Arcan Resources Ltd ARNBF

Stifel Nicolaus Presentation

[profess]

After listening to Ed Gilmet give his presentation I can see now why the SP has collapsed.

The points he made that stood out for me are:

* He warned that we could see a downward revision in 2012 avg production numbers should oil prices stay in the $75-$80 range.  

* Currently that high rate well they drilled in Virginia Hills is producing at 400 bbls/d.  Arcan has placed their VH lands up for sale - with bids due in later this month.  Ed said land in that area are selling anywhere from $1 - $5 million per section, and that all proceeds from the sale will be used to pay down their debt.

* Crescent Point is still interested but under the present economic climate is not in any hurry to buy Arcan.

* Their priorities for second half of 2012 is paying down debt by disposing of non-core properties (Hamburg, Virginia Hills) including Stimsol, cut operating and G&A costs, and only spend within available cash flow.  He expects op-costs will drop to $12/boe and G&A to $5/boe by year end.

* Only one drilling rig will be utilized for the remainder of the year.  5 high-profile wells have been drilled and are waiting completion tbd in July and August, which should enable Arcan to keep production levels above 6000 bbls/d for Q3 and Q4.

* 15 additional high-profile wells have been mapped, of which only 8 have been budgeted for drilling for the 2nd half of this year.  Ed alluded that the amount of driling activity will depend on available cash-flow (ie. oil prices) which could ultimately result in a downward revision in production numbers for the year.

So things maybe are not as rosy as people would like to believe.

[Buy_Lo_Sell_Hi]

So to summarize: Ed said they've ended a period of deliberate high deficit spending, high production growth, targetted to raise and prove up the company value (which it did even if the share price no longer reflects this). In contrast, 2012 will be managed prudently, with only nominal growth in production and some anticipated debt reduction. Global oil prices will affect results

[mombasa1]

So we could see a downward revision in production guidance for 2012? Thats not surprising with oil prices where they are at. I get the uneasy feeling that a significant % of Arcan's lands are going to fall short of their production type curve projections as shown in their presentation. When a company loses 2/3 of its mkt value in a short period of time and languishes there, one can't help

[tankingfrank]

production curve -- I am just curious if anyone has heard if  the wells are watering out.  If i can recall correctly the initial NPV on the wells were over 15 million -- now they are under 8 and heading lower..  

[tankingfrank]

actually since I had not looked at the powerpoint for awhile, they already have NPV down to 4.3.

[avonbob]

I will weigh again and if you recall earlier posts I predicted this....the key to the play is waterfloood hence the higher NPV value originally..primary wells will fall off the face of the earth in production with high declines without waterflood support. The only true waterflood is in a few sections of Deer Mountain Unit #2. and looking at Accumap only 2 to 3 injectors have been added

[Buy_Lo_Sell_Hi]

From the conference: They are increasing VRR from ~1.3 to ~1.5 at Deer Mountain #2. They have approval for at least 4 injection wells at Ethel for waterflood. Ethel appears to have a bit better reservoir pressure and production curves. They will be completing 5 new wells through the summer. 8 more (+/-) will be drilled through to end of year. Independent, respected auditors familiar

[mombasa1]

Avonbob you sure know how to paint a pretty picture! I can't argue as I am not an engineer/ geophysicist, but I am pretty sure Arcan has a few who have past experience in the area. If your in Calgary please consider attending the AGM to raise your concerns with Mgmt in person. i would love to watch them squirm!

[kooks11]

Good summary Profess. I looked at their presentation and finally notice that they have published their proved reserves.   Its funny how he keeps talking about the P+PDP number but the NAV that he keeps trying to show is misleading.  Someone correct me if I am wrong here.  1. They have an over $140MM in debt.    This includes $86.2MM debentures starting to

[tankingfrank]

they have around 300 million in debt..   there is 2 convertible bonds and the bank line was around 130 million at the end of the quarter.. cash flow is droping allong with the price of oil.

[bonjovi501]

I talked to management and yes they have around 300 million in debt and with the share price dropping this can become a problem in the short term. Oil goes up and down and we are in the down cycle and this weekend is interesting with Spain getting funding and the China numbers coming out could be bad for oil or good come Monday. I hope it is good and oil starts to make its climb. Here in Sask. are

[kooks11]

Thanks for the clarification. This makes their numbers look even worse.   Basically with their $300MM in debt offsets their PDP value of $294MM.   So their low range is basically someone buying them for nothing due to the bank wanting their money.    With their high debt levels, it brings down their value so much that I don't see any upside until they do