Oracle Energy fka OCL

[Tackler]

SmallCapMedia coverage of Oracle, August 2005...

Oracle Energy’s High Octane Growth Formula Focuses on ‘Company Maker’ Projects in the Oil-Rich Nations of Yemen and Romania
By Marc Davis, Managing Editor
August, 2005

Oracle Energy Corp. (TSX.V-OCL) is a Canadian-based junior energy company that is involved in high impact oil & gas development projects in two of the world’s most underdeveloped hydrocarbon-rich nations – Yemen and Romania.

The Company (http://www.oracleenergy.com0/)) has been selected by SmallCapMedia for special consideration due to a high octane growth formula that involves farming-in (earning-in) as a minority partner in select ‘company maker’ drill programs. Accordingly, the Company’s bold growth strategy offers investors leveraged exposure to the type of opportunities that most other oil & gas juniors can only dream of. SmallCapMedia therefore regards Oracle as a clear stand-out among North America’s multitude of low capitalized oil & gas equities.

Notably, Oracle is primed to benefit immeasurably from the imminent exploration of a major oil & gas prospect that is located on Yemen’s Red Sea coast, only a short distance from the Saudi Arabian border. This unprecedented opportunity has only come into focus after the culmination of over a decade’s worth of intense systematic exploration in northwestern Yemen’s Tihama Basin. Conducted by Oracle’s majority interest joint venture partner, Yemen Mayfair Petroleum Corp., a total of at least U.S. $16 million has been spent in outlining the parameters of a highly prospective hydrocarbon field. Mayfair has completed three key exploration phases to date including the acquisition of 640 kilometres of high-quality 2-D seismic data (a sub-surface scan of the regional geology), and the drilling of three test wells.

The seismic studies reveal that the heart of the hydrocarbon field, known as Al Zaydiah Block 22, hosts a major formation or structure that has become the focal point of an upcoming high-priority drill program. All told, the lease holdings that encompass Block 22’s untapped oil reservoir span an area of 8,151 square kilometers within the oil-rich Tihama Basin. Hence, there exists the prospect for the discovery of other major oil-bearing formations within this large exploration territory.

Meanwhile, the 2-D seismic data for the initial prospect suggests that this one formation alone boasts a projected inventory of in excess of 200 million barrels of recoverable oil. And this assessment is no pipe dream. It has in fact been carefully formulated by the highly reputable and accomplished geologists who are the driving force behind Mayfair.

It is worth noting that Mayfair’s founders, Moujib Al-Malazi and Ray Fairchild, have been key figures in the development of Yemen’s nascent oil industry. Specifically, the pair spearheaded Hunt Oil’s discovery of Yemen’s first giant oil field in 1984. (Fairchild was Hunt’s Senior Vice President of International Exploration and Production while Al-Malazi was a senior executive with Continental Oil Company before leaving to consult to Hunt Oil). This was during an era when many petroleum experts had long dismissed Yemen as a relatively infertile hunting ground for major oil & gas discoveries. However, the intrepid geological sleuthing acumen of Fairchild and Al-Malazi proved them dead wrong. And their epic find set the stage for the discovery of 31 more world-class oil & gas fields throughout Yemen.

To date, the Marib Basin (where the now famous 1984 discovery was made) has produced in excess of 500 million barrels of oil. And there’s no end in sight. A prolific present flow rate exceeding 150,000 barrels of oil per day will ensure many more years of lucrative profits for Dallas-based Hunt Oil.

This is why Al-Malazi and Fairchild eventually decided to set their sights on duplicating such a big win – but not for the primary benefit of a major oil company. That was back in 1991 when they founded Mayfair Petroleum (now Yemen Mayfair Petroleum). Two years later, they were awarded Block 22 on uniquely attractive terms. And this time around, their company’s shareholders and the shareholders of Oracle are primed to be the beneficiaries of the type of headline-grabbing financial windfall that another major discovery would generate.

On this note, Oracle holds a 7% participating interest in the Block 22 venture for a total consideration of Cdn. $700,000 – all of which has already been paid to Mayfair. No more money is payable until the drilling of the first test well. If successful, a further U.S. $1,155,000 would then be payable to match Mayfair’s historical contribution on a pro-rated basis. This would be paid out on a staggered basis.

Significantly, the commencement of drilling at the partnership’s initial geological ‘sweet spot,’ the Beta Prospect, is targeted for mid October. The drill rig has already been contracted out and is being currently transported to the property. Again, the prolifically sized formation that has been discovered is believed to involve multiple prospective pay zones hosting an estimated minimum of 200 million barrels of oil. In the eventuality that the initial mid-depth drill target proves successful, there exist a number of contingent offset drill locations – all of which are strategically poised to tap into an array of prospectively very rich pay zones.

In terms of the big picture, Oracle’s President, Nasim Tyab, believes this unprecedented opportunity in Yemen could be a ‘company maker’ that will set Oracle on an expedited course to becoming a mid-tier oil & gas company. Summing up the outlook for Oracle, he tells SmallCapMedia:

“Through strategic partnerships with proven oil finders, Oracle intends to move along an aggressive timeline with the clear prospect for exponential near-term growth. That’s what makes this company particularly attractive to investors with an appetite for ‘home run’ discoveries.”

Readers should also note that Yemen presents a negligible geopolitical risk. For instance, this country is a well-established and stable modern democracy that is very receptive to foreign investment. In fact, Yemen’s government is very protective of its oil revenues and of its business relationships with Western oil & gas companies. This explains why some of North America’s best-known energy companies have been active in Yemen since the 1980s and have thrived there largely due to the nation’s Western-style business environment. This goes a long way to explaining why this very moderate Muslim nation is actively involved in the ‘war on terror,’ making it an unsuitable haven for violent religious extremists.


By adhering to a strategy of strength through diversification, Oracle is also becoming active in the economically underdeveloped former communist Eastern Block nation of Romania. This oil-rich European outpost is where Oracle is entering into a joint venture partnership with Carpathian Energy to use Western-edge technology to develop no less than six previously producing oil & gas fields.

These hydrocarbon fields were formerly operated by the state-run Romanian National Oil Company but have been abandoned in recent years due to either low production volumes or various mechanical problems. The good news is that Carpathian’s mostly American geologists have extensively analyzed these fields and determined that they have historically been mismanaged, leading to significant production inefficiencies. In some fields, it is estimated that less than 10% of the recoverable reserves have been successfully exploited by past production.

The joint venture partnership agreement allows Oracle to acquire a 20% interest in these six oil & gas field concessions that were granted to Carpathian Energy only a couple of years ago. This timely opportunity became a reality following a 1999 change in Romanian federal legislation that led to the selling-off of certain government-owned natural resource assets. Carpathian was one of the select few bidders (and the only Western company) to be granted unfettered access to these largely untapped oil & gas fields in November of 2002.

This fortuitous turn of events can be attributable, in part, to the fact that Carpathian’s key executive is Arne Greaves, an accomplished American oil & gas industry veteran who has successfully run U.S.-based Inland Petroleum for many years. His pedigree management team also benefits from the involvement of Alexandru Popescu, a very well-connected businessman and former minister in the Romanian government. In turn, his political prowess is well-complimented by the further addition to the management team of Liviu Marcu, Romania’s former Secretary of State for Oil & Gas.

These oil & gas concessions constitute an advanced stage project in which production is expected to commence within a few short months. To date, preliminary feasibility studies suggest that there are over three million barrels of recoverable oil and oil equivalent (oil & gas) in the proven and probable category.

The partnership’s near term objective is to re-establish production in five of the six concessions or fields by reactivating existing shut-in wells and the drilling of new wells where required. This is expected to generate significantly enhanced flow rates thanks to the implementation of sophisticated well re-entry stimulation techniques. Most of the infrastructure required for revitalizing oil & gas production is already in place due to the properties’ history of past production. Therefore, it is anticipated that the reactivation of all of the wells involved can be achieved on a very cost-effective basis.

On the sixth property or field, Oracle and Carpathian intend to drill up to 15 new oil wells at a relatively low cost of approximately U.S. $265,000 per well with a focus on extracting 2,000,000 to 3,000,000 barrels of oil and oil equivalent (oil & gas).

A major value driver for this project is the fact that an initial working capital cash infusion of approximately U.S. $1.1 million is all that is required. With this amount invested in the ground, all of the wells are expected to be self-funding for the remaining approximate U.S. $3.8 million cost of fully developing all six oil & gas fields. Carpathian forecasts that this compelling scenario will begin to gather momentum within a 12-month horizon.

Romania’s is now a stable democracy that has made a noticeably smooth transition to a free-market economy since the dismantling of its communist regime in 1990. And the country’s drive to become a member of the European Union is continuing to usher in many economic reforms that underscore this emerging economy’s appeal to foreign investors. Therefore, this pro-business climate promises to be a powerful factor in the successful development of Oracle’s business ventures in Romania.

On a corporate note, Oracle’s President, Nasim Tyab, is a seasoned venture capitalist and financier with an extensive background in corporate development, marketing and strategic planning. He also benefits from past experience as a senior executive with other publicly traded companies. Mr. Tyab was also previously associated with the Crew Group, which manages a portfolio of natural resource firms, providing specialized consulting services. Additionally, his savior faire as an international businessman is well complimented by the geological acumen and impressive track records of his Company’s joint venture partners in both Yemen and Romania.

Also, a most notable recent addition to Oracle’s board of directors is Dr. Robert McTavish. As a seasoned petroleum geologist, Dr. McTavish brings to the Company more than 35 years of experience in the oil & gas industry. During this tenure, he has worked for a number of major players all over the world, including CONOCO and West Australian Petroleum. However, in recent years, he has developed an expertise in developing oil & gas assets in the Middle East and in Eastern Europe. This background should considerably benefit Oracle due to its strategic focus on Yemen and Romania.

In summary, the Company benefits from an enterprising business model that offers investors considerable ‘blue sky’ or upside potential. Similarly, the advent of meaningful near-term cash flow promises to build significant intrinsic value into Oracle’s share price. This is the type of finely calibrated risk/reward formula that SmallCapMedia believes will be the key to Oracle’s success. Furthermore, the present climate of historically high energy prices makes for an ideal springboard to propel Oracle towards exponential near-term revenue growth.

From a technical standpoint, Oracle has a relatively tight share structure with about 20.1 million shares outstanding (approximately 28.1 million fully diluted). Such a situation, matched with positive news flow, typically acts as a catalyst to higher share price valuations. And already the imminence of two exciting high-impact drill programs this year is proving to be the catalyst to an upward trend in Oracle’s share price in recent weeks.

Nonetheless, SmallCapMedia believes that the Company’s stock in still considerably undervalued. In fact, the prospect of capitalizing on two ‘home run’ opportunities (or even just one of them) unquestionably presents the fast track to significantly higher share price multiples. Thus, we believe that Oracle Energy Corp. is primed to be a strong performer during the balance of 2005 and beyond.