QIS Update #2 - 2016 - Quattro Exploration increases estimated recoverable reserves 2016 - February 3rd 2016
Included in this update:
- Quattro Exploration & Production announces estimated recoverable resources and proposal for $20 million loan facility
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Quattro Exploration and Production Ltd. (QXP:TSX-V)
Current Price: $0.17 (coverage commenced Sep. 3/15 - $0.18)
Quattro Exploration and Production Ltd. is pleased to announce an increase in its recoverable reserves in Saskatchewan to 18 million barrels of oil from an estimated 120 million barrels of original oil in place (OOIP)**.
Furthermore, in December of 2015, the Company entered into discussions with a Tier One lender who had earlier in the year previously indicated an interest in the financing of Quattro. Following the addition by Quattro of a number synergistic acquisitions to its operations over the past 12 months, the Company is pleased to report that it has received a draft proposal from a Saskatchewan-based institutional lender for the funding of a $20 million term facility, with competitive fixed term interest rates as low as 5.45%, amortized over a period of 10 years.
“During what is expected to be a challenging year in 2016 for the industry, the Company continues to work on further improvements in liquidity, in combination with its continuing efforts to maintain a strong balance. The closing of this financing in combination with its diversified revenue stream, is the foundation for the Company reaching its target of maintaining a debt to equity ratio of less than 1:1, by the 3rd quarter of 2016 including all accrued long term liabilities, while increasing its working capital to more than 2:1.” said Leonard Van Betuw, President and CEO.
Quattro and its lenders continue to discuss the terms of closing and upon the successful conclusion of these negotiations, funding of the facility is proposed to occur in March of 2016.
On February 1, 2016 the Company also closed its previously announced acquisition of a 100% interest in certain oil and gas production, facilities and lands in west central Saskatchewan from an Alberta-based resource company for an aggregate purchase price of $4,150,000. The purchase price was paid through the issuance of 35,000 non-voting, Class C, series 3 preferred shares at a deemed price of $100 per share (“Preferred Shares”) and $650,000 in cash. The properties are located in the region of Superb, Saskatchewan, where production averaged 160 bbls per day in 2015 (the “Properties”).
The effective date for the acquisition was December 31, 2015.
The Preferred Shares are priced at $100 per share and pay an annual preferred dividend of $3.50 per share. The holder will have the right on the anniversary of the 2nd year of issuance to convert the Preferred Shares into Class A common shares at a ratio of 40 Class A shares for each Preferred Share converted, valuing the Quattro Class A common shares received at a deemed price of $2.50 per share.
“The closing of this acquisition of oil production, at a discount to current oil and natural gas pricing, the additional prospective lands and the extensive 100% owned and operated facilities in Saskatchewan, positions Quattro with the potential to collectively reach its initial economic target of more than 1,000 boe/d in 2016, from its combination of exploratory and producing properties in Saskatchewan” said Leonard Van Betuw’’, President and CEO.
“The Company’s existing 100% interests at Wood Mountain, Rangeview and Divide, in addition to the recently closed acquisition at Superb provides three diverse areas of economic concentration of conventional producing and shut-in production, facilities and un-booked recoverable resources totaling an estimated 18 million barrels**, based on an initial conservative recovery rate of 15%. These resources are supported by 3 strategically positioned facilities in Saskatchewan owned by Quattro, collectively capable of processing all raw production and water disposal into up to 6,000 bbls/day of marketable oil from an estimated 120 million barrels of Original Oil In Place**”.
“Upon the consolidation of this Acquisition into Quattro’s plans in Saskatchewan, it is anticipated that Quattro’s operations in Saskatchewan will contribute $3 million in operating income of a corporately projected $10.8 million in 2016, growing to $6 million of $16.2 million in 2017 based on a gradual recovery in oil prices to more than US $35/bbl WTI in 2017,” said Mr. Van Betuw.
**Internally estimated by the Company as defined under NI 51-101 and the COGE handbook.
About Quattro Exploration and Production Ltd.
Quattro Exploration and Production Ltd. (“QXP”) continues to focus on the conventional exploration and development of oil and natural gas reserves in Western Canada. Our diversified core areas target a low risk production base focused on providing the Company the capacity to aggressively pursue a series of high impact exploration and development efforts in Canada and Central America. The company intends to balance this portfolio of activities to assure its shareholders that it achieves material growth in both reserves and production.
QIS Capital:As we have stated several times over the past few months, Quattro continues to build its asset base of production, reserves, and properties while the industry has been significantly hampered by low oil prices. Warren Buffet, a very successful contrarian investor, famously said, “buy when others are selling” and Quattro seems to have taken this philosophy to heart as the Company has closed several deals over the past few months.
In this press release, management quoted a projected operating income of $10.8 million in 2016 and $16.2 million in 2017. Based on the first 9 months of 2015 (the last reported financials), Quattro was on track for operating income of about $6.5 million for 2015. Cash flow has been approximately 60% of net operating income in recent financials so management’s forecast would equate to cash flow of about $6.5 million ($0.15 per share) in 2016 and $9.75 million ($0.22 per share) in 2017. Based on this calculation, Quattro’s shares are currently trading at just 1X expected cash flow for this year.
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 159,500 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 - 2016 QIS Capital Corporation.