QIS Update #16 - 2018 - New Company profile of International Frontier Resources Corporation - October 21st 2018
Included in this update
- - New Company Profile for International Frontier Resources Corporation (IFR:TSX-V)
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International Frontier Resources Corporation (IFR:TSX-V)
Current Price: $0.13 (coverage commenced October 21/18 - $0.13)
QIS Capital is pleased to introduce a new QIS Feature Company to our portfolio of small-cap companies. We are currently in process of completing a full corporate profile, which will be available later this week, but we wanted to take the opportunity to introduce the company at this time as a number of corporate developments are expected to be announced over the next few weeks.
International Frontier Resources Corporation, through its Mexican subsidiaries and strategic joint ventures, is advancing the development of petroleum and natural gas assets in Mexico.
Starting in 2013, Mexico’s government implemented massive energy reforms to encourage investment. This foreign investment in the oil and gas sector ended PEMEX’s 75+ year monopoly. An initial 300+ onshore fields have been earmarked for upcoming bid rounds and PEMEX farmouts.
Mexico is the ninth largest producer of oil in the world and the eleventh largest in terms of net exports. Pemex, the national oil producer, estimates that yet to be discovered oil and gas reserves could total as much as 115 billion boe, roughly 3X as much as current proven, probable and possible reserves.
International Frontier formed a Mexican joint venture company – Tonalli Energia – together with Grupo IDESA, one of Mexico’s largest petrochemical companies. International Frontier and Grupo IDESA are fully aligned, with each owning a 50% partnership stake in Tonalli.
Through its JV with Grupo IDESA, International Frontier became one of the first foreign companies to participate in Mexico's energy reform in the first bid round of the onshore blocks ("Round 1.3"). On May 12, 2016, Tonalli was awarded Block 24 known as the Tecolutla Block. Through its JV, International Frontier is the first foreign company to drill onshore conventional oil under license contract in Mexico in over 80 years.
International Frontier’s first well on the Tecolutla Block was a vertical well knows as the TEC-10. On August 6, 2018, Tonalli completed an 18 day flow test at TEC-10 producing 178 barrels of oil during the last 24 hours. In mid-September 2018, Tonalli commenced selling oil produced during the well testing phase to PEMEX, marking the first cash flow for the company.
International Frontier is now moving towards its next well, the TEC-11 well which will be a horizontal well. Tonalli expects to spud TEC-11 in Q4 2018 pending final logistics and regulatory approvals. TEC-11 will be drilled utilizing knowledge obtained during drilling and completion of the TEC-10 directional well. Management expects that this well will have the potential to produce 5 to 6 times more than TEC-10 due to the horizontal nature of the well.
Tonalli is also planning a number of workovers including a workover of the TEC-7 legacy well.
International Frontier has the opportunity to acquire new assets in the upcoming bid rounds and PEMEX farmouts. The minimum balance sheet requirement for participating in the bidding round is US$100 million. The next bidding round, as well as PEMEX farmouts, are expected to occur on February 14, 2019.
It should also be noted that International Frontier has entered into a share option agreement with its JV partner IDESA, pursuant to which the company’s wholly owned Mexican subsidiary was granted the option to purchase all of the outstanding shares in the joint venture company Tonalli. Upon exercise of the option, the agreement will consolidate all cash flow and reserves into International Frontier. IDESA will have the right to nominate two directors to International Frontier’s Board of Directors, and IDESA will subscribe for a minimum $1 million of International Frontier’s shares pursuant to a future private placement.
This is an exciting period of time for International Frontier and its shareholders. The company is working to improve existing production through a number of workovers and optimizations and also has significant upside potential through future drilling initiatives including TEC-11 which is expected to spud over the coming months. While it is highly unusual that a Canadian small-cap company could be successful in operating in the deregulation of the Mexican monopoly, International Frontier has been successful in the first round of bids and is expected to be successful in upcoming auctions in early 2019. Mexico is ripe for new investment and new technology as traditional methods have led to significant inefficiencies in production and development.
International Frontier currently has 151 million shares outstanding with management and insiders owning approximately 32%. The company’s current market capitalization at the last trading price of $0.13 is just $19.6 million. As at June 30, 2018, International Frontier had positive working capital of $5.8 million and no long-term debt.
A full corporate presentation is available on the company’s website at www.internationalfrontier.com.
We will be publishing a full corporate profile later this week.