Texas Vanguard Oil and Gas (TVOC $4.6)
by forensiccapitalmanagement at 04:59PM (CST) on March 30, 2005 / Permanent Link / Cosmos
The fiscal year ending December 31st, 2004 showed improvement in all virtually all areas (save one) necessary for improved investor interest, and potentially in the share price.
Oil and natural gas production grew by approximately 6% vs. 2003. The average net production for 2004 was 370 boepd.
Net proven oil and gas reserves stood at 1.9 million boe at year end 2004, which is down approximately 9% vs 2003. TVOC buys additional interests in its oilfields, rather than seeking to explore and develop additional acreage. The company reduced its oil and gas reserve purchases by more than 85% in 2004, and took writedowns of proven reserves in the fiscal year ending 2004. Texas Vanguard uses the successful efforts method of accounting, which is the most conservative method of accounting in the oil industry.
2004 was the least active year of the past three on an acquisitions front for Texas Vanguard. The firm employs a rigorous policy of not overpaying for oil and gas assets (having paid an average of $3.5 per proven barrel of reserves in 2004).
EBITDA for 2004 was $1.13 per share, an improvement of approximately 29% over 2003. In the fourth quarter of 2004, EBITDA was $360,488 or $.255 per share. The additional burden of complying with Sarbanes Oxley in preparation for the 10-K reduced EBITDA in the quarter by approximately $.05 per share. Revenues were roughly $1.49 million in the last quarter of 2004. The average boe price for the quarter was about $44.28.
Discounted estimated future net cash flows shows that the company is worth approximately $7.13 per share as of year end 2004.
Liquidity at year end 2004 was strong, with approximately $938,831 of net cash on the books (approximately $.66 per share).
The fiscal year end report confirms that TVOC remains significantly undervalued in comparison to peers with similar production and reserve profiles. The challenge for 2005 will be to improve the reserve replacement ratio at a reasonable cost. In addition, the cost of complying with Sarbanes-Oxley adds approximately $200,000 per annum ( largely back ended to the fourth quarter of 2004).
With record high 1st quarter 2005 oil prices (above $50 for the quarter), TVOC looks poised to generate EBITDA in the range of $.36 per share. This should support a share price at levels above $5 in the immediate term.
Ultimately, should management embark on a policy of maximizing shareholder value through a sale, TVOC could be worth in excess of $13 per share based upon prevailing prices paid for proven reserves.
