Company shows on Slide 8 of there current public power point presentation there are multiple land packages. 350 + net sections. Geoscout shows me that they actually have 408 sections ( no idea on the net sections).
The annual rental cost on these lands is approximately $585,000 per year. Yes, even if they do not drill the lands they pay a rentals. That is a burden to a company.
The average term of the leases and licenses is 1.48 years. To extend the term of these licenses and leases the company will need to drill wells. The Alberta Energy Regulator has taken a reasonably strong position on companies trying to use mapping to extend their land holdings. Seismic can be done but at what cost to the company. Expiry is a real concen. Look forward to seeing comments on this in the next MD&A.
At these oil prices and the debt level the company has, is it logical that they would not proceed to drill up their exploration lands to extend the term. Even if they were to drill the maximum depth 94500 meters) the company would be able to save 36 sections ( that is assuming the maximum based on licence configuration). Leases need to be drilled to extend the term. Again expiry is a real concern at these oil prices.
How does a company plan to drill when their economics do not support drilling another well. Look at slide 13 of the presentation. There own calculations indicate they have minimal returns at $45 WTI and $3/GJ. Where are we today, $43 WTI and less than $3/GJ. Does a company drill wells in this environment with these returns? IF not, then production will fall. Is this being messaged to investors in the MD&A?
The next question is that Slide 13 indicates 50% Gas and 50% liquids (oil/condensate). There is no disclaimer on the slide as to the variability of the production. My question is does the ratio change as the wells decline. Not saying if it does, but the question has to be well performance and IRR. Do the wells have a positive NPV at these prices????? If not what is the value of this company and its assets. Well performance is a major issue and the history of the wells drilled the cost associate with the drilling and the performance of the wells needs to be evaluated.
Investors ask one question, how many wells have been drilled and what are we producing today. Ask questions and make sure management answers them. It is only fair the all the information is on the table.
More to come.