The following is a Stockhouse Q&A interview with
Manitok Energy Inc. (
TSX: V.MEI,
Stock Forum) President and CEO Mass Geremia.
Can you tell us a bit about your background in the publicly traded energy sector?
After a successful start in real estate I have been in the oil and gas industry for almost 15 years now. I have been CEO of Manitok since 2005 when the company was formed privately. I built it from zero barrels a day to about 300 barrels when it went public in 2010. Since then, we have built it up to over 5,000 barrels per day.
About 85% of the increase has been through the drill bit. My background is more financial. Early in my career I was involved with Boardwalk Equities, a very successful real estate company. That was from 1995 until 2000. From 2,000 I was involved with Equatorial Energy,
Birchcliff Energy Ltd. (
TSX: T.BIR,
Stock Forum) (3 years). Then I started Manitok and went full time into Manitok.
What was your intention when you moved over to Manitok?
I wanted to build a company. At that point in my career I had done well with the different things that I had done in the past. I felt that I needed to do my own thing. In previous roles I was involved in strategic planning, acquisitions and helping the CEOs. I wanted to take the next step and be the CEO. That’s when I started Manitok and put it together as a private company with a land for share deal with Provident Energy Trust. That is what got us rolling and we have continued to build ever since.
How did you wind up with your current property portfolio?
Since its inception, Manitok has demonstrated a track record of continued growth through strategic acquisitions, primarily of undeveloped land, followed by successful drilling and development.
We acquired Alberta Foothills lands in 2008 and 2009 when the markets were poor and oil was down, picking up about 40,000 acres for about $1.5 million.
We took our Stolberg area (Alberta Foothills) from zero to net 4,900 BOE at the peak. Then we sold the heavy oil assets because we could see that we would get a better return on Stolberg and wanted to focus on that.
In October 2013, Manitok acquired rights to 96,893 acres in the Entice area of southeastern Alberta under an agreement with
Encana Corp. (
TSX: T.ECA,
Stock Forum). We took that from zero to about 1,600 BOEs. We should be able to take it up to over 2,500 by year end.
What is Manitok’s current market position?
We are looking to build it to 25,000 BOEs. Right now we have two core areas – the Stolberg and Entice area. Each one has the ability to go to 5,000 barrels a day. That’s our major criteria for new core areas. We do a little more grass roots exploitation/lower risk exploration. We don’t do rank exploration.
Our idea at Entice was to go horizontal to get deliverability, which proved to be an accurate assessment. We get involved in grassroots situations where you get good value creation if you are correct.
What do you think sets you apart from your peers?
Our exploration/exploitation expertise. So we have several geologists with 25 years plus experience, and engineers with the same level of experience. So we have a better understanding of taking projects from zero to production. I think that is what ultimately differentiates us. Our niche is the exploration expertise and willingness to evaluate assets and do deals of that nature.
You have talked about efficient old school expansion, putting Manitok on track to become an intermediate producer before the end of the decade. Can you define “old school expansion?”
We are just using the same model that companies were built on in the 1980s-1990s, when you are looking at conventional production, shorter paybacks, lower declines and you are looking just as much at generating cash as you are on the reserve side. Today, we have moved the model a bit to the tight unconventional type reserves, which can be extensive. But they have longer payback periods. You can’t recycle the cash as quickly. So you have to be able raise new equity all the time in order to grow the company.
By recycling our own cash flow we can choose the times when we are raising equity so that we are not stuck having to raise it in order to establish growth. That gives us more flexibility.
Do you think that strategy has worked well for you?
Yes because everybody is chasing and bidding up the unconventional reserves. We are going after what everybody isn’t going after for the most part. This has allowed us to do large deals in Canada like the Entice land deal, which has been rolled into
PrairieSky Royalty Ltd. (
TSX: T.PSK,
Stock Forum), allowing us to develop a relationship with PrairieSky. They have 5 million acres in total. They need groups that are willing to drill it and prove up the resource. That puts us in a good place with them.
It gives us a little niche that we can work on to create value.
How do you plan to expand production from 5,000 barrels per day to 20,000?
Stolberg is more of a mature property now. We have more drilling to do. But it’s probably going to be at a slower pace than we have done in the past. Now we are working on a water flood that will allow more recoverability and stabilize decline rates and give us a more even production profile. The growth is going to come at Entice, where we have 1,500 barrels per day and we hope to take that north of 6,000-7,000 barrels per day in the next three years.
In order to get to 20,000 to 25,000 barrels we will need a third core area and another acquisition or two. Our goal would be to have an acquisition done by the end of 2016 and probably another one done prior to the end of 2018.
Which properties will be the major contributors towards your expansion target?
Stolberg is a base to build from. Entice will be the higher growth area in the next three years. We see growth through the drill bit and by acquiring smaller companies or smaller assets within the area that are held by other companies that are looking to put capital into some of the other unconventional areas that I mentioned. With oil being down, the larger companies (majors) are looking at their land positions, refocusing capital on the projects that will give them the best results going forward. Some of the lands that are not core are now available for sale. So it’s a good environment with prices being low to get decent deals on assets.
We will look to acquire assets in the next couple of years at the low point in the cycle.
Where do you see the company in two years from now?
We are currently 5,500-5,600 barrels BOE production. In two years we would look to be at 8,500 to 10,000 barrels per day. That is going to be a function of when oil prices recover. The longer the recovery period, the lower the target.
Why would one choose to invest in Manitok now?
Our growth going forward. We are just proving up the Entice area. We will probably have some more data regarding our production and IP rates in the next few weeks when we put our year-end results out. So we will be able to show that we have plenty of running room in the Entice area, a lot of upside potential in the drilling, based on the results that we have achieve to date. There is high potential for growth there. On top of that you are looking at a low commodity price environment. It doesn’t last forever. When you put the two together, this is a good time to make an investment in our company. Once the market recognizes the value of Entice our valuation will be higher. Obviously when oil prices come back, the valuation will change again.
Aside from you the CEO who are the other key players on the management team, and what do they bring to the table in terms of helping you to achieve your strategic goals?
Our COO is Cam Vouri. His previous roles include President of upstream oil and gas business at Provident Energy Trust. Provident was a high growth company initially before becoming a trust and he worked there for a decade.
Tim Jerhoff, vice president of production and engineering. He also held senior positions with Provident Energy Trust and
Encana Corp. (
TSX: T.ECA,
Stock Forum), where he was involved in the area where the Entice lands are located.
CFO Robert Dion has over 26 years of experience on the financial side of the petroleum industry.
Don Martin, vice-president, exploration has over 35 years of experience in the Western Canadian Sedimentary Basin. He started with Pan Canadian back in the 1980s and was involved in the Entice lands before Encana and PrairieSky. He has done great work in finding two new pools at southern Entice and he is looking to do more as we go forward.
Is there anything more that you wish to add?
In the last couple of years, we have gone through a bit of turmoil in terms of change in personnel, and in getting this Entice deal up and running. Whenever you are dealing with new lands and especially when there is no production, there is always that initial time between when you get the raw land and when you start to get momentum in terms of getting the production on stream. At Stolberg we went through the same thing in terms of it taking 18 months to two years to get it rolling.
We are just about to enter a high growth phase at Entice. So I think what has happened in the last 1.5 years is not indicative of the next year and a half potentially. As we accelerate the drilling at Entice, we should see some significant growth in terms of our production and reserves.
FULL DISCLOSURE: Manitok Energy is a client of Stockhouse Publishing.