QIS Update #13 2015 - September 18th 2015
Included in this update:
- Quick update on Blackbird Energy, a former QIS Feature Company that we still follow closely
- Quattro Exploration announces working capital increase and updates forecasts
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Blackbird Energy Inc. (BBI:TSX-V)
Current Price: $0.185
We have followed Blackbird Energy Inc. for a long time and many of our subscribers own (or have previously owned) shares in the company. Accordingly, we may provide the odd update on this company when significant news is released. Blackbird has recently announced the upcoming drilling of its third well in the Elmworth area of Alberta. Spudding of this well is expected to occur before the end of September 2015. We’ve included a link below for those interested in reading the complete news release.
Quattro Exploration and Production Ltd. (QXP:TSX-V)
Current Price: $0.175 (coverage commenced Sep. 3/15 - $0.18)
Quattro Exploration and Production Ltd. has announced the signing of an agreement to increase working capital by $4,000,000. The increase in working capital shall be derived through an increase in the company's long term debt from $6,264,500 to $10,000,000 and a reduction in repayment terms to reflect the increased production and reserve life of the company over the past 2 years.
"The closing of the financing is anticipated to occur on or before September 30, 2015. Upon closing, the company's increased liquidity and subsequent reduction in current liabilities, shall position Quattro to accelerate a number of optimization programs underway that shall further improve future cash-flow. The additional working capital and resulting improvements in free cash-flow by year end 2015 are anticipated to fund a Capital Budget of $12.8 million in 2016," said Leonard Van Betuw, President and CEO of Quattro. "The approval of this financing by our Board of Directors is a commitment to our conservative plan and positions the company to focus on the completion of work in progress in 2015 that has the capacity to bring Quattro's daily production to over 2,500 boe per day. Subsequently, a capital budget of $12.8 million in 2016 is targeted to complete an additional 6 high impact recompletions and the deviation or directional drilling of 4-6 wells that will further improve our operational efficiency, with the company being in a solid position to reach its next goal of 6,000 boe per day, at a low cost and is currently tied in to Quattro's operating and regionally diversified installed gathering, compression and processing infrastructure. The Quattro operated facilities have a collective capacity to deliver 96 mmcf per day (net) of natural gas and 12,000 bbls per day (net) of sales oil. These facilities are proven, efficient and are essentially depreciated with an estimated replacement value of more than $100 million."
Starting in 2014, through to the end of 2015, Quattro will have invested in re-activations, acquisitions and exploration drilling, costing a total of approximately $16.5 million. Based on this estimate the company's capital expenditures will have replaced the last two years of production and increased on a Proven Developed Producing basis the company's reserves by 2,036,375 boe at a cost of $8.10 per boe. While on a Proven plus Probable basis, Quattro has increased reserves by 4,327,675 boe at a cost of $3.81 per boe. This is a strong indication of the company's commitment to a disciplined approach to growth and focus on being a competitive and sustainable full-cycle energy producer.
"These results and significant advancements in Quattro's exploration efforts to date gives the company confidence that further investment in its current assets and complementary acquisitions within current commodity prices will continue to create value for its shareholders, now and into the future. A further testament to the dedication and patient efforts of both Quattro's employees and its stakeholders," said Leonard Van Betuw.
The company's business plan is and continues to evolve around a focused effort to work towards being a best in class progressive energy producer through the strengthening of its four pillars of growth;
- 1. Operational Efficiency through the rigorous pursuit to improve Productivity.
- 2. Innovation through the efficient and disciplined use of all Applied Sciences.
- 3. The Capture, Consolidation and Optimization of the industries Value Chain.
- 4. An Energy Producer focused on Margins at all Prices and levels of Demand.
The increase of the Term Loan facility to $10 million is anticipated to increased net debt to less than $6 million with the company projecting debt to equity to be a ratio of 1:1 by June of 2016 and net debt to cash-flow also being maintained at less than 1:1 through 2016. The combination of funds being advanced on a fixed term loan basis and the reduction in the annualized repayment terms will result in an increase of approximately $4 million in working capital at the end of the 3rd quarter. The current and new loan on a blended basis equates to a fixed interest rate for four years of 6.95%, estimated to cost an average of less than $0.40 per boe over the life of the loan.
The company's budget and projections are based on the current pricing of $2.65 per mcf for natural gas and a blended oil price of $50 per barrel for Western Select in 2015. These prices are projected to result in a blended commodity price for the corporation of $29.50 per boe in 2015-2016, growing to $35 per boe in 2016.
Quattro continues to be diligent, directing efforts over the past 12 months to strengthen the foundation of the company while completing a number of incremental capital programs towards the execution of Quattro's overall plan as summarized in our Corporate Presentation, to reach a daily production rate of 6,000 boe per day by year-end 2016.
QIS Capital: Quattro has issued some very aggressive forecasts for 2016 and appears poised for explosive growth. With net debt of less than 1X cash flow, the company is in excellent financial shape in sharp contrast to the majority of the industry. The fact that the bank is offering Quattro an increase in its credit line is a testament to the company’s quality assets and the careful cost control of management.
If Quattro can come anywhere close to its 6,000 boe/d forecast for exit 2016, the company should more than double its cash flow even with depressed commodity prices and will likely be trading at less than 1 year cash flow. Quattro has an aggressive growth plan in a depressed market and will hopefully attract increased attention as it reports on its successes over the next 12 months.
Disclaimer: This article is for informational purposes only. The information contained within this article should not be construed as offering investment advice. Those seeking direct investment advice should consult a qualified, registered, investment professional. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The company profiled assumes no liability for the information presented. 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. The author(s) owns directly or indirectly 528,848 shares of Blackbird Energy Inc. and 91,500 shares of Quattro Exploration and Production Ltd. QIS Capital may have a financial relationship with these companies and may trade in the stocks mentioned. No stock exchange has approved or disapproved of the information contained herein. Copyright © 2003 - 2015 QIS Capital Corporation.