This article was originally sent to TickerTrax subscribers on Mar 3, 2011.
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Western Plains Petroleum (TSX: V.WPP, Stock Forum; $0.275)
www.westernplainspetroleum.com
Shares Outstanding: 55 million
Target year end (2011) production: 600 bopd
Key Points
- Production and drill locations in a well documented region of Western Canada with long reserve life
- I estimate 2011 drilling of 20 new lower risked oil wells.
- Lower depth and non-core assets of bigger companies (for smaller producers these can really add up).
- 600 bopd would generate almost $6 million in annualized cash flow or $0.11/share
- A company of this nature with little debt should trade at 4 to 5 times annual cashflow/share providing a realistic year-end price target of $0.50 per share.
This is a small heavy-oil producer with a methodical process for growing production and shareholder value. Given the low profile of the company, the stock can be thinly traded at times. However, it still has good liquidity in the mid to high $0.20’s. Western Plains is one of those stocks value investors try to accumulate at low prices over a period of time with the intention of holding longer term.
There is nothing exciting about WPP. It is simply undervalued, well managed and in a high commodity price environment. These companies generate strong cash flow that when managed properly, can generate excellent returns for patient investors.
Western Plains exited 2010 with production of 325 bopd (barrels of oil per day). The company has a strong track record in the field and recently raised just over $1 million to advance winter drilling and completions.
This isn't a high growth play; it’s a good stable oil speculation. WPP targets lower risk drilling and realistically should hit 600 bopd at year end. If a person can gain exposure to the oil sector without incurring significant risk, even a 50% one year gain is decent.
Western's production targets heavier oil near Lloydminister, Saskatchewan. This is a smaller company that targets shallower wells using conventional drilling (not the big horizontals). This gives WPP a much lower cost per well (about $400k) and quicker turnaround times - this is a major problem with big horizontal wells in Alberta and Saskatchewan. The demand is so high that companies are having a terrible time getting rigs and completion units.
GROWTH POTENTIAL
In 2010 the company spent $800,000 for a disposal well in the same area where Husky has a disposal well running at capacity. Western Plains estimates it can generate up to $2,100 per day in water disposal fees. This provides a one-year payback and substantial long term cash flow over and above oil production.
Based upon the investor presentation at the WPP web site, the company has forecast the following growth opportunities (through drilling). The success rate to date is high so I suspect these are realistic targets. However, it is important to keep in mind that these are middle to long term targets. If successful, the production drives share price appreciation over the next year or two.
We also benefit if problems continue in the Middle East during 2011.
______________________________________
Current Production as per Presentation: 325 bopd
Projected Production as per Presentation: 1,410 bopd
Production Potential (detailed locations):
Saskatchewan Properties
Maidstone: 4 producing oil wells 35bbl/day
Maidstone (Brahma/Corlac JV Acquisition)
Current Production: 10 BOE/Day - Projected: 125 BOE/Day
Maidstone (Western Plains Petroleum)
Current Production: 40 BOE/Day - Projected: 75 BOE/Day
Landrose (Brahma/Corlac JV Acquisition)
Projected Production: 300 BOE/Day
Alberta Properties
Lloydminster: 4 producing wells 2 shut in. 80bbls/day
Wildmere: 1 producing well. 10bbls/day
Lloydminster (Nordic Acquisition)
Current Production: 100 BOE/Day - Projected: 255 BOE/Day without add'l drills, 525 BOE/Day with add'l drills
Lloydminster (Western Plains Petroleum)
Current Production: 40 BOE/Day - Projected: 100 BOE/Day
Hillmond (Brahma/Corlac JV Acquisition)
Current Production: 20 BOE/Day - Projected: 60 BOE/Day
Celtic Proposed Disposal (Brahma/Corlac JV Acquisition)
Projected Production: 40 BOE/Day
Kitscoty (Western Plains Petroleum)
Projected Production: 60 BOE/Day
Disclosure: I own 35,000 shares of WPP.
THOM CALANDRA: Thanks Danny. I have to say, energy is not my strong point. I have friends and colleagues who coach me regularly on natural gas, uranium, geothermal and so on. I have been to several oil fields in Canada and Colombia. California, too – near Bakersfield. I used to live in central Texas.
Of late, I have been asked to check out oil, lithium and other energy companies out the ga-zoo. I was following lithium two years ago when I wrote about Canada Lithium (TSX: T.CLQ, Stock Forum), which more or less went supersonic in an equity elevation. I have contacts across the industry. Yet I rarely take the offer to see this field or that geothermal site. In that respect, I suppose I fall short. Or maybe I just don’t have the time to do mining and energy.
To be entirely candid, there are energy areas that have attracted my interest, driven my research and benefited my portfolio. These include uranium in the Athabasca Basin of Canada. I wish I had done more to follow up on Lynden Energy (TSX: V.LVL, Stock Forum) in Texas when two of its principals swung by to tell me the tale about a year ago. Oh yeah, and how much time did I spend reporting on the day-to-day activities of Ivanhoe Energy (NASAQ: IVAN, Stock Forum) and (TSX: T.IE, Stock Forum) during the helter-smelter days of The Calandra Report? Answer: Do the Google yourself.
Right now, with the exception of one uranium prospector, whose shares have more than doubled in nine months, I can’t say my portfolio has any energy. I’ll take a look at WPP. Still, something about me almost always takes me back to metal: gold, silver, copper, platinum, molybdenum, tantalum, scandium. Especially gold. Thanks for the energy, Danny. -- Thom Calandra
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