STREAM OIL and GAS SKO.v/SOGAF C$.88
Posted: Friday Nov 2 11:38:31AM 2012
Stream Oil and Gas is a new favorite of mine. This junior is in Albania, exploiting proven fields that need investment in current technology and EOR. They have significant reserves and are profitable. They are currently around 1600boepd and earned .05eps last qtr.
Their oil production is mostly heavy oil and sells at a big discount to Brent because of the relatively low volume and the low local demand. Stream exports their oil via an Italian broker and currently gets 68% of Brent. Stream has significant natural gas assets but isn't in current production because of low local demand. They have reworked one well that tested at 2 to 3 mmcfpd but they shut it in after a couple months of production.
So why do I like Stream?
Stream has rights to 3 oil fields that have proven resources and existing wells that have extracted about 10% of the reserves. Current technology should allow Stream to extract another 20% of the reserves over time. They are doing the easy stuff first. Many of the wells were out of production because of neglect and locals may have stolen the wiring so the pumps weren't working. Stream has worked on one field and successfully installed new jet pumps that more efficiently pumped oil. They have found that from a base of around 10bpd, they can boost production to 100bpd per well. Stream is currently installing 6 new pumps with expected increases of 500bpd to show up before year end. However full qtrly production isn't expected to show until the qtr ending 2/28/13.
In addition to oil, Stream has rights to one of the biggest ngas fields in Europe, Delvina. Stream has reworked one well and tested it at 2.2mmcfpd. Local demand is very low but Stream had hoped to drill a modern horizontal to show the potential of the field. They need $15million in financing and think they are close to a forward sales agreement that will provide the necessary financing for a spring 2013 spud.
Stream had hoped to sell the field production to a company proposing to restart a local power generatio plant. The govt put out a request for bids in June but included conditions that made the deal uneconomic. The company that was interested and has an agreement with Stream to get access to Delvina gas to power the plant is trying to put together a new 100MW plant. However that is tentative at this point. Stream has contractual requirements to drill at least one horizontal well in Delvina to retain it's rights but can wait after that until the power plant proposal is firm before drilling more expensive horizontals.
They do have a couple of backup scenarios.
1. Stream has ordered a gas reinjection compressor from New Zealand. It's on a boat headed for Europe. When the compressor is installed, Stream will be able to produce from Delvina 12, strip off the condensate and reinject all the dry gas. This will preserve the ngas for future use while getting valuable condensate to sell. Condensate actually sells for a premium to Brent. Delvina field is liquids heavy so production could be in the 100barrel per 1mmcfpd production of gas. So let's estimate 200bpd of condensate. 200bpd X $100X 92days = $1.8million per qtr in gross revs.
2. Stream is working with a Greek company that has imported a portable mini generator that runs off ngas. Current output would be 2.5megawatts and would use 400mcfpd. The Greeks would pay Stream $9 to 10/mcf for their gas and sell the electricity into a regional power grid. The power lines are very close to Delvina. Delvina 12 could support several generators and the horizontal would support even more. The Greek company is going to install the first one and intends to add more but as cashflow builds but we'll have to see how it goes with the first one before getting too excited.
Certainly between these two alternatives, Stream should be able to produce and sell ngas from the existing Delvina 12 well. The condensate should produce 1.8 million per qtr and the dry gas sold for the first power generator should add another 368K per qtr. So Stream gross revs for the qtr ending 2/28/13 should be up by around 1-2million from ngas and NGL's. The first full qtr would be 5/31/13.
So near term catalysts would be the new jet pumps adding 500bpd oil to production and the various ngas initiatives adding 2million/qtr to gross revs. 500bpd X $70X92days = 3.2million per qtr gross revs.
Last qtr, Stream grossed 8 million so these two additions are significant at around 5 million per qtr. It will take until mid 2013 to see the full impact but since Stream is already cheap based on .05/qtr eps earnings, we should have little downside.
The company is planning on a $15 million horizontal well in Spring 2013. They know the gas is there and expect 4million mcfpd production capacity and 400boepd condensate. If that well is successful and Stream can find reliable buyers for the output, they can finance a ongoing drill program for more gas. The company forecasts for production of 12,500boepd in 2015 depend on successful full development of Delvina.
Another catalyst in 2013 will be the full takeover of one of their three oil fields.
Stream Oil and Gas is a profitable company with huge production upside. They do face challenges due to the relatively poor local economy and poor prices for their oil which make financing harder. In order to reach 12,500boepd, they need lots of financing. BUT the oil and gas are there. They don't have to find it. They know it down there. They just have to efficiently extract it. It's doable with current Western technology.
Stream has 73.5million FD shares out for a current market cap of C$65 million. Production averaged 847bodpd in 2011. Currently around 1500boepd and could be 3,000boepd if the horizontal is successful by mid 2013.
My average cost is C$.86.