VUX.V DD Report - Profitable 1000bopd Junior Ticker Symbol: VUX
Price: $0.095
Common Shares: 82,249,971
Market Cap: $7.8 million
Insider Holdings: 55,311,353 or 67.2% of the float
Company description: Vital Energy Inc. is a public company whose shares trade on the TSXV under the symbol “VUX”. Vital is incorporated in the Province of Alberta, Canada and its activities consist of exploration for, development and production of primarily light and medium gravity crude oil in Western Canada.
Notes:
- Currently profitable. $3.86 million revenue with a $637k net income for the first half of 2021
- Just added production bringing total production to around 1000bopd (See October 5th, 2021 News)
Most recent financial results (Ending June 30th 2021)
ASSETS
Cash: $611,512
Short Term Investments: $215,385
Trade & Receivables: $1,143,719
Prepaid Expenses: $42,300
Deposits: $562,689
Exploration & Evaluation Assets: $425,590
Property & Equipment: $8,022,443
Total Assets: $11,023,638
LIABILITIES
Accounts Payable: $1,301,769
Contract Liabilities: $344,401
Loan Payable: $3,800,643 – From director of Vital Energy. See MD&A Highlights below.
Bank Loan: $60,000
Decommissioning Liability: $1,689,405
Total Liabilities: $7,196,218
3 Month Performance
Revenue: $2,205,448
Net Income: $499,659
6 Month Performance
Revenue: $3,860,705
Net Income: $636,498
MD&A Highlights
Highlights
• The Company reported net income of $499,659 in Q2 2021 as compared to a net loss of $450,652 in Q2 2020.
• Revenue was $2,205,448 in Q2 2021 as compared to Q2 2020 revenue of $134,556, an increase of $2,070,892.
• Q2 2021 realized oil price was $62.88 as compared to $54.59 in Q1 2020.
• Production increased by 27,372 boe in Q2 2021 as compared to Q2 2020.
Properties
In first half of 2021, the Company completed a review of the properties. As a result, workovers were performed at nine (9) wells including 2 wells at Gull Lake, 2 wells at Pennant, 4 wells at Baxter Lake, and 1 well at Standard Hill. The Company also replaced the desulfurization tower at Sullivan Lake with a desulfurization tower with increased capacity. This will assist in the resumption of operations and allow the Company to maintain a stable production.
Gull Lake
In one of the Company’s core areas of operations, Gull Lake, Saskatchewan, Vital is the designated operator and maintains a 50% working interest. The property is covered with 3D seismic data and has 9 wells producing, or capable of producing, crude oil from the Roseray , Cantuar and Upper Shaunavon formations. This project has a salt-water disposal facility and a gas collection pipeline system. In the Company’s opinion, future drilling opportunities remain on these lands.
In Gull Lake, Vital’s net daily oil and natural gas production for the first half of 2021 was 232 boe/d (2020 – 206 boe/d). The increase in production was attributable to the lack of production in Q2 2020 during the COVID-19 pandemic which had resulted in lower oil prices.
In order to better evaluate the oil development potential, the Company has utilized the 3D seismic survey which covers all of its Gull Lake lands. As of December 31, 2021, the reserves evaluator, Trimble Engineering, assigned 216,200 (2020 - 217,300) boe of proven oil and natural gas reserves net to the Company and 116,700 (2020 - 172,200) boe of probable oil reserves net to the Company.
Pennant
Vital is the Operator and maintains a 100% working interest in 12 contiguous sections of land. To date one (1) vertical well and nine (6) horizontal wells have been drilled. Four of the horizontal wells and the vertical well have had production. The Company has commenced abandonment and reclamation work on some well sites. 3D seismic coverage on about 35% of Vital’s lands indicates the potential for additional drilling locations. The company’s crude oil production was 29 bbls/d in the first half 2021 as compared to 14 bbls/d in 2020. Non-core In addition to its core properties, Vital has land holdings primarily in the Sullivan Lake Area located in central Alberta. There are three Sullivan Lake wells which produced for the six months ended June 30th at 65 bbls/d in 2021 (2020 – 74 bbls/d). It is anticipated that with the Sullivan Lake desulfurization tower being replaced with a larger capacity tower, stable production may reach more than 150 bbl/d. The Company has built production facilities at Sullivan Lake with a capacity of 300 boe/d.
In addition to its core properties, Vital has land holdings primarily in the Sullivan Lake Area located in central Alberta. There are three Sullivan Lake wells which produced for the six months ended June 30th at 65 bbls/d in 2021 (2020 – 74 bbls/d). It is anticipated that with the Sullivan Lake desulfurization tower being replaced with a larger capacity tower, stable production may reach more than 150 bbl/d. The Company has built production facilities at Sullivan Lake with a capacity of 300 boe/d.
Outlook
The impact of COVID-19 is difficult to measure on the Company’s results as the energy sector has been in a downturn for a number of years. As much as oil prices were depressed in the first half of 2020, they have recovered in first half of 2021 as demand seems to be improving
Gull Lake
In 2015 the Company expended a significant amount of its capital installing water injection facilities and other infrastructure on the Gull Lake property. The result has been to lower operating costs and to increase the netbacks. The Company is encouraged by the drilling results of the wells that came on production in late 2018 and 2019. As a result, additional drilling locations have been identified by geological and 3D seismic interpretation and mapping.
With the current land inventory, detailed interpretation of 3D seismic data, integrated study of seismic, geology, reservoir and engineering data, the Company has identified additional potential drilling locations on its “Core Properties” at Gull Lake and Pennant, S.W. Saskatchewan
Sullivan Lake
The successful appraisal development well, 10-1, was drilled in the Banff limestone reservoir in December 2019 and two additional horizontal wells were drilled in 2020 and all are now on production. The 10-1well was shut down for several months in 2020 and 2021 because of the Covid-19 pandemic and low crude oil prices. In addition, gas with small amounts of H2S was discovered. As the Sullivan Lake desulfurization tower was replaced with a larger desulfurization tower with more capacity, the Company believes it has resolved the long-standing production and operating issues, and should have a more stable production in the second half of the year.
Pennant
The company has five (5) producing oil wells on the lands. The medium gravity crude oil is being produced from the Upper Shaunavon formation and geology indicates that the entire land block may be prospective. The Company has acquired additional 3D seismic data and now has coverage on about 35% of the lands. The 3D seismic data confirms the geology and indicates that further drilling activities on the lands may be justified. Vital is the Operator of the Pennant Area project.
The Company has a medium to long term plan to develop the whole reservoir including an integrated study to evaluate the reservoir detail features, to drill an exploration well, and to build facilities including disposal wells that could reduce operational costs significantly.
Baxter Lake
The Company performed remedial work in 2021 to reactivate certain wells in the Baxter Lake area as oil prices have improved.
Lampman
The Company purchased a quarter section of crown land in Saskatchewan in Q3 2020. In order to confirm the Frobisher reservoir quality and the potential in the deeper Winnipegosis zone, a vertical pilot hole 1-4- 6-5-W2 was designed and drilled. The results indicated the Frobisher reservoir was promising and the Winnipegosis zone was uneconomic. The the pilot hole was abandoned in the deeper section and was plugged back. This existing vertical well bore was utilized to drill Hz C7-4-6-5W2 in the Frobisher zone from 1-4 to 7-4 (second event for the pilot well 1-4). The other two Frobisher horizontal wells were drilled in July 2021 from the same surface pad as the pilot hole and will be completed in August 2021. The Company anticipates production of over 400 bbl/d of light oil from these multiple well projects.
Ante Creek
The Company purchased 2.5 sections of crown land in Alberta in Q1 2021 and is currently working on a detailed geology study and development plan. This may allow the drilling of up to 25 horizontal Montney development wells.
Pembina
The Company purchased a quarter section of crown land in Alberta in Q2 2021 and is currently working on a detailed geology study and development plan. This may allow the drilling of up to 4 horizontal Cardium development wells.
Loan Payable
On May 22, 2020, the Corporation entered into a loan agreement with a director that provides for a $4,000,000 credit facility (the “Credit Facility”) that is unsecured and matures on May 22, 2022. Funds advanced under the Credit Facility bear interest at a rate of 12% per annum, payable annually. In May 2020, $1,800,643 was received pursuant to the credit facility and was used to pay down the contract liabilities and a further $2,000,000 was received and used for general working capital purposes.