DEJ: Dejour Energy’s Project Update call & 2013 Info Form clarify 2013 events, reserves & 2014 plans
By Steven Ralston, CFA The last few weeks have provided a great deal of color on the progress of Dejour Energy (DEJ), along with management’s plans for 2014. During a recent conference call, management outlined a 3-pronged strategy and provided updates on the company’s projects and 2014 capex program. Recent announcements concerning an acquisition adjacent to Woodrush and a new gas processing arrangement at Kokopelli are expected to enhance production. At the end of March, the company filed its 2013 Annual Information Form, which increased the annual reserve assessment by 12.1% and provided additional detail to the reported fourth quarter and full-year financial results. Furthermore, so far in 2014, the company has received approximately $2.2 million in capital through a private placement and the exercised of options. Management’s strategy encompasses the goals of 1) increasing production in British Columbia, 2) expanding the company’s assets through acquisition and 3) monetizing its oil & gas leaseholds through partnerships. Management seeks to opportunistically acquire oil & gas assets, especially in Canada where funding is available through an acquisition provision of an existing credit line with Canadian Western Bank. Already this year, Dejour Energy has announced a transaction for oil & gas assets adjacent to the company’s Woodrush project, namely the acquisition of working interests in production leaseholds [5,500 net acres], a sour gas processing facility (96.8% working interest) and 24 km of pipeline (96.8%+ working interests). The oil & gas lease includes a 54% working interest in a producing well (currently producing 800 MCF/D gross from the Halfway formation) and a 74% working interest in three shut-in natural gas wells, which management expects to reactivate. The sales pipeline will allow the company to eliminate paying a pipeline tariff to transport the gas from the company’s tank battery at Woodrush. The purchase was funded by cash on hand and drawing upon an acquisition provision of the existing credit line. In addition, management has designated a $2.4 million capex budget to further develop Woodrush, targeting the capped natural gas wells and potentially tapping into the sweet gas from the Gething sandstone formation that overlies the Halfway pool. At the end of March, Dejour Energy filed its 2013 Annual Information Form, which includes the 51-101-compliant report of estimated reserves and associated economic evaluation. Based on Gustavson Associates evaluations for U.S. properties and GLJ Petroleum Consultants for Canadian properties, net reserves decreased 15.6% from 34,341 MBOE to 28,999 MBOE; however, due to improved pricing, the value of the annual reserve assessments (Net Present Value at 10% discount rate of 2P reserves) increased 12.1% from $98.886 million to $100.874 million. The four-well drilling program at Kokopelli appears to have upgraded approximately 24,000 MMCF in natural gas reserves from the probable to the proven category. Management specifically cited that the number of PUDS (proven undeveloped) increased 51% to 139 locations. Just prior to filing the Annual Information Form, Dejour Energy reported results for the fourth quarter and full year of 2013. Quarterly earnings were a net profit of CDN $0.022 per diluted share versus a loss of $0.063 in the comparable quarter last year. For the year, earnings were a loss of CDN $0.017 per diluted share versus a loss of $0.083 in 2012. For the year, gross oil and gas revenues (before royalties) increased 35.4% to $9.32 million primarily due to higher gas production and improved pricing (realized natural gas prices increased 55.8% as realized oil prices rose 6.0%). The new production from the four wells at Kokopelli drove the 65.4% increase in gas production. Average gross production improved 35.5% to 504 BOEPD versus 372 BOEPD reported in 2012. Thus far in 2014, the company has received approximately $2.2 million in capital. On January 21, 2014, Dejour Energy closed a non-brokered private placement of 7,000,000 shares at a price of C$0.11 per share. The net proceeds of approximately $716,000 were targeted to eliminate U.S. payables. Insiders purchased 900,000 shares (or 13%) of this placement. Also, management exercised 7,522,501 options at $0.20 providing $1.50 million in capital. We maintain an Outperform rating on Dejour’s stock and slightly raise our target to $0.52 per share, which based upon a calculation of Net Asset Value (NAV) using the updated 51-101-compliant Reserve Report, recently filed 2013 financial reports and the latest company announcements, including the project update conference call held on April 17th. READ THE LATEST FULL RESEARCH REPORT HERE SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR and to view our disclaimer
NYSE:DEJ
