The Oil’s: A Guru Update on ROE.V, IFR.V, EW.V and OIL.CN

I read a quote today from Scott Sheffield, chairman of Permian heavyweight Pioneer Natural Resources. He says…

If OPEC doesn’t do something, I think we’ll see $100/b oil-plus.

Damn, it seems like just yesterday the industry was grappling with sub-forty crude…

image courtesy of InfoMine

 

Obviously, there’s a flip side to this coin. A price spike of the magnitude Sheffield suggests could choke off demand. It could prompt people to peddle to and fro rather than burn fuel in their favorite rides.

image courtesy of Tumblr

The oil market does appear buoyant though. A collapse in price from current levels seems unlikely unless OPEC were to crank open the spigots too fast.

The Oil’s we follow here at Equity Guru:

The first two on the recap list are Mexican explorers/developers/producers: Renaissance Oil Corp and International Frontier Resources Corporation. The third company, East West Petroleum, has projects in Romania and New Zealand. The fourth company, Permex Petroleum Corp, is an explorer/developer/producer sporting multiple projects in West Texas and New Mexico.

Renaissance Oil Corp (ROE.V) is a company that burst onto the Mexico O&G scene when the country finally opened up its formidable oil reserves to foreign companies.

The company’s flagship asset, the Amatitlán project – a massive 60,000-hectare block of ground located on what’s widely considered the ‘sweet spot’ of the Tampica Misantla Super Basin – is a partnership with LUKOIL, the Russian oil giant. Amatitlán was THE first shale oil play to be pursued and acquired by a foreign company in Mexico.

The potential here is substantial in our opinion. Equity Guru’s Chris Parry chimed in on ROE’s prospects back in early May.

Recent ROE News…

May 23, 2018 – Renaissance Reports First Quarter 2018 Results.

Highlights…

  • Renaissance, in conjunction with its partner, LUKOIL, drilled six new wells targeting the shallow Chicontepec formations and completed workovers and repair operations on the final well of a six-well restoration program.
  • The Company successfully negotiated land use agreements, with local land owners, at the three Chiapas properties, Mundo Nuevo, Topén and Malva, providing ongoing surface access for Renaissance to further its work programs.
  • Production was temporarily suspended during the discussions with local land owners resulting in reduced production for the period which has subsequently been restored to an average of 1,663 boe/d for April 2018.
  • The recent improvement in oil and gas prices continued into the first quarter as sales of crude oil averaged $72.98/Bbl compared to $66.65/Bbl in the previous quarter, while sales of natural gas averaged $4.92/Mcf compared with $4.42/Mcf in the first quarter of 2017.
  • The Company closed on gross proceeds of $11.1 million via the issuance of common shares and associated share purchase warrants.

According to the company, the first quarter of 2018 was their most active period thus far.

Six wells were drilled during the period, wells which successfully intersected the shallow Tertiary aged Chicontepec formations.

A total of ten Chicontepec wells have been drilled to date. The drilling of numero eleven is currently underway.

Six of the new wells have undergone completion operations and were placed into production. A further four completions are expected to conclude over the next few weeks.

Greater efficiencies have been realized by ROE’s operations team via the incorporation of innovative drilling and completion techniques. These innovations have succeeded in reducing costs, not to mention the time required to bring new wells online.

The company has also completed workovers and repair operations on all of the six wells on this scheduled workover program.

During Q1 2018, in the state of Chiapas, Renaissance successfully negotiated land use agreements with local landowners at the Mundo Nuevo, Topén and Malva blocks (the “Chiapas Blocks”). The new agreements provide ongoing surface access for Renaissance to further its work programs under the approved initial development plans in exchange for monthly consideration. Production was temporarily suspended at the Malva and Topén blocks during the discussions with the landowners, resulting in a reduced production schedule. During Q1, 2018, the Company produced 1,249 boe/d in the Chiapas Blocks. Production levels have now been restored to an average level of 1,663 boe/d for April 2018, consistent with Q4 2017.

The Company expects to receive the final approvals for the required permitting in the near term allowing for the drilling of new wells and workovers for the Chiapas Blocks in 2018. This lower risk drilling program of three new wells and a series of workovers to existing wells, holds the potential to substantially increase the Company’s production base in Mexico.

Once again, the potential here is rather considerable (my opinion and estimate).

International Frontier Resources Corporation (IFR.V), via ‘Tonali Energia – a joint venture IFR formed with Grupo IDESA – are developing Tecolutla, a block which lies within the Tampico-Misantla Basin, a prospective onshore ‘Super Basin’ with huge unconventional oil and gas potential.

IFR has been covered fairly extensively in recent months by the scribes here at Equity Guru. Lukas Kane delivered a nicely detailed piece here, and yours truly gave the company’s prospects a thorough once-over here.

Two pieces of IFR news have hit the wires in recent weeks…

On May 16th, the company announced the commencement of production at Tecolutla with the successful workover of the previously drilled TEC-2 well.

Highlights of this company milestone include:

  • On May 8th, Tonalli commenced a production test of the TEC-2 well producing from existing perforations.
  • The well was tested for a total of seven days and recovered an average of 125 barrels of oil per day (“bopd”).
  • Last recorded production rate in January 2016 from TEC-2 was 9 bopd and 9 thousand cubic feet (“mcf”) of natural gas.
  • Over the final day of the test, the TEC-2 well averaged an estimated 105 bopd and 288 mcf of gas producing 514 bbls/d of fluid.
  • Throughout the test, TEC-2 flowed naturally on a restricted 20/64 inch well head choke with a final wellhead flowing pressure of 660 psig. The ratios of crude oil, water, and natural gas remained consistent throughout the multi-day test.

Commenting on the news, Steve Hanson, President and CEO of International Frontier Resources and Director of Tonalli Energia stated…

Rates from the TEC-2 well exceeded our expectations based on the age of the well and historical production records provided by the previous operator. The results of the test have indicated that the El Abra reservoir in the Tecolutla Field is capable of delivering high volumes of fluid.

Then, on June 20th, the joint venture provided an update on completion operations – the commencement of production testing on the Tec-10 well at Tecolutla.

Service equipment is currently being mobilized to the area after successfully receiving a perforation permit for the well.

Three prospective zones will be tested as part of this completion program.

Completion operations, which will take approximately three weeks, will provide valuable information about reservoir parameters and well deliverability. This data will, in turn, be used to formulate a long-term development plan for the Tecolutla block.

Solid progress on multiple fronts. Cool beans ya’ll.

Before we leave Mexico…

There’s been some rather anxious talk about the country in recent months. An election is looming and there’s fear… fear that frontrunner, Andres Manuel Lopez Obrador, will continue with his usual style of initiating hard left policies, potentially choking off foreign direct investment in the process.

Those fears may be way overblown as AMLO’s recent push to power is on the back of policies that are more center oriented than the hard lean leftward some might be led to believe.  

History can serve as wise counsel. Let’s hope AMLO landed at least a C+ in Mexican, Central and South American history class.

East West Petroleum’s (EW.V) main play is the Pannonian Basin of Romania. The USGS (US Geological Survey) suggests that anywhere between 153 and 631 million barrels of oil (MMBO) and 1.7 and 7.4 trillion cubic feet of gas (TCFG) remain undiscovered within the Pannonian Basin Province. Obviously the potential here is substantial.

East West’s partner on the project is Naftna Industrija Srbije – NIS for short – a Serbian multinational oil and gas company with headquarters in Novi Sad, Serbia.

Significantly, NIS’s involvement gives East West a 15% carried interest all the way through to production. It’s significant because NIS has spent well over $16 million Euros ( $18.5M USD) over the years on phase one of the project. Moving into phase II will require expenditures of some $60M Euros or nearly $70M USD.

Recent EW News…

News out of the company’s joint venture with NIS is always a highly anticipated event.

On May 22nd, the company reported an operational update for their blocks in Romania. At the top of the release the company states “all activities are dependent on securing the necessary government and local approvals”. Fair enough.

Key takeaways…

Blocks EX-2 and EX-3:

  • Permitting continues for acquisition of a total of approximately 400 km2 of 3D seismic. Acquisition is expected to commence in Block EX-3 in 2Q 2018.

Block EX-7:

  • Acquisition of a total program of 95 km of 2D seismic was recently completed.
  • Construction of a drilling pad and access road for the drilling of an exploration well is underway. Anticipated spud is early 3Q 2018.
  • Following the successful testing of the Teremia-1000 exploration well in 2017, which flowed oil and gas from multiple zones, drilling of an appraisal well on the Teremia-1000 structure is anticipated in late 3Q 2018.

Block EX-8:

  • Permitting continues for an exploration well with anticipated spud in 4Q 2018.
  • Drilling of a second appraisal well on the Teremia-1000 structure, which is interpreted to potentially extend into the EX-8 block, is anticipated in 2019.

The company does not promote this project, or its production and development projects in New Zealand with joint venture partner Tag Oil (TAO.TSX). The President and CEO, David Sidoo, did have this to say, however, regarding this recent update…

We are pleased with the progress that NIS has made with progressing seismic acquisition and preparing for an active drilling program later in the year. Of note is the planned appraisal drilling on the Teremia-1000 discovery which is designed to evaluate the size and commercial potential of the accumulation. We look forward to providing further updates as operations progress.

For more insight into East West and the potential behind their Romanian monster-basin oil and gas play, we gathered as much info as we could find here… and here.

Moving along…

Permex Petroleum Corp (OIL.CN) is a new client here at Equity Guru. And it’s a most welcome client at that. I had the pleasure of writing them up recently and came away plenty impressed.

The company’s areas of operations are in the Permian Basin of West Texas and the Delaware Basin of Southeast New Mexico.

Having shrewdly taken advantage of a soft market, a market populated with a number of debt-encumbered operators, Permex has assembled an extensive portfolio of producing, or near producing assets.

The company is employing a low-risk approach to achieving production and growth milestones: acquiring producing assets on the cheap, spending modest sums of capital to restimulate or enhance production.

The company is also forming alliances and partnerships with other companies to assist with some of the heavier lifting – a strategy which has been employed here and here.

Aside from combing the landscape for future acquisition opportunities, the company is busy restimulating forty-six oil and gas wells, bringing thirty-three shut-in wells back online, and waterflooding five out of the company’s seven oilfields in order to stimulate production.

Recent Permex News…

Permex Petroleum Corporation Signs LOI to Acquire Additional Oil and Gas Assets in the Delaware Basin of Eddy County New Mexico

The company has signed a Non-binding Letter of Intent (“LOI”) to acquire a 100% working interest, including an 83.91% net revenue interest, in an 840 acre property which is held by production (“HBP”) in the Delaware Basin of New Mexico.

There are a total of 7 vertical wells, of which 2 are producing 5 barrels of oil per day and holding the acreage, as well as 5 shut in wells which provide the opportunity for Permex to re-enter and put on production for added production. The area’s geology consists of numerous formations including but not limited to the Wolfcamp, San Andres, Grayburg, Queen, Seven Rivers, and Yates formations.

Commenting on the acquisition, Mehran Ehsan, President and CEO of Permex Petroleum Corporation, stated…

We are very pleased to move forward with our expansion plans in the Delaware Basin of New Mexico, where there has recently been tremendous production among a diverse mix of formations for both oil and gas. This is yet another strategic acquisition as it is a direct offset property of our own West Henshaw Premier Unit, which puts our ownership over 3 sections in the area. We look forward to consummating our acquisition and in the short term bringing online the shut-in wells while drilling new wells in the long term on the lease.

This acquisition represents a 33% HBP increase to Permex’s New Mexico land portfolio. The purchase price was a mere USD$100,000 which Permex will satisfy through the issuance of common stock.

Another producing asset bought on the cheap without blowing out the company’s super-tight cap-structure. Gotta like it.

Final Thoughts:

Each one of the companies updated above represents compelling value at current prices (in this authors opinion). The pace of news highlighting asset development will vary from company to company – country politics may play a role in that newsflow.

With the exception of perhaps East West Petroleum (a company carried by a much larger controlling partner), I would expect a fair degree of activity and communication out of the above entities.

In the weeks and months to come, we could see ‘a really big shew’ outta this group (ED Sullivan voice).

image courtesy of We Hear It

We stand to watch.

END

~ ~ Dirk Diggler

Full disclosure: Renaissance Oil Corp, International Frontier Resources Corp and Permex Petroleum Corp are Equity Guru clients. East West Petroleum is not an Equity Guru client. The author does not hold shares in any of the above companies, though purchases may be made in the near future.

Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

6 comments

  1. Hinny Reply

    I was going through the news related to companies I’ve invested with and came across this: “East West Petroleum Announces Corporate Restructuring and LOI to Acquire Juva Life Inc.” I’m not very savvy when it comes to breaking down whether this is a good thing or not, and I’m a bit confused about what this means for me as a shareholder. Will my EW shares automatically become Juva shares, or will they continue as a separate oil company? Or will I be a shareholder in both companies? I’m wondering whether the skilled staff of EG can help me make sense of this and to determine in what ways this might be to shareholder disadvantage (guidance request for the gurus). Thank you for your time! I consider this site to be a solid authority on sniffing out good quality companies.

    • Greg Nolan Post authorReply

      It’s a multi-faceted transaction Hinny. We need to wait for the company to release further details on how it’s going to treat the spin-off of its oil and gas assets, but basically, it means you are going to own shares in both an O & G company, and a weed company. On first read,it sounds like the O & G asset spin-off will occur before they consolidate the company’s cap-structure 10 for 1. Your stake in EW’s Romanian/NZ assets will remain intact. Your stake in the new WeedCo will be reflected in the post-consolidation structure (if you owned 10K EW shares, you will own 1K shares in the new weed entity). “East West will consolidate its issued and outstanding shares to 8,958,567 shares and will seek shareholder approval for the proposed transaction and on closing shall issue 82,000,000 post-consolidation common shares to the then existing shareholders of Juva for a total resulting issuance of 90,958,567 shares post-transaction.” Hope this helps…

      • Greg Nolan Post authorReply

        I may need to revisit this one Hinny, but the above is my current take on the situation as of 1:30 Weds 07/18 PST

        • Hinny Reply

          Thanks, Greg! I was having a hard time trying to sort it out. I appreciate the clarification!

  2. Georges Reply

    Looking at EW again many notable events over the last 12 months The cannabis transaction has been rejected by shareholders, the CEO was arrested in the college admissions scandal, exploration drilling continues in Romania and one well appears near production ready, the New Zealand leases have been sold
    The company is currently trading at near the value of cash and near cash equivalent suggesting that no value is assigned to the leaseholds in Romania where their partner NIS appears to have spent near 100$ million so far
    Any thoughts as to what is happening with this company and where this is going? Is a sale in the cards? Any further downside to this at present ?

    • Chris Parry Reply

      Have had my eye off it, to be honest, assuming it was treading water while Sidoo gets walked around the prison yard.
      These things do tend to reach an arbitrage point however, much like ASNT is as it flips its delicensed weed grow and has as much cash as cap. Will see what I can find out.

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