Aroway Energy Inc. (TSX: V.ARW, Stock Forum) is a Western Canadian junior oil focused production and exploration company participating in oil development & exploration prospects in Alberta and Saskatchewan, Canada.
Congratulations on Aroway’s production news of this week Chris. Can you tell us the significance of Aroway’s production news?
Having production of over 1,000 barrels a day is a major milestone not just for Aroway, but it is the benchmark for which most junior oil and gas companies measure themselves. With production of 1,000 barrels or more, companies are able to operate on a self-sustaining basis. We expect our cash flow to be close to $1 million per month; this of course is dependent on the price of oil, but we will be very close to that monthly cash flow number. However, we need to focus on 2013 now and not rest on our laurels. We are very focused in our strategy and determined to continue to execute like we have the past 2 years.
The news release stated some awesome growth 0 to 1,020 barrels in just 27 months. Can you comment on the Top 3 major factors that helped your progress – your growth as a junior?
I wish there was a formula of just 3 factors that help us hit this milestone so quickly. When we started the Company we were fortunate to start with an incredible opportunity with a JV partner with tremendous experience operating in the Peace River Arch coupled with them owning the infrastructure. I look back at that time and realize how lucky we were, and continue to be, to get into that situation. Another factor was our decision in early 2011 to search for some of our own properties to operate, allowing us to take a little more control over our own destiny as an oil company. That decision propelled us to the Kirkpatrick Lake acquisition in September of 2012 and then the West Hazel production acquisition in November 2012. Both of those acquisitions have proven to be very profitable to Aroway thus far. I would say the third factor is our people. Aroway is fortunate to have a great group of people all pulling on the same rope. Our Joint Venture partner; our engineer Dave Contrada, land man- John Land, Daryn Gordon our CFO and Judy Ann Pottinger, our Director of Communications. Everyone has worked very hard to get us to where we are. People are who our shareholders have invested in.
Can you comment further on the reference made in the news release on the transporting of Aroway’s production in West Hazel, Saskatchewan and why it is significant as it relates to higher net backs for the Company?
A lot of companies, including Aroway, are capitalizing on the benefits of moving their oil via rail as opposed to pipeline. For example, last month we got $53 to $54 a barrel, after blend in tariff for our West Hazel production, which is probably the lowest you’re going to see in a long time. Our netback on that oil was greater than $20 a barrel. But for that $53.32 a barrel we sold for, when we transport by rail this month, we remove the pipeline tariff, we remove the blend for the diluents and we get $9 more added to the netback value.
This month we will truck our oil to the closest rail option, which is not that far. The railway cars get filled up with heavy crude and shipped down to a facility in Port Arthur. When the crude arrives in Port Arthur, what typically happens is the oil goes straight into bunker fuel for ships. Therefore, the refinery doesn’t have to touch it and that’s where we get a pretty substantial bump in our netback. So Aroway is not subject to pipeline apportion and other issues. It just opens up whole new markets for Aroway. We will get another $9 added to our netback this month by transporting via rail, thus our netback will be $35 to $40 and that’s just the West Hazel crude.
In 2011 you met and surpassed your production exit target – this year we see the same trend. As a junior company how do you manage the task and responsibility of setting realistic targets/realistic expectations for the market and your shareholders?
We are very conscientious about the guidance we give to our shareholders. We make our assumptions on what we think is going to happen with the price of oil, the state of the equity markets, thus our exploration and development program is designed around how much risk we are willing to take. We put a tremendous amount of work into our targets and the information we give to the public market about where we think we will be exiting a year as there is a great responsibility in giving guidance.
What can Aroway’s current shareholders expect from Chris Cooper and Aroway in 2013 – why should they stay invested?
As I had mentioned in our interview prior to our production announcement, both current and new investors should be interested in Aroway as we are looking to continue to grow in 2013 at an even faster pace. We will continue to drill on our existing properties and leverage our strong balance sheet and cash flow by becoming even more aggressive in the opportunistic acquisition market, which we feel is beginning to peak. We are growing Aroway with a very strategic process in mind and we have a diversified asset base with lots of exploration upside in our large land base in the Peace River Arch, complimented with stable production in our West Hazel property in Saskatchewan. Our Alberta operated properties have a very real potential to become new core areas for the Company as well. Current and new shareholders should take comfort in knowing that we are looking to continue in our incremental growth in production through 2013.
If you were pitching Aroway to a brand new ear at this moment – what are the three top points to your story that should get the market excited?
We have consistently met our goals and have grown the Company from zero production to over 1,120 boe/d when you include our shut in gas in just 27 months. We have a very large runway for which the Company can grow with enough cash flow to meet our growth strategy. I believe the Aroway investment opportunity represents a relatively low risk conventional oil and gas company with oil weighted production.
Disclosure: Aroway Energy is a Stockhouse client.