Another update......InterestingOIL FLOW, CASH FLOW AND DEAL FLOW:
PRIMATE BECOMES COMPANY BUILDER FOR GREENCASTLE
From SolomonSmallCaps August 31, 2008
Primate Oil Field - Increased Production On The Way
The Primate oil field, operated by Enterra Energy Trust (ENT-NYSE, ENT.UN-TSX), is far more significant to Greencastle Resources than many Greencastle shareholders even appreciate.
Enterrais very much focused on this oil field in west central Saskatchewanwhere Greencastle made the initial discovery five years ago and is nowcollecting monthly royalty checks of nearly $400,000. In April, 2007,Enterra acquired Trigger Resources Ltd. whose main producing fieldswere Primate and Liebenthal (southwestern Saskatchewan). Saskatchewanrepresents 18% of Enterra’s entire North American oil and gasproduction. Their other Canadian interests are in Alberta and BritishColumbia, but Primate certainly figures prominently in their overallCanadian production and future plans.
“Themain producing asset in the Primate field is a large McLaren oil pool,”states Enterra on its web site. “While it produces heavy oil, solutiongas drive allows higher than average production rates and lower initialoperating. Lower than average sand and water cuts characterizeproduction from this pool.”
Following its acquisition of Trigger Resources last year, Enterra stated it had “21oil and gas drilling opportunities identified in the Viking, Colony,Sparky and McLaren zones in the Primate area and is presently planninga strategic farm-in of offsetting lands to add more opportunities tothe area. Enterra plans to focus capital development in this area.”
Indeed,that’s exactly what’s happening. Enterra, which just recently broughtanother new well on stream at Primate (impacting Greencastle’sfinancials beginning in Q-3), has increased its Canadian capitalexpenditures by $8 million and will be conducting a “heavy program”over the next several months that is expected to result in the additionof eight to 10 new Canadian wells. What that means is more wells willbe coming on stream at Primate in the near future, and increasedproduction there means even larger royalty checks for Greencastle aslong as heavy oil prices remain at current levels. “We’re buildingmomentum here,” stated Jim Tyndall, Enterra’s Senior Vice-President andChief Operating Officer in a second quarter conference call. Enterradrilled four new wells at Primate in 2007, following its acquisition ofTrigger, and has added one new well so far this year. More, clearly,are on the way, as Enterra focuses on organic growth.
(EnterraEnergy Trust units have enjoyed a terrific year on the TSX (up 215%).They closed August 29 at $3.62 after beginning 2008 at just $1.15).
Greencastle Reports Record Revenue/Earnings
Following the market close on Friday, August 29,Greencastle’s second quarter results were announced and they werestellar. For the first time in its history the company hit the $1million mark in quarterly revenue and recorded a pre-tax profit ofthree cents per share for the first six months of 2008 (cautiously, thecompany took a $370,000 tax provision for the second quarter).
Our Q-2 estimates were very much in line with the actual numbers (in fact, we were a little on the conservative side). Our Q-3 revenue estimate for Greencastle is $1,100,000 and our pre-tax profit estimate is $850,000.That would give Greencastle a pre-tax profit of five cents per sharefor the first nine months of the year. Working capital should beapproximately $6 million by the end of Q-3.
Greencastle’s pre-tax profit for the first six months of this year increased by a staggering 636 per cent over the same period last year.
Greencastlecurrently has 44,602,671 shares outstanding, giving it a marketcapitalization of only $15.4 million (for comparative purposes, Strategic Oil & Gas (SOG, TSX-V),for example, also reported its second quarter financials Friday. Thiscompany has a market cap of $19 million and recorded gross revenue of$2 million and net earnings of .01 per share for the first six months.SOG has a working capital deficit and will fund its capitalexpenditures through the remainder of 2008 “out of cash, operating cashflows, bank debt and additional equity financing as needed).”
GreencastleCEO Tony Roodenburg made a very important and revealing point in aninterview made available on the company web site following Friday’smarket close: “If we play our cards right, we may never haveto go back to the market for capital…which sets us apart from hundredsof a thousand other junior resource companies.”
Roodenburgalso confirmed the company is reviewing a lot of “deal flow” at themoment. As we explained in last Sunday’s report, given what we’ve seenso far this year out of Greencastle and the public statementsRoodenburg has made, we wouldn’t be at all surprised if he pullsanother “rabbit” out of the hat very soon and lands a deal that puts abig smile on the face of every Greencastle shareholder.
Witha strong and diversified portfolio of projects (royalties from Primate,coal in Manitoba, shale gas in Quebec, gold in Nevada and Africa anduranium in Wyoming), there are many factors that could lead to anexplosion in the Greencastle share price (including of course theannouncement of another major deal). A strong foundation is firmly inplace here upon which Greencastle can significantly build shareholdervalue.
Tomorrow (Monday, September 1) SolomonSmallCaps willbe releasing its 30-stock model portfolio. Greencastle is in “Category1” of that portfolio, along with nine other stocks, for companies thatwe believe will substantially outperform the market over the immediateto short term (one to three months). A major rally, in our view, isalready underway with the Venture Exchange which could jump 10 to 20%over the next couple of months. In that kind of environment, some ofthe best stocks will double or triple in value (or better).