dormie, curious why you bought the stock vs. the warrants, AXLWF. $5 warrants, underlying stock not registered yet but I should be by the end of the year.
oubobcat, hopefully they're piping all that water to their own SWD wells in which case the costs to dispose of the water would be pretty low, in spite of the massive amounts that they need to dispose of. If they are paying to have it hauled off then the costs would be material and will almost certainly show up in the LOE. Since there are a ton of unused wellbores hanging around over there I would be absolutely stunned if they weren't using some of them for SWD wells.
Also, I wonder whether they are re-injecting the produced water at the Adena field into the formation like they are in Kansas, in effect using it to maintain pressure in the producing reservoir.
Great to see the big rally on Friday, on quadrulple the normal volume. Hopefully the sub-$.50 days are now behind us.
Sentiment: Strong Buy
Thanks rotsevni, but what about the ethane? I hear about "ethane rejection" going on in some parts of the country, is it not possible for SFY to keep the ethane in their gas?
Assuming natty prices hold up over $4 (which seems like a lock at this point) the banks will slowly start to raise their price decks for natty and given that about half of SFY's reserves are natty it should result in some pretty healthy increases to SFY's borrowing base. For 3Q their interest coverage ratio (i.e. EBITDA/Interest expense) was something like 5:1 which is not necessarily investment grade but still pretty healthy). Tack on the additional revenues that they will be enjoying from natty prices that are about $1/mcf more than in 3Q and you get significant additional capacity for debt based on a 5:1 coverage ratio.
SFY's YE '12 reserves had a PV10 value of $2.3B using natty prices of $2.71/mcf. YE '13 reserves will probably use a natty price of around $3.75/mcf so it should give them a healthy bump in PV10 value. If the market were to then make a further upward adjustment for current strip prices the PV10 value would go up even more, approaching $3B I believe. Using that figure the company is trading at an enterprise value of about 2/3rds of its PV10, a stunning discount given that it also has all that valuable Eagle Ford shale acreage.
If SFY's NGLs are still selling for around the same price that they were in 3Q, it appears that they would make more money, for their March sales at least, by keeping the liquids in their gas and just selling more gas. Based on the current April futures price its around the same either way but if we really end up with under a TCF of working gas in storage it would seem that the April futures contract would likely expire a fair amount higher than it is quoted currently.
So the question is, how hard is it for a company such as SFY to switch from stripping the liquids from its gas to not stripping them, for what could be only a month or 2?
EnerJex filed an S-1 for $7.5M of nonconvertible preferred after the close on Friday. They have been harping about all the great opportunities that came with the Black Raven merger so maybe they finally are getting the gumption to raise some more capital to drill those out. The other alternative would have been to farm out some of their Kansas stuff but the terms they probably would have had to offer to get that done probably would have made that less preferable than just issuing this preferred stock.
The timing of this filing makes a lot of sense in that the SEC can now fart around with it for the next 45 days and then once EnerJex issues its '13 10K they can then be in a position to amend this S-1 to include the latest results and have it become effective shortly thereafter.
Can't wait to see what they plan to do with this money. I'm hoping they will use it to drill gas wells in their Niobrara acreage. At current gas prices these wells would pay out pretty quickly and produce for quite awhile. The target there is only about 2,500 ft. deep and they can get a well down there in 1 day of drilling yet it would have EUR of 287 mmcf of gas.
Northland and Euro-Pacific are going to be co-managers of the preferred offering. When they do the road show for that it will be interesting to see to what degree that creates interest in the common stock.
So far the stock has not reacted very favorably to the Black Raven merger but once they get the '13 10K filed I believe the stock will break out from its trading range and the magnitude and extent of the ensuing rally could surprise a few folks.
Sentiment: Strong Buy
The presentation by Torchlight at the IPAA on 2/12 can be viewed at the IPAA[dot]org website under Archived Presentations . The Torchlight guy needs to take a Valium before he speaks I guess. Torchlight disclosed a $21M figure for PV10 value of reserves in their Hunton play but did not associate a date with that. I'm assuming the year-end figure will be something lower than that since a bunch of wells straddled year-end I believe. In any event that is a tremendous accomplishment given that they've only spent about $3.5M on that project so far. With $46M total PV10 of reserves they should have no problem getting a mezz. debt line and I would be surprised if we don't see news on that within a month or so.
Sentiment: Strong Buy
Well they got the money in the door and as expected the stock price did in fact dip a bit today , but not much. Maybe it will continue to sell off a bit more over the next few days but the chances of getting into this stock at under $4 are now pretty slim it seems given that the offering was oversubscribed.
I know they've been very active out in the field and have a lot of great news to put out but my hunch is that they will wait until next week for that, just in case any more TRCH stockholders have itchy fingers. Then next week they should put out the ops update, a new presentation, and do their presentations at OGIS (2/12) and TOGC (2/19). Now that they have an additional $6.4M sitting in their bank account their story should resonate a lot more strongly at these conferences. It seems likely that they should be able to get $20-25M in mezz. debt financing on reasonable terms at this point.
I agree Captain, the comp plans look excessive at first glance but the bottom line is that the actions of these guys have caused the stock to more than double in the past year. Some of the initial deals that they got into were not so hot and were heavily promoted but the more recent stuff, in OK, KS, etc., are much more economic and are not promoted that heavily.
I see from a Form D that they recently filed with the SEC that they are engaged in a $7M equity raise. This probably accounts for the recent weakness in the stock price. Hopefully they can get that raise closed before they do their next symposium presentations in mid-February.
As a public company, Torchlight is new -- to the listed marketplace, anyway. Torchlight uplisted from the OTC to the
Nasdaq on Dec. 16. So, there hasn't been research coverage, etc., but therein lies the opportunity. It also indicates that
it's impossible to determine if there is a large short position against Torchlight -- my first criterion -- but I see no reason
why there would be.
Criteria No. 2 -- ability and willingness to raise capital. Torchlight is in the middle of raising a "mezz piece" -- capital that
lies in the mezzanine of the capital structure, between debt and equity -- and I believe it will find quick success in its
capital raise. Proceeds will be put "in the ground" as the company's aggressive drilling roadmap includes 1,000 potential
Another of my criteria involves using the rate of interest on preferred securities to determine an undervalued stock. I
have no idea what rate Torchlight will pay on its mezz piece, but it's an offering to accredited investors, which will likely
have decent size (I would guess $25 million to 30 million) and that should add up to a coupon rate in the low doubledigits.
High internal rates of return from the Hunton (and following on in Kansas) will allow Torchlight to afford such an
interest rate, and my prediction is that the accredited investors who participate will accrete great returns as the Kansas
plays bear fruit.
Part of raising capital also can include selling assets, and Gastar's sale of its Texas assets in October allowed the
company to reinvest sale proceeds into the red-hot Hunton play. I would expect Torchlight to pursue the same strategy
in 2014. Selling its Texas assets (in the Austin Chalk play in Wilson County) would remove much of Torchlight's current
production, but I believe that the economics in Kansas/Oklahoma for Torchlight will prove to be much more favorable
(due to cheaper well costs, lower water-cuts, etc.) than in Texas.
By Jim Collins
Yesterday I wrote about finding the next Gastar Exploration (GST) for 2014, and my first "new" company is one that
participates in the same emerging play -- the Hunton Limestone formation in Central Oklahoma -- as Gastar, while
participating with the same operator (privately-held Husky Ventures.) The Hunton play has been good to Gastar, and
Torchlight Energy Resources (TRCH) is seeing the same results with early wells paying back its investment in less
than 100 days.
Torchlight is not just Gastar junior, though. In addition to its Oklahoma assets, Torchlight has exposure to two separate
plays in Kansas that give the story a little spice. Torchlight is working with Husky on a Mississippian Lime play and Ring
Energy on a Maquoketa Dolomite play, and I believe these two projects will be the propellant for Torchlight's shares in
It's not just a theory, as Torchlight is currently producing oil (200 to 250 bbls/day net to its working interest) and has
booked Proven Developed Producing (PDP) reserves of $46 million.
I believe those two figures justify Torchlight's current share price of $4.40 (market cap of $62 million) but, as we learned
in 2013, the essence of identifying E&P winners comes in seeking out growth in Proven UnDeveloped reserves (PUD)
and watching the PUDS become PDPs.
That's where Torchlight's Kansas assets are the key factor. One of the criteria I mentioned yesterday was a low ratio of
current production to potentially productive acreage and Torchlight's Kansas assets fit that description. These emerging
E&P names can't get reserve credit until production begins... but the acreage needs to be secured first. Via its operating
partners Torchlight has done that in both Kansas plays, and as production begins there, that will show up in future
Great to see the positive results at Adena. Since it only costs $200K for these re-entries, 10 bopd should result in about a 11-12 month payout assuming the production holds up at that level for that long, which would be tremendous economics.
If I understand the deal for the 70% acreage they just got in Kansas, they will let Haas operate even though they will own the majority of the acreage. Weird setup but the positive about it is that it frees up EnerJex's operating staff to work on other things.
Too bad they found it necessary to put the news out on 12/31, when many investors were taking the day off. I guess they just felt that since they signed the Haas deal the day before they should put something out sooner vs. later.
Here's to a better year for ENRJ fans.....
oubobcat, I've given up trying to find stuff on public companies in the various states' online oil & gas reporting databases, since many of those are way behind in their updating. Also, in this case, since EnerJex is not actually drilling new wells but rather is just re-entering existing wells, I'm not sure what reporting (if any) is necessary for that activity.
Great to see EnerJex get at least a small bit of exoneration with their court case. As announced in the 12/23 8K, they won't have to pay $492K in fees plus they'll be getting a check for $500K next month. This should hopefully cover most if not all of EnerJex's legal fees spent to date. For the appeal that EnerJex is contemplating, hopefully their lawyers will agree to work on a contingent fee basis from here. The settlement was so small that I'm wondering if they will even bother trying to work out some sort of "dividend" for the pre-Black Raven shareholders as contemplated in the merger agreement.
Hope all had a great Christmas!
oubobcat, I don't believe we can assume that just because the stock doesn't trade for a few days that a big seller has finished dumping their position.
Getting back to the fieldwork, I hope they at least keep their options open regarding next year's cap ex budget, to allow them to shift funds into gas drilling if in fact natty prices have held up toward the end of the winter. Some believe that this current rally in natty prices is just a temporary bump due to the extreme cold weather we have experienced, but whether or not that is true will become apparent by late February or so. EnerJex, being a small company, hopefully would be nimble enough to be able to "call an audible" and change its drilling plans part-way through next year to drill for Niobrara gas vs. eastern Kansas oil, if the economics for the former end up to be better than those for the latter, which I strongly believe will be the case.
As frustrating as it is not to be getting any flow rates from Adena yet, I believe ENRJ management is doing the right thing here. Looking at the stock price chart over the last 5 months or so, its obvious that someone with a large position has wanted out and has been steadily dumping stock. So the thought is, why waste good news by putting it out into this buzz-saw. Adding a second rig is material and had to get announced to stay on the right side of the disclosure laws, and it would have looked stupid if they just announced that without addressing why they decided to do it.
Its disappointing to see that they still want to do "an aggressive drilling program" in Kansas given their current slate of opportunities. Based on the "blah" results we have seen there after them hacking away for nearly 3 years, it would have made more sense to me to just allocate the minimum amount of capital there that would allow production to be kept stable, and then put more money into some of the new opportunities that they have available from the Black Raven assets. For example, they have a ton of very low-risk gas PUDs that they can drill out that would be very economic in a $4 gas world, which is where I believe we now are.