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Petro River Oil Corp. (OTCBB: PTRC) is an independent energy company taking advantage of the downturn in oil prices to enter lucrative projects with industry-leading partners by focusing on the exploration and development of conventional oil and gas assets. PTRC recently completed a corporate reorganization, which included new management, the acquisition of several promising new assets, and an infusion of cash. PTRC reduces risk and provides cross-functional exposure to risk adjusted opportunities by diversifying over a number of projects, each with low initial capital expenditures and strong risk reward characteristics. Additionally, PTRC has a management team and Board of Directors with more industry experience than any other small-cap oil company we have seen. You can check out management here and the Board of Directors here. PTRC announced on April 12, 2016 it had applied for listing on the NASDAQ Capital Market.
2016 Development Plan
PTRC is fully funded to drill 9 wells and has projected reserves of over 2 million barrels of oil equivalent (BOE), which will be able to be booked by December 2016 with less than $1,000,000 spent in Capex. In fact, PTRC has the next two years fully paid for. That means everything is funded and the Company has two years of runway from where they stand today. That includes the nine wells funded for 2016 and does not include any income that might come in from the production of the nine wells. In our opinion, this is a huge accomplishment for a small-cap company
A barrel of oil equivalent (BOE) is a term used to summarize the amount of energy that is equivalent to the amount of energy found in a barrel of crude oil. In our opinion, this capital efficient strategy will create shareholder value by proving the development concept on PTRC’s low-risk assets and exploration upside
PTRC recently completed its acquisition of Horizon I Investments, LLC in an all-stock transaction. As a result, PTRC acquired $5.0 million in cash and receivables, and an indirect 20% membership interest in Horizon Energy Partners, LLC, which also targets conventional well projects that are economic at today's oil prices. In 2016, PTRC intends to drill six low-risk conventional wells in Osage County, Oklahoma, participate in two low-risk conventional wells in Kern County, California, and drill one exploratory well in the Larne Basin, Northern Ireland, all of which are fully funded. The Larne Basin exploratory well is set to drill in June 2016 and is the nearest term catalyst for PTRC. The Horizon Energy portfolio consists of only conventional opportunities and projects which target finding and development costs of less than $10.00 per barrel.
1. Stick to a strict acquisition criteria and focus on conventional drilling. PTRC looks for low entry costs, low drilling costs, no horizontal drilling, no tight reservoirs and no fracking. As a result, PTRC has assembled 6 different conventional assets.
2. Mitigate risk by securing modern 3D from prior operations and shooting additional 3D. Not only has PTRC secured seismic data at a fraction of last year’s prices, we believe they have the team to execute on that data and continue to source projects in the conventional space. Incidentally a majority of PTRC's capital and Horizon capital comes from the principal players who have mostly technical backgrounds.
3. PTRC targets assets with solid returns even at $30 oil.
4. PTRC has diversified its portfolio to include assets ranging from lower risk, lower outcome, to high risk, high outcome projects with most falling in between. We've avoided regions with any geopolitical risk.
PTRC's wholly owned subsidiary, Petro River UK Limited, recently commenced drilling operations on the Woodburn Forest-1 Well in Larne Basin, Northern Ireland. Initial results are expected in July 2016. In our opinion, this is a significant near-term catalyst. Positive results could propel the stock to new highs. The vertical well will be drilled to a depth of 2,000 meters (approximately 6,500 feet) to test the commercial viability of three conventional sandstone reservoir intervals, the Triassic Sherwood Sandstone, Lower Permian Sandstone and Carboniferous Sandstones. The P50 Prospective Resources have been estimated by PTRC's joint venture partners at 25 million barrels of oil within the Woodburn Forest prospect.
PTRC and Horizon Energy Partners recently acquired a 25% working interest, in approximately 130,000 gross acres of both onshore and offshore petroleum licenses in the Larne Basin. The Larne Basin has broad similarities to the highly prolific Carboniferous sourced East Irish Sea Basin to the southeast, which has produced over 200 million barrels of oil and 4 trillion cubic feet of natural gas. The exploration of the Larne Basin, if successful, has the potential of being one of the largest, recent on-shore discoveries in Western Europe. The Larne Basin remains one of the only Carboniferous basins in Europe that is untested for hydrocarbons. In our opinion, PTRC is one of the few micro-cap companies with a project of this magnitude. Once PTRC reaches total depth, plans call for a comprehensive subsurface engineering study to fully analyze and evaluate each of the sandstone reservoir intervals. We believe the success of this first pilot test well, and the data gained from it, should substantially increase the value of PTRC's exploration program, as well as reducing its future development risk in Larne Basin.
Projects and Assets
PYTC’s core holding is in the Mid-Continent Region in Oklahoma. PTRC has a combined portfolio of assets, both directly owned and through Horizon, which includes oil and gas assets in several areas. Below is a list of the asset, its location, the acreage and PTRC’s direct/indirect un-risked potential recoverable resources.
· 106,500 contiguous acres centered on Pearsonia-Blackland-Foraker fields.
· Field production >20MM barrels of oil through vertical well development.
· Reprocessing of 36 square miles of proprietary 3-D seismic data underway.
· Initial processing indicates multiple structures with closures ranging from 120 to 1000+ acres.
· Shallow nature, <3,000 feet, and low risk drilling environment proves economically profitable with $30/barrel oil prices.
Grapevine Drilling Areas
· There are compelling nearby production and reserve analogues to the primary Stevens Sand objective, and the Discovery was the product of close to five years of extensive technical effort and the expenditure of approximately $25 million for land, seismic, geological/geophysical and drilling costs.
· There are several other untested prospects within the area under Grapevine’s control that could contain up to an additional 40 million barrels of oil.
· The well depths range from 4,000 to 8,500 feet and the oil is light, in contrast to many of the 'heavy' oil fields nearby.
· Extensive oil and gas infrastructure is already in place.
· It is ideally located adjacent to one of the richest oil source kitchens in the world.
Dorset (Onshore-Offshore) Southern England - 28,000 Acres and 1 million barrels of oil (BBLS)
· 26,000 acres adjacent to the giant Wytch Farm - the largest onshore oil field in Western Europe.
· Est. prospective resources > 20MM barrels of oil and ~60B cubic feet of gas.
· Horizon owns a 10% interest with option to acquire an additional 65%.
· Just south of Wytch Farm oil field.
· Directly in migration fairway of Liassic oil source “kitchen.”
· Potential high quality reservoirs & traps within boundaries of licenses.
· Acquisition of new 3-D seismic data underway; Horizon holds a 50% interest.
· Only remaining truly untested Carboniferous Basin in Europe.
· Un-risked, potential recoverable resources for the entire Larne Basin > 1 billion barrels of oil.
· Petro River & Horizon, respectively, have working interests in the licenses of 9% and 16%.
· Licenses encompass 521 square kilometers, the majority of the prospective Larne Basin.
· Horizon has contractual rights to participate for a 50% interest with Ardent Oil Limited ('Ardent').
· The fiscal terms are excellent, political risk in Denmark is non-existent and the Danish State participates for a 20% paying interest in each license.
We previously mentioned PTRC had commenced drilling on the Woodburn Forest-1 Well in Larne Basin, Northern Ireland and that initial results are expected in July 2016. In our opinion, however, the Osage project in Oklahoma provides the lowest hanging fruit. Management knows the property from multiple wells and has volumes of data, including numerous well logs and seismic data. Not only that, but PTRC’s technical staff has drilled hundreds of wells in the area and is familiar with the geology and what works. The oil source is prevalent and dry hole cost is less than $100,000. Drilling is conventional and production cost is low. PTRC has a high confidence that they can economically discover and produce hydrocarbons. This is a near-term catalyst, since PTRC has plans to drill in Q3 and Q4 of 2016. The Company has set modest expectations of 50,000 barrel EUR's per well with stacked objectives. With low cap ends of approximately $200,000 per completed vertical well, the expectation is paybacks in less than 18 months, even in a low $30 oil crisis. Total recovered reserves are projected at 6 million barrels per project area.
PTRC also has two assets in California with significant near-term potential. Both projects are low risk as far as development and appraisal opportunities, since they are situated in one of the State’s historically most productive oil bearing regions. These assets would not have been available two years ago. PTRC’s technical team believes Grapevine, one of the California assets, contains significant undiscovered oil. The prior operator did most of the work spending $25 million on land, seismic geophysical studies, and drilling. The program paid off and a material oil discovery was made in late 2014 but the well was lost for mechanical reasons. Unfortunate for them but great for PTRC shareholders, the prior operator lacked the funds to develop the well. One of PTRC’s team members had an intimate knowledge of the prospect, as well as the relationship with the new owners, which allowed the new owners to reassemble the project. After acquiring new 3D seismic over the area which is currently under way, in late 2016 PTRC plans to re-drill a discovery well. The discovery could contain as much as 10 million barrels and other exploratory efforts could yield perhaps an additional 40 million barrels.
We have also previously mentioned Larne Basin, one of PTRC’s Ireland projects, which lies in a sparsely explored region. The Larne Basin was not neglected because it lacked potential, but as a result of terrorist activity in the area for more than three decades. In addition, volcanic rock lies near the surface, which could not be penetrated by old seismic methods. Penetrating volcanic rock is no longer an issue with modern techniques. A single well was drilled by Shell in 1971. Last year a company testing an underground storage facility drilled a well and found the evidence of natural gas, which PTRC believes could only have come from the carboniferous source rock. Recently acquired 2D data has indicated numerous traps and the Shell well found 2 high quality reservoirs.
PTRC’s team, along with experienced UK joint venture partners, believes the data suggest as much as 1 billion barrels of oil and equivalents could be present in the entire basin. How much of that will belong to PTRC is yet to be determined, but PTRC will begin drilling the initial exploratory well next month. The target well has unrisked, recoverable resources of over 40 million BOE. Should the results, which are expected in June, be promising, it could be a huge score for PTRC shareholders, as well as getting PTRC on the radar screens of a lot of larger investors. PTRC plans to discuss Dorset in Denmark later in 2016 as their engineering staff consults with management to develop plans relating to these assets.
In our opinion, there are numerous near-term catalysts that could increase the value of PTRC shares. While there is no guarantee the Company will be successful with its application for listing on the NASDAQ Capital Market, it could create greater demand for the stock, should the application be approved. PTRC will be drilling the first exploration well any day now in Northern Ireland. In Q4 '16, drilling should commence on the California projects, Grapevine and Kern. The Osage drilling program should also commence in Q4 '16, as well. Most important is that PTRC has no debt and is fully funded for these nine wells.
The Larne Basin well has already been fully funded, which PTRC has its direct interest in. That money has been put in escrow so it is already off the balance sheet and gone. The rest of the Kern and the Osage has been funded, so those wells are fully funded in the joint venture PTRC has. Also, the rest of that portfolio is funded through Horizon, either directly, or through carries that Horizon earned early on. The Company has two-years of funding, without raising any more money. In case you missed it, that is without raising money, or any income from the production of the 9 wells. When was the last time we were able to invest in a small cap that did not need to dilute the shareholder base to raise capital? We believe the heavy lifting has already been done on PTRC.
It's too early to speculate on all the various events but, in our opinion, the potential is there for one, or maybe even several, successful projects that could put PTRC on the map. According to the Company, high oil prices are not necessary to be successful. With a couple of successes the optionality in PTRC's portfolio could be significant to shareholders, even at these current prices. Management has a great track record, and a lot of experience, investing in the oil and gas industry. The amount of money they earn is directly tied to the performance of the company. PTRC is one of the first small-cap companies we have seen that discloses the ownership publicly, on their website. You can see the ownership here. While there is never a sure thing in the stock market, PTRC offers a tremendous amount of potential for investors.