By Steven Ralston, CFA
READ THE FULL PQEFF RESEARCH REPORT
Petroteq Energy (PQEFF) (PQE.V) is an upstream exploration and production (E&P) company focused on advancing its proprietary Clean Oil Recovery Technology (CORT). Currently, the company is ramping up bitumen oil production at its newly commissioned 1,000 bpd facility at Asphalt Ridge in Utah.
Asphalt Ridge Operational Update
On March 28, 2019, Petroteq Energy announced that the company has been continuously producing over 500 barrels per day for the last two weeks. The nameplate production capacity of the company’s oil sands processing facility is 1,000 bpd. Management anticipates achieving a 700 bpd production rate in April and the facility’s rated production capacity by the end of May. The ramp up in production is being conducted in a measured approach in order to help ensure that product quality will meet the standards expected by its refinery customers. The cash flow derived from production should reduce the need for dilutive share financings.
During the winter months, Petroteq Energy completed its first maintenance turnaround of the Asphalt Ridge processing facility and also installed new equipment delivered from third-party vendors. The maintenance turnaround was completed on February 21, 2019, including upgrades to the front-end feedstock mixing operations and solvent recovery process, along with enhancements to facilitate the planned integration with the proposed 3,000 bpd expansion project.
View Exhibit I
Bitumen oil production recommenced with the facility producing higher quality, heavy crude oil (API gravity 17) with low sulfur content and a low sediment factor ( below .05% BS&W). By mid-March 2019, Petroteq Energy resumed sales of bitumen oil at Asphalt Ridge with the announcement that two loads of 250 barrels of oil (API 17) had been sold to local refineries.
Management intends to continue expanding production, initially to nameplate capacity of 1,000 bpd and later this year by adding a second processing train.
Management’s primary goal is to become a significant bitumen oil producer in Utah by advancing its proprietary, patented, closed loop, environmentally-friendly Extraction Technology. In 2015, the company constructed and operated a 250 bpd pilot plant that produced almost 10,000 barrels of bitumen oil. Concurrently, the company acquired the lease on the resource providing the oil sands feedstock to the pilot plant. The components of the pilot plant were relocated, upgraded and expanded to a 1,000 bpd facility. Management plans to scale up production to nameplate capacity over the next few weeks.
View Exhibit II
Management plans to continue upgrading the processing facilities at Temple Mountain Mine:
• Phase 1: the construction and commissioning of a 1,000 bpd plant (completed)
• Phase 2: the expansion of production capacity to 4,000 bpd by the end of 2019
• Phase 3: increase capacity to 8,000 bpd by early 2022
View Exhibit III
The company is building investor awareness by attending Analyst Conferences:
◦ The MicroCap Conference in New York City (April 9, 2018)
◦ 8th Annual LD Micro Invitational Conference (June 4, 2018)
◦ The MicroCap Conference in Toronto (June 21, 2018)
◦ 20th Rodman & Renshaw Global Investment Conference in NYC (September 6, 2018)
◦ The MicroCap Conference in New York City (October 1, 2018)
◦ 31st Annual ROTH Conference in Dana Point, California (March 18-19, 2019)
◦ 8th Annual Scottsdale Capital Conference in Scottsdale (April 27, 2019)
Located in the northeast flank of the Uinta Basin, Asphalt Ridge is a northwest-southeast trending escarpment (a steeply sloping ridge of land) which is quite prominent as it rises from 500 to 1,000 feet above Ashley Valley along its 20-mile strike. The Ridge exhibits a gentle slope on the southwest side and a steeper slope towards the northeast). Multiple mapping and drilling programs have been conducted, notably by Standard Oil of Ohio (Sohio), Sun Oil Company, Texaco, Phillips Petroleum and Shell Oil Company.
Asphalt Ridge hosts an important oil sands deposit in the Uinta Basin of northeastern Utah. The bitumen-saturated outcrops have been mined since at least the 1920s. The sandstone structures of Asphalt Ridge feature extensive surface deposits. Bitumen-saturated outcropping sandstones are exposed on the northeast-facing cliffs, all along the northwest strike of Asphalt Ridge, from an area in the southeast where the Green River flows to where the Ridge terminates in the northwest by a series of crosscutting high-angle faults.
View Exhibit IV
Petroteq Acquires 50% of Federal Mineral Leases
On February 8, 2019, Petroteq Energy announced the execution of a definitive agreement with Momentum Asset Partners I, LLC for the acquisition of 50% of the operating rights of six U.S. Federal oil and gas leases: one located in P.R. Springs (encompassing approximately 8,480 gross acres) and five located in the Tar Sands Triangle. Total consideration for the transaction is US$10.8 million comprised of US$1.8 million in cash and US$9.0 million payable in Petroteq Energy shares (approximately 15 million common shares).
The P.R. Springs lease is estimated to contain gross contingent resources of 45 million barrels of mineable oil/bitumen in place and 20.38 million barrels of mineable oil/bitumen in place on a net basis (discounted by risk and royalty), according Chapman Petroleum Engineering’s Evaluation of Contingent Resources report dated December 31, 2018.
The Tar Sands Triangle leases are estimated to contain gross contingent resources of 41.3 million barrels of in situ oil/bitumen in place and 20.7 million barrels of in situ mineable oil/bitumen in place on a net basis (discounted by risk and royalty), according to the Chapman Report.
The company is expected to issue a Resource Development Plan that will outline the company’s long-term strategy of developing its capability of producing bitumen oil.
Based on comparative valuation analysis of Price-to-Sales (P/S) ratios with comparable oil recovery companies and a discounted cash flow (DCF) model of the Asphalt Ridge Project, our blended valuation process indicates a share price target of $1.38.
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.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks provides and Zacks receives quarterly payments totaling a maximum fee of $30,000 annually for these services. Full Disclaimer HERE.
By Steven Ralston, CFA