General observations on Q1
Posted: Sunday May 14 1:41:15PM 2006
1. Much lower CF netbacks and getting worse 2. Inflation 3. Delays and access to rigs and services 4. Huge increases in working capital deficits, probably not a concern as bulk of drilling done in the winter. To invest the rest of the year you should be focused on... 1. Companies that have hedged production at higher AECO prices. This keeps their capital program in check and hence the production estimates they put out 2. Companies that can get access to rigs and keep costs under control 3. Companies that have enough resources to fund the remaining capex without further dilution From my current observations using the latest information, DEE has had the best Q1 so far.....but why? 1. Currently hedged 40% of production at between $9-11 AECO over the next year 2. Partnered with Encana on Bigfoot, no problem accessing rigs or services. Pays 90% to gain 50% WI. Wells average 133 (67net) in the first year and decline 5-10% after that, cost $2.1 million to drill with payback after 3 years with a 5 year drilling inventory of 300 wells on this property 3. Line of credit will be raised to fully fund this years capital program 4. No need for further dilution, good production growth coming. Company currently doing 6400BOED, looking to exit at 8,000. 5. Exploration project at Tower Creek will reach depth in July. If successful will add an additional 500 BOED to the company Its also worth noting that GBE (Doren owns them) is the operator of the Tower Creek well. He had the following to say in the research report posted about GBE "On March 3, 2006, Grand Banks announced that its first exploratory well (16.67% working interest) on the Harley prospect in west central Alberta has been spudded. This Harley well, which is expected to take about 125 days of drilling to reach a projected total depth of 5,019 metres, targets a Leduc pinnacle reef that has been clearly identified from 3D seismic data. Grand Banks will oversee the drilling of this well which is expected to cost an estimated $16 to $17.5 million (gross) to be drilled and cased. Based upon analogs in the same general area, the first Harley gas well, if successful, is expected to commence production at gross raw sour gas rates in the 25,000 to 30,000 mcf/d range. This well could potentially provide Grand Banks with net production of about 500 boepd. In addition, the company intends to obtain a well license for a second Harley deep target underlying the 19 sections of lands in which it holds interests. Depending on rig availability and other factors including partner approval, the second Harley well may be drilled immediately after the first. Grand Banks will pay 15.28% of the costs to earn a 13.19% working interest in the second well."