Good to have you back se. I moved the board to increase exposure and added some info from this months presentation as they are planning to increase their credit facility. Waiting to hear more about Little Bow....solid company...just not noticed in the U.S. yet b/c they just reached necessary minimum production levels in Dec. 2012. Time will change this IMO.
From Zero to Hero in Two Years: How This Little Junior Explorer Outsmarted Much Bigger and Deep-Pocketed Competition (CNQ, BNP, BIR, AEWJF) By James E. Brumley Mar 8, 2013 6:11:40 AM PST
In the northern part of Alberta, Canada, there's not much.... at least not above ground. Under the ground, however, companies like Canadian Natural Resource Ltd (NYSE:CNQ), Birchcliff Energy Ltd. (TSE:BIR), and Bonavista Energy Corp. (TSE:BNP) know there's million and million of barrels of oil there. It's just a matter of digging it up (though that's not necessarily a 'simple' matter). Yet, somehow several major oil names have let key oil well prospects slip through their fingers in northern Alberta, yielding them to a junior explorer named Aroway Energy Inc. (PINK:ARWJF). Funny thing is, Aroway has already done far more with these drilling prospects than Bonavista, Birchcliff Energy, or Canadian Natural Resource probably ever figured could be done with them, and the best is yet to come.
All told, Aroway Energy Inc. owns 110 sections of oil-producing land - about 70,000 acres worth - peppered all across the Peace River Arch in northern Alberta. What's interesting is that these 110 sections aren't necessarily contiguous; they're peppered in between oil-producing lands owned by some major names who, for one reason or another, didn't want to develop wells there, or who didn't think there was enough oil on them to begin with. Big mistake.
By carefully choosing which properties to buy and which to pass, ARWJF has pieced together an oil well network that's producing 650 barrels of oil per day, with more wells in development.
The fact that Aroway Energy is finding oil on properties other drillers didn't want isn't the compelling part of the story. Rather, it's the way it's going about drilling for oil - and selecting well locales in the first place - that investors should appreciate.
To call ARWJF a 'junior explorer' may not be off-base given the company's market cap of $25 million and its age; it only went into operation in late-2011. But, whereas most junior oil explorers are willing to drill anywhere and everywhere at almost any cost (whether the odds of finding oil or are high or low), Aroway has always made a point of establishing wells at virtually-certain prospects, but only of it wouldn't cost a proverbial arm and a leg to extract it. The end result is a payback period that's measured in months rather than years.
More specifically, Aroway Energy's CEO Chris Cooper doesn't like to spend more than $500,000 on drilling and tieing in a new well, and then he'll only commit if he's fairly sure that well can produce at least 70 to 80 barrels per day for several years (with 10 to 15 years being the preferred minimum). Anything less, and the company is likely to not bother, simply because the ROI isn't attractive enough to merit the risk. The end result is a young company producing a total of 1020 barrels of oil every day between its four key properties.
The irony is that the very land in the Peace River Arch that bigger players like Birchcliff Energy Ltd., Bonavista Energy Corp., and Canadian Natural Resource Ltd could have owned (and perhaps did own) is apt to be attractive to them again... though at a premium. ARWJF paid only between $50 to $100 per hectare back in 2010 for most of the 110 sections it owns in the area, but now that working wells have been established there and viability has been proven, the land is worth between $300 to $900 per hectare, all because of Aroway's effort.
CEO Chris Cooper isn't exactly shy about putting the possibility of the buyout on the table either. He suspects when the company reaches on output rate of 1200 barrels per day (likely in the middle of this year), the majors will come knocking, as that's enough to make it worth their time. And if they don't come knocking on his door, he's apt to go knocking on theirs. Either way, ARWJF is a potential target, specifically because it's producing more oil - and doing it sooner - than anybody ever really expected it to. Such an acquisition will be at a premium price, though, to be sure. That's a credit to careful site selection and picky well development.
The chart below shows just how much oil Aroway owns in all the right places in northern Alberta. Most of its sites are in the backyards of bigger oil names operating in Canada, like Canadian Natural Resources, Bonavista Energy, and Birchcliff; an acquisition would be logistically simple for most of those companies.
For more on Aroway, you can review the SCN research report here.
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