DEJ: Dejour Energy forms JV to accelerate development of Kokopelli

By Steven Ralston, CFA

NYSE:DEJ
TSX:DEJ.TO

Dejour Energy (DEJ) (DEJ.TO) entered into a joint venture with a private, US-based E&P company to develop Kokopelli. Dejour Energy received $3.75 million at closing, which will be used retire the 14% CDN$3.5 million loan facility from a Canadian institutional lender.

The JV has been structured such that the E&P company has earned a 65% working interest of the Kokopelli project, Dejour Energy retains 25% and Brownstone Energy holds 10%. The E&P company will assume operatorship of the Kokopelli project, which will result in a 70% reduction in G&A expenses at Dejour USA. The JV does not include the four producing natural gas wells that are under a separate agreement with a private Denver-based drilling fund.

Initially, the JV will drill eight new Williams Fork wells on the southern Kokopelli leasehold. The E&P company will be carrying both Dejour Energy and Brownstone Energy through this next phase of developing the Kokopelli project up to $16 million. Therefore, Dejour’s share of drilling expenditures of this drilling program is fully funded. After the initial $16 million in development costs, it would appear that subsequent costs would be shared on a pro rata basis.

In addition, the JV is charged with obtaining a Surface Utility Agreement for the 1,520-acre north lease at Kokopelli. The good faith work toward developing the north lease should hold the lease in good standing with the Bureau of Land Management (BLM) and Bureau of Wildlife Management.

With this JV agreement and the recent production-oriented transactions at Woodrush, Dejour Energy is building a growing revenue stream. Also, management has plans to advance Roan Creek by surveying the lease in preparation for the submission of an Environmental Assessment.

We maintain an Outperform rating on Dejour’s stock and adjust our target to $0.50 per share to account for the structure of the Kokopelli JV. The target is based upon a calculation of Net Asset Value (NAV) and uses the most recent 51-101-compliant Reserve Report, financial reports and company announcements.

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