Jericho Oil Corp. (JCO:TSX.V; JROOF:OTC), a growth-oriented oil and gas company based in Tulsa, Oklahoma, announced recently that it is acquiring an interest in 9,400 net surface acres in the Anadarko Basin STACK in Oklahoma. STACK, a major area of energy-development interest in Oklahoma, stands for Sooner Trend Anadarko basin Canadian and Kingfisher counties.
The company has the option to invest up to $9 million in acquisition and development capital to acquire just under one-third of the joint venture that owns the assets.
Jericho Oil highlighted the following features of the joint venture:
- 8,600 net Mississippian acres in the normally pressured oil-window of the play
- Significant high-quality resource potential with unrisked inventory of more than 160 locations
- Implied acreage value of USD$2,300/net Mississippian acre adjusting for proved developed producing (PDP) reserves
- Acreage position surrounded by substantial drilling and pooling activity targeting the Meramec and Osage formations from Alta Mesa, Chesapeake, Sandridge, Gastar as well as multiple private-equity backed operators
- Aligns with strategy to generate attractive returns at sub-$50/bbl
The joint venture was able to acquire the rights at a much lower cost than many of its neighbors; its implied acreage acquisition cost of $2,300/net Mississippian acre adjusted for PDP compares to as much as $15,000–$20,000 per acre that major players have paid in this area of the STACK.
Jericho CEO Brian Williamson told Streetwise Reports that its acreage is "sandwiched between several best-in-case, sizable independents, including the likes of Alta Mesa Holdings (AMR:NASDAQ), Marathon Oil Corp. (MRO:NYSE), Sandridge Energy Inc. (SD:NYSE), Newfield Exploration Company (NXF:NYSE), Continental Resources (CLR:NYSE), Gastar Exploration (GST: NYSE) and Chesapeake Energy Corp. (CHK:NYSE), which trade at much higher multiples for their STACK acreage values."
Most analysts believe that the price of oil will remain well under $100/barrel for the foreseeable future. Williamson commented, "The things we are seeing suggest that the STACK and our acreage in particular can be developed profitably with oil in the $30-35/bbl price range."
The land was drilled with conventional vertical wells in the 1950s and 1960s, but the continuing evolution of development technology has made it possible to access much more oil. The company believes that historical wells may have extracted as little as 10% of the oil.
Technical analyst Clive Maund noted on August 4 that "this relatively young company has taken advantage of the weakness of the oil price in the last several years to buy up good properties and wells, and most of the stock is tightly held by investors who are in for the long haul. It is also highly geared to the oil price on the upside."
"Jericho's structure is truly unique and gives the company a tremendous advantage. Its biggest shareholders and supporters are large U.S. family offices, including some very successful oil industry veterans. Having patient money with deep pockets has really allowed it to develop its strategy successfully. If you do a little digging through the filings of insiders you will see that the Breen Family Trust whose patriarch is Ed Breen (the CEO of DuPont) was an early investor and great supporter," Maund noted.
Maund commented on Sept. 4 that since he highlighted Jericho's fundamentals a month ago, "it has broken out into a new intermediate uptrend and advanced, without any help from the oil price, which has been falling, and despite announcing another significant funding – this funding, which is for an Oklahoma Stack acquisition, was enthusiastically taken up and had virtually no impact on the share price."
Jericho Oil, Maund concluded, "is considered to be one of the best oil investments around, so holders should stay long and new purchases are in order at this juncture. The stock trades in light but generally adequate volumes on the US OTC market, where liquidity is expected to improve as the price advances."
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1) Patrice Fusillo compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an employee. She or members of her household own securities of the following companies mentioned in the article: none. She or members of her household are paid by the following companies mentioned in this article: none.
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Additional disclosures about the sources cited in this article
Clive Maund.com, Jericho Oil Corp., Aug. 4, 2017, and Sept. 4, 2017
The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports.
Mr. Maund does not have a position in Jericho Oil.