. We are now talking with well-established firms who can give us research coverage that will help increase our profile. This move has opened up our universe to many, new potential investors for whom a listing on a national exchange is a pre-requisite. The move from the OTC Bulletin Board has moved us up the food chain.
OGFJ: Where does Saratoga operate? Please elaborate a little on each of the main areas of operation.
ANDY CLIFFORD: Saratoga's assets are all located in transitional coastline and protected in-bay environment on parish and state leases of Louisiana. We have interests in about 12 fields, most of which are located in Plaquemines Parish in water depths of 0 to 20 feet. We find it a very cooperative regulatory environment with no permit delays. It is a pleasure working with Governor Bobby Jindal and DNR Secretary, Scott Angelle. Louisiana is open for business. Our Grand Bay Field has over 70 years of productive life with production of over a quarter of a billion barrels of oil since 1938 yet it still offers tremendous potential, both shallow and deep. We have 18 MMBOE of proved reserves and 58 MMBOE of total reserves with approximately $1 billion worth of value.
Axxis rig with wellhead in Grand Bay.
Photo courtesy of Saratoga Resources.OGFJ: Do you operate most or all of your wells, or are you a non-operating partner in some of them?
ANDY CLIFFORD: We operate almost all of our wells with 100% working interest.
OGFJ: Since Saratoga's holdings are mostly in coastal Louisiana, how have hurricanes affected the company's operations in recent years?
ANDY CLIFFORD: Saratoga's assets have experienced three major named storms within the past six years (Katrina, Ike, and Gustav) with minimal impact on operations. Minimal damage was experienced with a direct hit from the Category 5 Katrina in 2005 (which devastated New Orleans) with only a 30-day interruption to our production and only 18 days downtime after the twin storms of Gustav and Ike in 2008. We have demonstrated our ability to withstand severe storms with minimal downtime as well as the robustness of our assets. Most of our facilities have withstood the impact of many severe storms without detrimental effect. Production has not been adversely impacted, and, as a result, our insurance premiums have been decreasing annually.
OGFJ: How much of your production is weighted towards oil and liquids in comparison with natural gas?
TOM COOKE: We like to maintain a balanced approach to oil and gas. Currently, more than 60% of our production is weighted towards oil versus gas. We like to say that we are oilier than many of our peers. We expect this to continue for the next two to three years. In addition, we currently receive a $15 to $30/barrel premium to WTI on our LLS and HLS crude.
OGFJ: Are you mostly doing development drilling, exploration, or both?
ANDY CLIFFORD: We are currently focused on development drilling and converting our PUD reserves. Some of our development wells have an exploratory tail where we are looking for a little more upside and our deep prospects have shallower, low-risk bailouts, but we are essentially a low-risk development company at this stage of our growth with a serious eye on managed-risk exploration in the future. Our finding and development costs over the course of the past five years have been around $12 per BOE. We expect to drill about five or six PUD wells per year and have over 27 undrilled PUD wells in our portfolio, not to mention our shallow gas and deep exploratory wells. In addition to development drilling, we have our lower risk "block-and-tackling," which involves recompletions, thru tubing plugbacks, and workovers using a lower-cost workover rig. We are also investing in improvements to our infrastructure. We call it our "Hub-and-Spoke" strategy. We have six production platforms and more than 100 miles of pipelines in the Main Pass, Breton Sound, and Vermilion 16 area. We currently handle production for a few companies and receive revenues for doing so.
OGFJ: How is Saratoga financing its drilling program and other operations? From cash flow, loans and credit facilities, private placements, or a combination of all of this?
TOM COOKE: We are currently funding our development program out of cash flow and cash on the balance sheet. We expect to have additional liquidity through a revolver in the near future. We believe our stock is seriously undervalued today and will keep an eye on the equity markets as our stock value improves.
OGFJ: Can you tell our readers about your short-term and long-term strategy going forward?
ANDY CLIFFORD: Our short-term goal is to achieve an exit rate for 2011 of over 4,000 BOEPD, which is a vast improvement over our year-end 2010 exit rate of 2,300 BOEPD. We think we can achieve these goals through infrastructure improvements and de-bottlenecking, coupled with recompletions and development drilling. We will continue to see substantial quarterly increases for the foreseeable future. Longer term, we strive to become a $1 billion company through largely organic growth, supplemented by strategic, accretive acquisitions and joint venture partnerships for our deep exploration targets.
OGFJ: Do you have any plans to expand out of your current areas of operation?
ANDY CLIFFORD: The company has multiple opportunities to organically grow from our existing asset base but has also identified a number of opportunities for accretive acquisitions close to our existing infrastructure. We are a growth company and we are always looking for accretive acquisitions. But we love the operating environment in Southern Louisiana.
OGFJ: Any interest in shale plays?
TOM COOKE: We are not looking at the unconventional plays. Shale plays are typically characterized by long-life reserves and a high probability of success. That sounds like our Grand Bay Field, with no dry holes and over 64 stacked pay sands. We also have low decline rates in our wells, not the sharp declines typical of the resource plays. We have several wells that have been commercially producing since the 1940s and one particular well with over 50 years of production from the same sand and it is still producing at over 20 BOPD today. We are skeptical about the commerciality of most of the shale plays, given the current gas prices. This is due to (1) the sharp decline in IP rates, (2) outrageous leasing costs, (3) the high costs to frac, and (4) the likely need to re-frac specific wells to sustain production. We like to say we are pursuing "good, old-fashioned oil and gas," and we are happy to be receiving close to Brent pricing in crude while we can still make good money below $3/MCF gas in our conventional gas assets. In addition, we do not have lease expiration issues in most of our assets because most of our leases are multiple HBP leases.
OGFJ: Talk a little about the people you have on board and how important they are to the company's success.
TOM COOKE: Our field-base personnel have worked our assets since Chevron, Hess, and Pioneer owned these assets. This means that, not only do they know these assets intimately, but they also have great relationships with all the service providers, which pays dividends in the event of a major storm. We also have excellent people who have previously worked for major oil companies such as Chevron and Exxon, who can benefit from the ability of a small independent such as Saratoga to not only utilize state-of-the-art technologies through strategic relationships with service providers and/or academic institutions, but also to be able to move quickly to seize on available opportunities. We are actively hiring key people to help us achieve our exciting growth objectives.
OGFJ: Could you briefly summarize your financial results for the past quarter and the last fiscal year? Did they meet your expectations?
TOM COOKE: We began the year with net production averaging around 2,300 BOEPD. We are currently around 3,300 BOEPD, with expectations that we will exit at over 4,000 BOEPD. The second quarter of 2011 and the ensuing months have been an exciting time for Saratoga. We have gained momentum on numerous fronts, achieving several long standing objectives, and believe we are now positioned to realize what we believe is the great untapped value of our resource portfolio. We experienced a marked turnaround in bottom line results with net income of $2.1 million, or $0.11 per basic share, for the second quarter of 2011, compared to a net loss of $8.4 million in the corresponding second quarter of 2010.
Our growing net income has been driven by strong top-line growth, topping 40% for both the quarter and six-month period with EBITDA of $12.5 million for the second quarter of 2011 compared to $6.7 million in the second quarter of 2010. Our revenues of $18.8 million for second quarter 2011 compared to $12.9 million in the second quarter 2010.
We are currently completing the Roux development well in Main Pass 46 Field where we have encountered 111 feet of net pay in 13 sands. The most exciting aspect of this well is that six of the pay sands did not have previously booked reserves and we are completing the well with a single gravel pack completion in the lowermost 21 sand where we had probable reserves. This well follows on the heels of our Catina well that had an IP rate of over 1,200 BOEPD and which is now producing back to Main Pass 46.
In addition to our improving operations, Saratoga has made great strides in strengthening our balance sheet. In April 2011 and July 2011, we completed two private equity raises bringing in more than $35 million of new equity and we have completed a debt offering of $127.5 million. As a result, we have reduced our total debt by $18 million, extended out the maturity of our debt facilities to 2016 and substantially strengthened our cash position and shareholders' equity. Our market capitalization went up by 400% to over $140 million today.
With the addition of liquidity from our improving operating cash flows and equity infusions, we have substantially increased our development budget and moved from operating in a cash-constrained environment to a position of deploying capital in a manner deemed optimal by management to support the timely development of our inventory of proved developed non-producing opportunities, development drilling opportunities and deferred maintenance and other infrastructure projects, all with the objective of growing our production.
From left: Andy Clifford, Louisiana Gov. Bobby Jindal, Tom Cooke.
Photo courtesy of Saratoga Resources.OGFJ: Looking ahead, what are your projections for the next several quarters and why should Saratoga Resources' investors be optimistic?
ANDY CLIFFORD: Moving forward, we fully expect our program of recompletions and workovers, together with our infrastructure projects and development drilling program, to increasingly contribute to meaningful production growth as production levels from shut-in and curtailed wells are brought to capacity and new wells are brought on line. We look at Swift Energy as an analog for development of our Southern Louisiana assets. In 2001, Swift acquired the Lake Washington Field, not too far from our Grand Bay and took production from 1,000 BOEPD to 18,000 BOEPD in just six years, becoming the largest producer in Louisiana at that time. They did this through applying 3D seismic technology and by converting PUDs to PDP and PDNP. This is exactly the type of success we hope to emulate in our existing asset base.
Saratoga offers investors an opportunity to invest in a growth story with a large inventory of behind-pipe recompletion opportunities and a large slate of low-risk PUD opportunities. Saratoga is weighted towards oil, and we are commanding a high premium to WTI with LLS and HLS pricing. In addition, we are sitting on huge upside in Grand Bay and Vermilion 16 assets with multiple TCF potential with existing infrastructure that will allow early production and a strong HBP position, which means we do not have lease expiration concerns and can develop these deep resources in our own timeframe.
OGFJ: Is there anything you would like to add that we haven't covered?
TOM COOKE: We are in immediate proximity to the best energy markets in the US, in Southeast Louisiana. We are receiving a high premium to WTI for our oil and expect to receive healthy premiums for the next two to three years. In addition, our assets are located in the transitional, in-bay environment with most of our wells, and even our multi-TCF prospects, in water depths of less than six feet – not 5,000 feet. We do not need a train to transport our oil as the best markets in the US are in our back yard, and we do not need a submarine to drill and service our prospects as they are in less than 20 feet of water! Andy Clifford and I are major Saratoga stockholders, so our interests are aligned with those of the shareholders.
OGFJ: Thanks very much for your time and for sharing your story with our readers.
**********************************************************************************
Pretty cool, SARA made the cover of the OGFJ for November, never thought I'd see the day. Gotta luv it, they don't need no stinkin' trains or submarines to produce their oil!!
XBOR is doing another RedChip virtual conference on Thursday. The timing of this is perfect in that it would allow them to announce the following:
1) Pre-announce an estimate of 3Q production. This # is probably going to fall well short of RedChip's 3Q call for 325 boepd so why not get the # out there sooner vs. later (see last paragraph for why this is a good approach).
2) If they in fact are planning to (or have already) put up some of their properties for sale, and if they think the sale proceeds would be material (i.e. > 10% of the company's market cap), announce what properties are on the block. In effect this would serve as an advertisement. This would only be advisable if they are pretty confident that they will be able to get these sold, because if they do this and the sale doesn't go through they will look pretty stupid.
3) Revise their drilling schedule. Folks want to know whether they got all those wells spudded last month that were indicated on the most recent drilling schedule. I see that another well that XEC was drilling in the Lusk area has been taking a lot longer to drill than initially expected (see news for Fieldpoint --FPP), might this have impacted the spud date for XBOR's Lusk well with XEC? If things are getting delayed it would be better to get that news out sooner vs. later IMO (see next paragraph for why this is a good approach).
The investors in the May PP have been steadily blowing out their stock ever since it became free-trading, so this makes it even more important than usual for XBOR to manage their news flow consistent with the normal "bad news before good news" approach, in order to maximize the probabilty that these disgruntled investors are out of (or at least have reduced) their positions before the good news starts coming out. That way they will not still be around to throw cold water on the stock price rallys that would likely result when the good news starts rolling out.
10bagger, Cross Border (XBOR.OB) -- Comparing the quantity of reserves as of 8/1/11 to those as of a year earlier, it looks like they were able to replace most of their production for the year, which is not bad considering how little drilling they did over that period. For some reason PUD oil reserves dipped by about 8% but that's not the end of the world. I'm assuming the first 4 Wolfberry wells were included in this latest proved reserves calc and have a call in to Will to confirm this.
The fact that they went through the time and expense to do a reserve report at such an odd date further underscores my hunch that they are negotiating some new reserve-based debt issuance. Now the only question is do they pull the trigger on the debt before or after they do any property sales (there are rumors on the Investors Hub board of same). I would think they would have a better negotiating posture after the sale(s) vs. before, let's see what happens.
The September presentation showed a slew of wells that were scheduled to get spudded before the end of that month, hopefully that schedule was adhered to in which case we could be seeing a blockbuster ops update in the coming weeks.
Ridgeline Energy Services (RLE.V) -- this company has apparently found a cost-effective way to treat frac flowback water and produced water from oil & gas wells. The issue of having to dispose of this contaminated water is a huge one for E&P companies and the current environmental concerns about this stuff are only going to heighten from here.
The typical way in which both frac flowback water and produced water is dealt with currently is that it's injected into water disposal wells. Sometimes old shut-in oil or gas wells can be used for this, but more & more the E&P companies, not wanting to depend on the old well casings holding up, are ending up having to drill brand new water disposal wells in order to ensure that the water they inject cannot possibly end up leaking into the water table. Alternatively the E&P companies can just pay someone to come take the water away, but that option is very costly -- I believe the going price charged by reputable water-haulers is something like $1 -- $2 /bbl. in most areas of the southwestern US.
Also its getting harder and harder for companies to obtain water to use for fracking, especially with the severe drought that is going on in Texas and western Oklahoma. Livestock are being slaughtered earlier than planned by the thousands, due to there not being enough water for them to drink or to grow hay for them to eat. This has increased the cost of obtaining water for fracking use, if it can be obtained at all.
Ridgeline solves the above problems by allowing the E&P company to essentially re-use most of the water from frac flowback and oil or gas production. They clean the water through use of what they call their "Low Energy Electro-Catalytic" process, which "cracks" the water at a molecular level.
Ridgeline's first installation was up in the Horn River Basin in Canada, and was installed last winter. Evidence of the success of that was provided in June when they recorded revenue of $2.1M from that client. This amount was significant given that it resulted in Ridgeline's water business having generated a net profit from the period through its inception last year to 1Q '11. Further evidence of how well things went with this first installation was the fact that the same client that paid the $2.1M in June has just recently asked Ridgeline to set up another installation down in that client's New Mexico operations, in the Leonard Shale play in Lea County.
I don't know for certain but I strongly believe that the identity of the above client is none other than EOG Resources. This is because EOG is in both the Horn River and Leonard Shale plays and I am not aware of any other company that is in each of these. EOG currently has only a single rig going in the Leonard Shale but has stated that they plan to ramp up activity there next year.
RIdgeline's stock has been stuck in a range around the $.50 mark for quite awhile in spite of a slew of very positive news releases that announced both the events described above plus some other things. I believe a big reason for this is that, after announcing an agreement to acquire 100% control of this special water treatment technology last April, they have yet to close on that transaction. I understand that should occur later this month, at which point I expect the stock to break out to new levels.
As you can see I'm interested in this space and would welcome leads on any other companies operating in it. So far I've seen several others, each of which are interesting but which don't excite me nearly as much as Ridgeline for one reason or another. These are Heckman (HEK), Open Range (ONR.TO), Veolia Environment (VE), and Ecosphere (ESPH.OB).
Great presentation at IPAA a few days ago, nice to see them getting the story out. As of 9/20 production was up to 3,250 boepd and they've just logged another great well, the Roux, which was considered a PUD location pre-drill but ended up discovering a bunch more hydrocarbons than originally expected. Can't wait to see what this well IP's at. Its not that much of a stretch to think that this well alone would be enough to get them very close to or maybe even over the magical mystical 4,000 boepd net production mark.
Still no word about a bank revolver, and I'm beginning to think that they might be waiting to show the bank September financials before locking in the line. Obviously the better their financials look the better terms they will get for the line, and September should be a great month given that their average production will be solidly over 3.000 boepd for the month.
Bobw, Wolfberry wells are vertical not horizontal, see e.g. last column of slide 8 of the XBOR presentation.
The name "Wolfberry" gets its name because folks are drilling a single, fairly cheap, vertical hole for something like $2.5M completed, and they are getting at least 2 bites at the apple -- a shot at the Spraberry and a shot at the Wolfcamp. Some (as what I believe what happened here) also go even deeper shooting for the Fuselman, but what happened here is that that zone was water saturated. So the solution was to set a bridge plug at right around the top of that zone but below the other goodies found by the logs.
I'm not looking for much of a ramp up in production for 3Q since they didn't get this problem solved until the quarter was almost over. So they are nearly certain to come up short to RedChip's call for 325 bopd average production for the quarter. But hopefully by the time they announce 3Q (i.e. mid-November) they would be in a position to report some new wells coming online after the end of 3Q.
Bobw, comparing IP rate to a current production rate, after a well has been going for maybe a month or so, is comparing an apple to an orange. Any idea what the 30 day IP rates are for good Wolfberry wells?
Also note that not all of the potentially productive zones have been opened up yet in XBOR's wells. Presumably this would be the case for the typical Wolfberry well you are looking at.
Given that the economics are good even if they don't do any better than 71 bopd per well I'm not sure how much sense it makes to hold off on drilling more wells in order to see how much they can get out of the first batch. I would think the best course for now would be to keep drilling holes, and just don't frack into that zone that produced all that water in the first batch of wells.
Great to see the huge volume today, hopefully that will keep up for awhile. Right now trading volume is a lot more important than price appreciation. We all know the stock should move back up early next year when they start announcing a slew of blockbuster drilling results. The only thing that would hold it back would be if the trailing 90-day average volume is not a lot higher than it is now.
Thanks impera, that's what I figured was the situation but wanted to confirm that.
Now we can really have fun, just speculating about how much RAM might get on this deal, plus whether it would even happen.
For anyone that listened to the CC, did they mention what the terms of the proposed sale of Electra Burkburnett field are. I tried listening to the call a few minutes ago but maybe it already had ended. I also looked at the prelim prospectus that Argent filed on Sedar but the amounts of the purchase price were left blank in that doc.
Bobw, thanks for your comments, very helpful. I don't get these companies with US operations that list on the AX. What is going on there? To me that makes no sense -- IMO if you're going to play in the US sandbox you should either list here or Canada.
I agree that the big unknown with Osage is whether the Miss. play extends down to Logan County. Right now a very highly regarded E&P, Slawson, has plunked down several million big ones on a bet that it does, let's see if Slawson blew the call here or not.
I wasn't aware that Equal had potential Miss. acreage, I'll have to check them out. I had owned them awhile back but sold on several straight quarters of disappointing production results.
Bobw, Osage Exp. (OEDV.OB) -- this company has about 3,000 net acres in the Mississippian play (far southern boundary) and has recently done a farmout to Slawson and another private company. They still have a ways to go before getting the first well spudded and the jury is still out whether and to what degree the Miss. play extends to their acreage, but they are worth a look IMO. I bought a bunch of the stock after the farmout announcement but have cooled my jets at this point and am waiting for it to pull back in the dog days.
If you look at them I'd be interested to hear what you think of them.
The only other microcap I know of with exposure to the Miss. play is American Petro-Hunter (AAPH.OB). They are much more advanced than Osage in the field but I don't like their capital structure (24% interest on convertible debt, etc.) so I have not bought any of their stock yet.
Bobwins, Saratoga (SROE.PK) -- don't forget that in addition to the 11.5% cash interest they had to pay 111K shares of stock per month on their old debt. At a $5 stock price this makes the total interest rate about 17%. Its nice to see them finally get out from under those dilutive terms.
Can't wait till they start drilling holes, which I believe was supposed to start this month.
Thanks, I guess that makes some sense but I believe their OK play could easily show better economics than anything they might be able to come up with in Colombia. The key will how the first well does. If it is similar to the ones that Sandridge is bringing in to the west, then it should get pretty interesting.
Speaking of the first well, I see that per the participation agreement, Slawson has to give its "best efforts" toward getting the first well spudded by the end of this month. Have you or anyone heard anything on this recently? When I asked Kim this a few weeks ago he couldn't add anything other than to say it was out of his control.
TurnKey (or anyone), great to find a board on Osage, I have a small position and am considering adding on dips but am trying to understand the value proposition here a bit more. Given they have just entered a great play in OK I'm a bit surprised to hear that the company is still looking at getting back into Colombia. Can anybody shed some light on that? I would think they would at least wait & see how this first OK well goes before thinking about putting anything in Colombia. If this first well hits a lot of oil its going to take everything they got to stay up with Slawson.
Thanks for any thoughts on the company.
Bobwins, Saratoga Resources (SROE.PK) -- great to see the stock price holding up over $5. This is significant since the latest warrants are exercisable at that price.
Word is that they are doing another quick little PP as we speak, if you are interested you ought to call Tom Cooke there and tell him I sent you.
It will be interesting to see how quickly they can get production up now that they have 2 workover rigs going in the field. Maybe they will decide to hold off doing a bond offering until the fall if they think they will be able to jack up production a lot by that point.
Tri-Valley Corp. (TIV) -- This company has undergone a remarkable transformation over the past few years, and currently has some great plays going. There's been a 100% turnover in management over the last 2 years, no longer is there a former stockbroker at the helm.
They have 3 great plays going, a heavy oil development play (their Claflin project in California), a SAGD project in California, and a very large amount of acreage up in Alaska that is prospective for precious metals. With Clafin they are expecting the project to cost $10M to drill out and are expecting peak cash flow to be about $9M/year at $90 WTI. The SAGD project has huge potential but they have a lot of legal and logistical issues to get through before getting that project off the ground so I'm not really giving that much weight right now.
The PM acreage in Alaska is particularly intriguing. One of their claims ("Shorty Creek") is just south of International Tower Hill's (THM on Amex, ITH.V) Livengood project, which has discovered over 10M ozs. of gold equivalent so far. With that much gold having been discovered there, its almost inconceivable that THM would not build a mine there at some point (THM is doing a prefeasibility study for a mine as we speak). The market for THM stock seems to agree, having accorded THM a market cap > $700M. Once there is a producing mine that close to TIV's acreage, that dramatically reduces the amount of resources that would need to be disocvered on their acreage in order to have identified an economic resource.
TIV is currently shopping their Alaskan mineral acreage to mid-size PM exploration companies for a JV. Given the closeness Shorty Creek to Livengood, it seems likely that TIV will be successful with this. I believe if they can get a JV with a mid-size or larger PM exploration company, the TIV stock price could get a big kick in the pants.
For those looking for more info on the company, they did a great presentation at IPAA in April. The webcast of that is linked on their website and the slides can be seen at http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=7856441-5743-20057&type=sect&dcn=0001157523-11-001977
I bought a bunch of stock in their latest equity raise plus have since added a lot from open market purchases.
Bobwins, Cross Border (XBOR) -- my hunch is that the price should nudge upward now that the financing is by us. The amount raised was on the high side of the range, which implies strong interest in the company and maybe even an oversubsription situation. I believe a lot of folks like this story but were reticent to buy the stock until they saw some $$$ come in the door.
kajulie, great to see the equity raise get signed up, presumably still in time for them to meet all their current drilling obligations. I initially thought they might have raised $1 or $2M too much given the price at which they had to do the deal, but with the current volatility in oil prices it probably would not be the worst thing to have an extra million $$ or so sitting in the treasury. For that matter, Will Gray (XBOR CEO) probably has that extra money spent already anyway!
I know at one time they were strongly considering doing a CC once this equity raise was done, hopefully they will not wait until 2Q earnings to do that. I believe they have a great story and its time to start pounding on the drums.
seaoh, why do you think the MM would want to prop the price of the stock up?
boomer, I believe brighter days for XBOR fans are right around the corner. Its pretty obvious that they need $$$ but I expect that issue to be resolved very shortly. It will be interesting to see what these guys can do once they get the drill bits turning to the right. Also we shouldn't forget that they have 3 Wolfberry wells that they are completing as we speak, and while those wells are usually not as prolific as Bone Spring wells they are targeting multiple formations so they could discover a lot of reserves.
As demonstrated by their 1Q 10Q they are easily covering their interest expense with about a 5:1 interest coverage ratio. This implies that they might be able to get another small bump in their bank line.
An added benefit of raising some equity at this point is that it puts them in a position to market some of their acreage more aggressively. They already have agreed to sell some of it for $800K. Potential buyers would be more apt to do a deal with them once they see that they are on solid financial footing.
Looks like you, BobbyW & me are gonna be making some serious coin on this stock in the coming months. Don't let seaoh get under your skin, I appreciate hearing your thoughts on this stock so just put the guy on ignore if you have to.
Looks like you've been right about this one so far. Maybe the upcoming 10Q will generate some interest, I think it was a pretty good quarter with strong production growth over last year.
seaoh, I think it would be a huge mistake to raise enough money to fund the entire '11 cap ex budget at this point. The stock price has been hammered pretty badly. A better move IMO would be to raise just enough money to get them through the summer, by which point they should be in a position to announce some pretty impressive drilling results. Then, if they haven't sold down more acreage by then, do another small raise at that point (hopefully at a higher price than the stock is now) to get them through the end of the year. I hope they continue to explore selling off some of their acreage.
Regarding your point about "valuing it at this point in time", if I could be so bold, I would suggest that you are playing in the wrong sandbox here with XBOR, and might be better served utilizing that approach on more mature companies.
seaoh, you totally miss the point about playing with these microcap E&Ps. The common theme is that they all need $$$ to give their prospects any value. The play on these buggers is, do you think their story is good enough to entice folks to fork up hard cash in exchange for stock, at a price that would still allow for future appreciation once the money gets spent?
Let's say these guys succeed in raising $3M, and that, together with their acreage sale, is sufficient to meet their drilling obligations for the next 3-4 months. What would you say would be a fair value for the stock at that point?
boomer, (just to clarify, the author of that post was Bobwins, not me). I totally agree with your point about PV10, its so "yesterday" to be talking about the valuation of an E&P company solely with reference to its PV10 value. Before resource plays became the norm, it probably made sense to do that, since there was usually not very much certainty about the prospectivity of large blocks of undrilled acreage. Now with the advent of resource plays, we can get a pretty high degree of confidence about undrilled acreage, at least when it is in the fairway of a resource play.
I believe most of the acreage that Pure Energy had, was assembled by 2 large E&P companies, who then merged, and apparently decided after merger that New Mexico was not going to be core area for the merged company. Pure was then able to scarf up the acreage for some pretty cheap money I believe.
Can't wait to see this equity raise get done and see the the drillbits turning to the right. I'm hearing that there is a lot of retail interest in the offering, which is great given the stage that this company is at at this time, IMO. Also, it should not be long before we could be getting some news on how those Wolfberry wells are doing.
Not expecting a lot from the upcoming 10Q but it would be nice to see the bottom line of the operating cash flow calc not have the # in parentheses.
Hopefully after they file the 10Q and announce the equity raise they will hold a CC. I think that would go a long way toward making folks more comfortable with the story.
XBOR.ob Cross Border Resources, Inc. 1.77
This is my newest energy play. I just bought a few shares this morning at 1.77.
Xbor is a result of a merger in 1/11. They have 800,000 acres in New Mexico and Texas. They are focused on the proven Permian basis and have multiple prospective fields for the Bone Spring, Abo, Yeso and Wolfberry formations. They operate under a non operator formula, controlling large amounts of land and then finding high quality partners to drill and operate the land.
This is the formula that is driving success for Sundance and I hope to replicate that success with Xbor.
Here are my reasons to buy Xbor:
1. Permian Basin is home to many top notch energy companies due to the many zones that are productive.
2. Xbor has top notch partners including Concho, Cimarex, Apache, Devon and Mewbourne. This level of partners has access to drilling and completion equipment before startups AND gets the trained crews as well.
3. Xbor has 12.5 million shares outstanding. They are trying to raise $5 million now so share count would increase to 15-16 million, depending on the share price.
4. Once the money is raised, they can proceed with their Bone Springs program, where competitors recently hit wells above 1,000bpd plus gas. They have AFE's for 12 wells with average WI% of 18%.
5. Current producer of 280boepd.
6. planning to apply for higher listing after financing.
7. 31,000 acres in Permian Basin
Here are the negatives:
1. raising money means that you could buy now and get undercut by the price of the offering
2. no liquidity....avg share volume is 8200. I have been trying to buy for a week at 1.70 and finally gave in and paid 1.77.
3. Non operator model means that no one well will make a huge difference for Xbor.
4. Lack of control of drill programs
5. Unproven that they can expand production and get recognition and trading volume from market.
Summary
Cross Border has accumulated a significant acreage in the Bone Springs play as well as several other productive Permian Basin plays. They have good partners with immediate plans to drill. Current production of ~280boepd is a good start, providing some revs while they wait to see the results of their Bone Springs program. The 12 Bone Springs wells proposed by Cimarex are scheduled for the next 12-15 month period, depending on financing. At around 18% WI and 600-1200bpd potential, Xbor should get 162bpd IP rates and average 80boepd from each well over time. These are oil heavy producers.
80 X 12 = 960bpd potential in a year plus their other drill programs. That's a big jump from 280.
The financing is key. I am waiting for a call from the underwriters to see about participating. Don't know the minimums or the proposed pricing. Overall I think this is a fairly low risk chance at a big win. Bobwins
Latest presentation:
http://www.xbres.com/documents/CBR-Corporate-Presentation.pdf
Latest drilling update:
http://finance.yahoo.com/news/Cross-Border-Resources-Inc-pz-2258959692.html?x=0&.v=1
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Above was recently posted by bobwins on the Value Microcaps Junior Energy board, see http://investorshub.advfn.com/boards/read_msg.aspx?message_id=62899270 . Its such a great post that it deserves to be shown here. Bobwins, for those not familiar, is somewhat of an energy "rock star", and I value his opinion greatly when it comes to energy microcap investing. Enjoy!
Bobwins, Cross Border Resources (XBOR) -- great writeup as always. I'm a big XBOR fan also and am participating in the financing. If you haven't heard from CKCooper yet you should call my buddy Alex Montano there (he's the president & founder) and make sure you tell him I sent you. Same goes for anyone else that might be interested.
They are very close to closing the financing but if you act fast you should have a good shot at getting in. If you have any problems getting through please email me at edajootian@aol.com . Good luck!
EZ, I take it that you don't think this upcoming ops update is going to move the stock? Also what if they get the bank line extended out for 3 years?
Not sure if they plan to put the ops update out before or after they announce 1Q. It would probably make sense to put it out after or if they do it before, just put 1Q production in the same PR.
Link to recent XBOR presentation @ Red Chip Virtual Equities Conf. is at http://www.redchip.com/visibility/conferencePages/virtualconferences/virtualmainConference.asp?from=homebanner (see bottom of page). The quality of the recording on my computer was pretty poor, hopefully you will have better luck.
I thought Will did a pretty good job but, next time I talk with him I will make him a deal where I will pay him $50 for the right to be paid $1 for every time he says the words "you know" or "again". I would then make so much money I wouldn't need to trade stocks any more! <g>
boomer, agreed, it will be interesting to see how much money they will be able to raise and on what terms. I believe one of the reasons Will was in Houston last week was to look for $$$$. I don't mind some dilution as long as it enables them to drill a lot more holes. This business model is either going to work or not based on drillbit results, irrespective of how much dilution occurs at this point (within reason of course). Being a non-operator they will always want to have some extra cash sitting around just in case they get lambasted with a ton of AFEs as what came in from Cimarex recently. It would be a shame if they ended up having to non-consent on a well just because they were broke at the time they got the AFE.
I ended up missing the webcast myself, something came up. They usually post a link to a replay of the webcast in the upper right part of the EPG home page, http://www.energyprospectus.com/ , a few days after the event. Hopefully they will do that for the XBOR presentation early next week.
Any EnerJex fans out there? This one looks like it could end up becoming something. They just filed 10K showing PV10 value of reserves at about $31M (using $72 for oil prices).
sea, I'm not an insider of the company (as that term is used by SEC) so there is nothing to disclose in that regard. As you have already noted I have participated in a previous financing, so if you think that would help further the discussion here by all means keep bringing it up.
Not sure what you meant by "cutting a deal with a marketing firm". I can in fact definitively say that I have not cut any deal with any marketing firm. If you believe that EPG is a "marketing firm" then maybe we should just agree to disagree on that point.
This company is attempting to apply the non-operated model to the Permian Basin. The stigma that formerly applied to this model has been blown away by the dramatic successes from its utilization by the likes of Northern Oil & Gas (NOG) and Voyager Oil & Gas (VOG). The common theme with those companies seems to be, find a strong resource play and align yourself with top flight operators.
XBOR has found several great resource plays up in the Delaware Basin area (i.e. southeastern NM & northern TX). The feature article in the March Oil & Gas Investor discussed the main plays up there, primarily the Bone Spring plays, see copy of that article at http://www.investorvillage.com/smbd.asp?mb=4288&mn=70345&pt=msg&mid=10383757 . Also see a copy of a report on the Bone Spring put out last October by Wood McKenzie at http://www.xbres.com/documents/doralbonespring.pdf . They also farmed into a great Wolfberry project, down near Midland, where 3 wells are expected to be completed next month.
XBOR is working with some great operators, viz., Cimarex, Concho, and Mewbourne (a large privately held operator). See recent XBOR PR for latest drilling results and plans. XBOR does not have the funds in hand to finance this torrent of drilling that has been scheduled for the coming months, but I have a high degree of confidence that they will be able to raise the required funds for this without having to dilute current shareholders too much.
The stock is very thinly traded but the company is taking steps to get its story out in an effort to drum up interest in its stock. They sponsored a breakfast table at IPAA NYC and they are presenting at the monthly luncheon for Energy Prospectus Group this Thursday 4/21. EPG is the brainchild of Dan Steffens, a name many of you may recall as being the moderator of a former Yahoo group that shared the EPG name. Dan, with the able tech help of Kim Tran, has put together a great website, which I strongly recommend you take a look at, see www.energyprospectus.com . This group is much more than just another internet blog site or newsletter. As evidence of this, they offer monthly luncheons in Houston, which are webcast, for members only. Membership costs are quite nominal given the value of the benefits provided, see their website for more info.
For this one time, as a favor to me his good buddy <g>, Dan has been kind enough to allow anyone, including nonmembers, to view the XBOR webcast this Thursday, from 11:50 to 1:30 pm CDT. To register for the webcast either go to
https://www3.gotomeeting.com/register/855698638
or send an email to Kim Tran at energyprospectus@gmail.com .
I realize that many of you would probably not run right out and buy XBOR today due to its low trading volume, but IMO the stock merits at least being put on your radar screen, for consideration of purchasing at such time when the volume increases. I believe once they raise some cash and start putting out some more definitive drilling results the volume will pick up. The trading float is currently very low but most of the shares that are currently restricted from trading will become free-trading in early July.