Saskatchewan Cash
Flow & Australian Bluesky
As a general
rule, the most successful man in life is the man who has the best
information.
There are three things every
energy investor needs to know about oil:
Firstly, since the early 1980s new
discoveries have failed to keep up with the global rate of oil consumption.
The second thing is:
China's General Administration of
Customs published figures showing imported oil in December hit a record 21.3
million tons which pushed the country's 2009 total oil imports to 204 million
tons. Imported crude oil accounted for 52 percent of the country's total oil
consumption last year.
Third production is already
rapidly declining from some of the world's largest fields. Oil production
from the world's top +200 projects peaked in 2009 and production levels are
seen to be falling for the forseeable future.
To summarize:
- Goldman
Sachs says 2010 oil demand growth will deplete historically high
inventories over the next 12 -18 months
- Diminishing
production rates in key areas around the world will create a
supply/demand imbalance
- New
discoveries are not on pace to replace consumption
In this article I'm going to
introduce you to a company that is doing greenfields exploration in a
frontier area that seems to have "the right stuff" - individual
trapping situations are estimated to hold up to 230 million barrels of energy
(boe) in place at depths of 300 to 900 meters. The company expects to pay for
a very large majority, if not 100%, of their exploration and drilling
expenses with free cash flow from their Canadian oil/gas production.
Texalta Petroleum
Ltd. TSX.v - TEX.A
Shares Issued: 35,108,750
Warrants and Options: 2,464,604 (options, weighted average exercise price of
.31)
Fully Diluted: 37,573,354
Insider Ownership: 27%
Institutional ownership: nil
Texalta's Canadian operations are
in southeastern Saskatchewan where:
- Texalta
holds working interests ranging from 16.5 to 71.6 percent in 16
producing oil wells
- Texalta has
created the infrastructure required to market its own production and
generate revenue through its 32.82% ownership interest in two processing
facilities.
- Texalta is
the operator and 47.5 percent working interest holder of the Wordsworth
project area
- TEX.A is a
joint venture partner in the Queensdale/West Queensdale area with
working interests ranging from 28.89 to 73.12 percent
- Texalta has
50 percent working interest in the Wildwood/West Wildwood project
- Texalta
holds significant working interests in developed and undeveloped
prospects in the South Wildwood, Carlyle/East Carlyle, and South
Queensdale areas of southeast Saskatchewan
- Texalta also
holds a 47.5 percent working interest in 2000 acres of prospective
Bakken rights located below the prolific Mississippian (Alida) pool at
Wordsworth, Saskatchewan.
Wordsworth -
Drilling operations at Wordsworth commenced on May 15, 2006 resulting in a
new pool discovery.
The Wordsworth area now sports a
fully operational processing facility including a salt water disposal well
and flowline.
Texalta holds a 47.5% working
interest in the Wordsworth project area and is the operating partner. As of
the end of March 2010 Woodsworth is producing 258 bbls per day of which 114
bbls per day is net to TEX.A
The Wordsworth project area
consists of more than 4,000 acres of Crown and Freehold mineral leases. The Wordsworth
pool can potentially accommodate an additional 8 wells.
West Queensdale -
Drilling operations began in November 2006 at West Queensdale, Saskatchewan.
Texalta (25.55% working interest) and partners drilled two development
horizontal wells on the eastern side of the project area, which offset a step
out vertical well at 8-25-6-2 W2 that produces from the Mississippian (Alida)
formation. West Queensdale is an older field with 11 producing wells.
West Wildwood - At
West Wildwood, Texalta (50 percent working interest) and its partners have
800 acres of Crown and freehold mineral leases, with extensive seismic
coverage.
Drilling operations were completed
on July 11, 2007 on the Petrex Texalta Wildwood West HZ 4A16-34 / 4D4-2-7-2
W2 and by mid November 2007 the well was tied into the processing facility at
8-26-6-2 W2M.
This well was the first horizontal
test on a linear structure about one and a third miles long and 1/3 mile
wide. The well can be termed a new pool wildcat - which is a well on a
separate feature outside the limits of a defined pool but productive from the
same zone as a nearby pool (Wildwood). The structure can accommodate at least
four horizontal wells; one parallel to the first about 150m NW and then two
more to the south parallel to the first.
West Wildwood currently has one
producing well. Between West Queensdale and West Wildwood production at the
end of February 2010 totaled 47.5 boe per day for net to Texalta of 29 boe
per day.
Current Free Cash
Flow (FCF) after Operating and Capital Expenditures (in thousands of $'s)
Barrels of energy per day boe/day
- dark blue
Free cash flow - light blue
Year
Month
|
2009
06
|
2009
07
|
2009
08
|
2009
09
|
2009
10
|
2009
11
|
2009
12
|
2010
01
|
2010
02
|
FCF
,000
|
$100
|
$54
|
$125
|
$308*
|
$126
|
$115
|
$25**
|
$105
|
$168
|
Boe/day
|
120
|
112
|
118
|
125
|
163
|
146
|
132
|
152
|
147
|
Free cash flow total over last 12
months: $737,000.00
BOE/per day average over last 12 months: 122
*2009 - 09: September drilling costs HZ 1B1, Completion costs HZ 1C2
**2009 - 12: Drilling costs HZ 1B4
Cash: $751,792.07
Term Deposits: $409,136.63
Total: $1,160,929.70
Debt: Nil
Georgina Basin,
Northern Territory, Australia
Texalta, through its wholly owned
subsidiary Texalta Australia Pty Ltd., holds a 50 percent working interest in
5.5 million acres of Exploration Permits in the Georgina Basin, Northern
Territory ("N.T.") of Australia.
In a presentation entitled
"Onshore Hydrocarbon Potential - 2006" the N.T. Geological Survey
identified several seismic based leads with potential oil pools in the 70 to
230 million barrel range.
The Georgina
Basin is a large intracratonic basin and covers most of the central-eastern
part of the Northern Territory and is one of the most prospective undeveloped
onshore petroleum provinces in the Northern Territory.
Intracratonic basins are worldwide
in occurrence - other well-known intracratonic basins are the highly
productive Williston Basin (located in North Dakota and Montana in the U.S.
and Saskatchewan, Canada) and the Parana Basin in South America.
The Cambrian strata of the Arthur
Creek (Georgina Basin) is considered to be similar to the Mississippian
succession of Western Canada that has produced more than ten trillion cubic
feet of gas and one billion barrels of oil.
Although the Georgina Basin has
not had a discovery to date the region is believed to have all of the
prerequisites needed for oil and gas entrapment, migration and production.
Individual trapping situations in the Georgina Basin are estimated to hold up
to 230 million boe in place at depths of 300 to 900 meters.
Approximately 90% of the Northern
Territory's prospective onshore basins are currently under license or application,
compared to less than 10% a few years ago. The significant increase in land
area under license or application suggests a growing interest in the area
among exploration and producing companies.
In June 2009 Texalta Australia
Pty. (TAPL)
completed a 240 kilometer 2D seismic program.
Joint venture partner Georgina
Basin Energy Pty. Ltd. (GBE) has been appointed operator of the project and
upon full expenditure of the remaining agreed upon earn in funds - $3.25
million held in trust - will have fully earned its 50% working interest in
the permit areas.
The Future
Texalta recently announced that
pursuant to a Letter of Intent dated September 14, 2009, Texalta and Rogers
Oil and Gas intend to enter into a more definitive Exploration and
Development Agreement. The Agreement will outline the drilling program for a
combination of up to 20 development and exploration wells in the Wordsworth,
West Queensdale and Wildwood project areas in southeast Saskatchewan.
The capital input from Rogers (or
its affiliates) may range as high as $22.4 million to be cash called on a
well by well basis. To date, Rogers or its affiliate, has participated in six
drilling projects with Texalta and partners since 2008.
The current drill program, which
started the 28th of April 2010 consists of three wells:
- West
Wildwood HZ Alida
- West
Queensdale HZ Alida
- West
Queensdale HZ Alida
The August drill program currently
has two wells scheduled to be drilled:
- West
Queensdale HZ Alida
- Wordsworth
HZ
Planned wells:
- Carlyle Deep
Vertical
- Wordsworth
Horizontal
- Wordsworth
Deep
- Wordsworth
Vertical Alida
- Alamada Deep
Undetermined
- Wordsworth
HZ
- West
Queensdale HZ Alida
Texalta is fully funded for its
current and anticipated August drilling program in the Wordsworth, West
Wildwood and West Queensdale areas.
Bakken
The Bakken oil formation lies in
the Williston Basin, a geological formation in the north central U.S.,
underlying much of North Dakota, eastern Montana, northwestern South Dakota,
southern Saskatchewan and Manitoba, Canada.
The presence of the Bakken
formation (located below the prolific Mississippian (Alida) pool at
Wordsworth, Saskatchewan) is confirmed in wells to the north and south of the
prospect area.
Texalta's plans for drilling their
Bakken acreage is to lay off the risk of drilling these wells to farm in
partners.
Australia
The southern Georgina Basin is a
large petroleum exploration province which in the current oil price
environment offers companies attractive and cheap entry acreage for explorers
targeting green field exploration in basins with shallow oil potential.
Given the gas flow from Ethabuka-1
(recovered gas at 6,000 m3 per day - 240,000 cfd) deeper gas prospects in the
Toko Syncline should also have a high priority.
Texalta Australia and joint
venture partner Georgina Basin Energy GBE (GBE is a wholly owned subsidiary
of Australia Energy Corporation - AEC) have been engaged in meetings and
preparations for the next seismic program (additional seismic data is
necessary to identify four way closure on generated targets) which will cover
300 to 500 km and is anticipated to start by June of 2010 subject to
receiving all government clearances and approvals. This seismic program will
be paid for by the $3.2 million GBE final earn in money held in trust by
TEX.A.
AEC has said that it is of the
opinion that the geology of the Southern Georgina Basin is analogous to areas
of the Western Canadian sedimentary basin, where its team has extensive
exploration experience.
"We expect to generate a
lot of revenue from Saskatchewan operations which we will use to drill the
Australian targets, and at the same time attract farm-in partners."
William Nixon, president, Texalta
Key Features:
- Positive
cash flow that they have an excellent chance of increasing from their
Saskatchewan operations
- No debt
- Low
outstanding share count with high insider ownership
- Company
management believes that operations should be run from cash flow and not
debt or equity financings
- A very small
organizational footprint. TEX.A keeps costs low by employing external
technical consultants which gives them the flexibility to scale up and
down as developments require. Texalta is thereby able to accomplish the
same things as much larger companies for a much smaller cost
- The presence
of the Bakken formation located below the prolific Mississippian (Alida)
pool at Wordsworth, Saskatchewan.
- Enormous
bluesky potential combined with first mover advantage in securing their
large (5.5 million acres) and very prospective Australian land package
Conclusion
The holy grail for investors in
the junior resource sector is finding that very rare company committed to and
able to fund exploration activities and drilling from free cash flow.
The information Texalta is
releasing in regards to its Saskatchewan operations leads me to believe that
they could have a remarkable production and cash flow engine in Saskatchewan,
Canada. This free cash flow should pay for exploration and drilling in what
is a very prospective and undeveloped onshore petroleum province in the
Northern Territory of Australia.
The use of free cash flow to fund
activities gives investors maximum exposure to any discovery - if they make
one. If not, they can try again without going to the markets for another
round of dilutionary financing.
Free cash flow from Texalta's
Saskatchewan Mississippian Alida formation wells - plus the potential from
deeper zones - funding exploration and drilling activities, matched up with
the considerable bluesky potential in Australia makes this company worth
having on your radar screen.
Is it on yours?
Richard Mills
Aheadoftheherd.com
Richard
is host of www.aheadoftheherd.com and invests in the
junior resource sector. His articles have been published on over 60 websites
including - Wall Street Journal, 24hGold, Kitco, USAToday, Safehaven,
SeekingAlpha, The Gold/Energy Reports, Gold-Eagle and Financial Sense.
|