QIS Capital - New Company Profile 2015 - September 8th 2015
Included in this update:
- QIS Capital Initiates Coverage of Quattro Exploration and Production Ltd. (QXP:TSX-V)
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Quattro Exploration and Production Ltd. (QXP:TSX-V)
Current Price: $0.18
QIS Capital is pleased to add Quattro Exploration and Production to its list of Feature Companies and we look forward to providing subscribers with regular updates on the company. A full corporate profile for Quattro will soon be available in the Feature Companies section of the website at www.smallcaps.ca/feature_companies.
As always, investors are encouraged to complete their own due diligence prior to making any investment decisions based on information provided by QIS Capital.
We are pleased to introduce you to our latest Feature Company. Quattro Exploration and Production Ltd. (QXP:TSX-V) was first mentioned in our research in early 2014 around $0.32. The stock subsequently ran to $0.93 just a few months later on the back of strong cash flow and net asset value.
A lot has happened in the oil and gas industry since March 2014. We have undergone one of the most challenging periods for junior oil and gas companies in the history of the sector as capital funding has dried up, commodity prices have plunged, and investors are basically ignoring anything to do with resource stocks.
So why would we look at featuring an oil and gas company in this market? I’m sure every investor has considered that when the cyclical oil and gas market comes back there will be massive gains to be had. We’re not likely at that point yet, but it is an important time to find those companies that offer limited downside with current fundamentals while still offering massive upside when and if the oil and gas sector gets a resurgence of energy (no pun intended…)
Quattro Exploration and Production is currently trading around $0.16 to $0.18 per share – half of what we originally featured the company at and less than a fifth of its high in 2014. The company has one of the lowest cost structures in the industry, so it is still generating cash flow even at these prices. In addition, Quattro continues to grow production and reserves value for the future.
The company recently released its second quarter financial and operating results. Production was 1,371 boe/d compared to 1,525 boe/d during Q2 2014. All of the company’s B.C. production was shut in for turnaround and maintenance during the last 21 days of June. Cost of operations was a mere $14.52 per barrel during the quarter, despite the restricted production. Cash flow for the quarter was $703,668 or $0.02 per share and for the 6 months was $1,996,555 or $0.05 per share.
As at June 30, 2015, Quattro had increased its oil and natural gas reserves to 8.0 million boe. Net present value using a 10% discount rate was estimated to be $91.6 million or $2.10 per share.
During 2015, Quattro is working toward lowering its cost of operations to $10/boe with a corporate G&A cost of $2.50/boe based on an average daily production rate of 2,500 boe/d. To get to 2,500 boe/d requires no new drilling. Such a low cost production structure provides the company with a significant competitive advantage even in a low commodity price environment.
Quattro is currently operating in three core regions in western Canada, two with active production, NE British Columbia and East Central Alberta, and one developing operation in SW Saskatchewan. The company also holds an interest in approximately 320,000 acres of land in the Petén Basin of Guatemala which is scheduled to commence drilling in 2016. Quattro currently operates 8 facilities in Canada as well as 300 kilometers of active pipelines.
The company completed two major acquisitions during the second quarter which are not reflected fully in the financial and operating results. On April 30, 2015 the company acquired oil and natural gas properties in the Divide area of Saskatchewan which included 120 boe/d of shut in production. On June 30, 2015, the company acquired properties in NE British Columbia with current production of 20 boe/d and shut-in production of an additional 87 boe/d.
Following closing of these purchase and sale agreements, Quattro has consolidated and increased its operations to include an abundant series of operated development and exploration opportunities, with an estimated 40 high working interest development drilling locations. 35 of the 40 locations target seismically defined light and medium grade oil. Quattro’s land position is approximately 530,000 gross acres of which 102,533 net acres is developed and 217,855 net acres is undeveloped. The company currently has on-line production capacity of 1,780 boe/d and a further 530 boe/d of remediation.
Shares Outstanding = 43,736,754
Working Capital = $1,440,426
Cash = $2,197,948
Long Term Debt = $5,431,500
Decommissioning liabilities = $19,460,718
For those looking to capitalize on a resurgence in the oil and gas industry, a low cost producer generating positive cash flow and trading at a low multiple of current cash flow and reserve value seems to be an ideal fit. If the company can deliver on exiting 2015 at over 2,500 boe/d, Quattro will likely be trading for between 1 and 2 times forward cash flow at depressed commodity prices. If oil and gas prices recover even modestly, the company’s current market capitalization would likely be below one year cash flow. Quattro has sufficient capital to maintain operations and is managing debt at below 1X annual cash flow. With all of the pain, negative articles, and poor investor sentiment in the oil and gas industry, Quattro continues to produce positive results, is taking advantage of cheap and accretive acquisitions, and is poised to more than double production in the next 12 months.
We are initiating coverage at $0.18 and will be reporting on results as the company reports on its progress over the next 3-6 months. A full overview of the company will be available shortly in the Feature Company section of the website.
Address: Suite 4110, 825 - 8th Avenue SW, Calgary, AB T2P 2T3
Phone: (403) 984-3917
Fax: (403) 984-3972
Contact Person: Leonard Van Betuw, President & CEO
Disclaimer: The corporate information provided in this report is for informational purposes only. While every effort has been taken to provide accurate information, the completeness or accuracy of such information is not guaranteed. Certain statements in this report may constitute forward looking statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. The company profiled assumes no liability for the information presented. The information contained in this report should not be construed as offering investment advice. Those seeking direct investment advice should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock. Trading accounts, including personal, family and corporate accounts, under the control of QIS Capital management and employees currently hold 36,500 shares in the company profiled. QIS Capital has a financial arrangement with Quattro Exploration and Production Ltd., and may trade the company’s common shares. No stock exchange has approved or disapproved of the information contained herein. Copyright ©2015, QIS Capital Corporation.