Permex Petroleum (OIL.CN) has received a fair amount of coverage here at Equity Guru. With the company and its multiple moving parts, it’s a challenge keeping pace with new developments.
If you follow these pages, you’ll know that Permex is a uniquely positioned junior Oil & Gas company with assets and operations spread out across the Permian Basin of west Texas and the Delaware Sub-Basin of southeast New Mexico.
If you’re new and want to be brought up to speed here, I’d recommend perusing the following Guru write-ups…
Permex Petroleum (OIL.CN): a small cap oil producer with huge capacity, poised for significant growth
I’d also recommend this short video interview with Mehran Ehsan, Permex President and CEO…
The company’s growth strategy…
Permex in an enviable position having accumulated its project portfolio in the Permian Basin well before the area reemerged as an oil-producing hot spot.
Waterflood programs, bringing shut-in wells back online – these are all components of the company’s low-risk sustainable growth plan. This ‘low hanging fruit’ production will bolster the company’s cash flow in the short to medium term.
Scaled growth lies in Permex’s horizontal development plans.
This quote, from a Guru article published six weeks back…
In recent communications with Permex, Equity Guru has learned that management is considering a 5 well horizontal leg conversion program with a 1 mile lateral 12 -20 stage frack. Such a move, if initiated, would expedite its ‘Scale Program’ well ahead of schedule. We’re talking considerable growth potential here.
These 1-mile laterals will require serious money, likely millions of dollars for Permex’s 50% share (presumably, Occidental will agree to foot the other half in order to maintain their end). The company is also on the hunt for additional production properties.
In order to fund such aggressive growth and acquisition plans, most companies will go to the market for the funding, blowing out their cap-structure in the process. Permex stands apart from most. When it comes to funding, lenders answer their telephone calls:
October 16th news…
Permex has secured a US $5,000,000 lending agreement with R.C. Morris Capital Management Ltd. Through this arrangement, the company has access to an initial cash issuance of US $2,000,000 with additional draws available when relevant terms and conditions are met on both sides.
Permex intends to use the funding to pursue play extension and acquire-and-exploit continued opportunities throughout the Permian Basin by applying the same geologic and petrophysics-driven thesis used in their acquisitions to date. The funding will allow an increase in monthly net cashflow by acquiring interests in producing properties with good potential for additional production increase once enhancement work has been undertaken by Permex. These producing properties and working interests that the company has narrowed down for acquisitions are within the Permian Basin.
Repayment of the Loan will be due, in full, 36 months after the closing date. Interest will accumulate at a rate of 16.75% per year and paid monthly in arrears.
Additionally, Permex has agreed to provide R.C. Morris with share purchase authorizations (at market price) on the Loan’s closing date. Total shares available under this arrangement = 0.5% of the fully diluted shares of the company. That works out to roughly 2 million Permex common according to my math.
Obviously, R.C. Morris appreciates the potential upside in Permex’s stock.
Commenting on this loan arrangement, Permex President and CEO, Mehran Ehsan, stated…
We are very pleased to have the support of RC Morris as we continue to pursue attractive opportunities in this prolific region while achieving immediate goals without dilution of the company’s capital structure.
This is a music to my ears. Funding arrangements almost always come at the expense of shareholders. I’d rather see my company enter into a loan arrangement at 16% than have my stock position diluted by 50%.
Happy shareholders = loyal, long-term shareholders…
~ ~ Dirk Diggler
Full disclosure: Permex is an Equity Guru client. We own stock.
Postscript: the price pattern in oil is looking constructive. Higher highs and higher lows are always a good thing…