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Exploring Canada’s Best Energy Resource: The Montney Formation

Dave Jackson Dave Jackson, Stockhouse
2 Comments| May 6, 2021

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(Click to play video.)

Click to enlargeCost-effective exploration for reliable energy resources – especially in North America – is becoming an increasingly difficult task…given existing reserves, government regulation, and public sentiment. But one Calgary-based oil and natural gas explorer may have found the proverbial ‘diamond in the rough’ and it may just be Canada’s best potential energy resource.

Leucrotta Exploration Inc. (TSX-V: LXE, OTCMKTS: LCRTF, Forum) is an energy company primarily engaged in the acquisition, development, exploration, and production of oil and natural gas reserves located in the Dawson area in northeastern BC.

Today, we’re happy to be joined by company CEO Rob Zakresky.


SH: To start off with, can you tell us a little bit about yourself and the history of the company?

RZ: As far as my background I've run several successful public oil and gas companies over 27 years. We started Bellator Exploration in 1993 and took production from basically zero to 12,000 BOE a day before we sold that company to Baytex in 2000. Subsequent to that I ran Viraccocha Energy, Chamaelo Energy, Chamaelo Exploration, all with successful exits, and then Crocotta Exploration, which we sold to Long Run in 2014. Now Leucrotta, which is an offspring of the Crocotta, was spun out as an exploration company in August of 2014. We spent the last six years acquiring and delineating the Montney position to get to this day when we can now accelerate the development with pad drilling and surface all that value for our shareholders.

SH: Can you update our investor audience and your Leucrotta shareholders on all the new company developments, especially in the wake of COVID-19?

RZ: In the wake of Covid19 we are ready to launch our Mica Montney development. This development will utilize only 10% of our land base but will drive our production from 3,000 to 30,000 within 5yrs time. We will be using advanced completion techniques such as 2400meter lateral wells with approximately 150 frac stages. These wells reduce the area environmental footprint but really maximize the return on investment by allowing producers to scale production fairly quickly. Our area competitors are having enormous success with pad wells and we are expecting very similar results. We have Infrastructure and takeaway capacity in place to manage the commodity flow from Mica so it should set us up very nicely for second half of 2021.

SH: So tell us about the Montney Formation in northeastern BC and what makes this energy reserve so special?

RZ: Well, the sheer size of the Montney formation makes it special given its over 400 miles long, 100 miles wide and1000 feet thick. Top put it in perspective, that’s an area about the size of the state of Ohio and as thick as the Eiffel tower is tall.

But the really special attribute of the Montney is that it never disappoints and has gotten better and better every year as technologies have advanced and will likely continue to do so. Rates of return are exceptional and continue to improve given this evolution.

It is very rare to see the combination of large scale and exceptional returns which is why it’s considered such a world-class resource.

SH: You’ve said that the company is a pure-play Montney growth story. Can you expand on this for our investor audience?

RZ: For sure. Leucrotta is pure-play from the perspective that we have:

  • One large contiguous land base located solely in the high GOR light oil window of the Montney and a team solely dedicated to efficiently and effectively developing that asset for shareholders. Therefore, if you like Montney and all its attributes like I do, you are not investing in any other geographic areas or formations when you buy our shares.
  • As an aside, we are also pure from the sense that we have very low asset retirement obligations and have zero debt.

The growth aspect speaks to the fact that we are now in the technical and financial position to bring year after year high percentage production growth to our shareholders.

We have invested years of effort and capital to get to this point and are now positioned to spend capital that will directly result in growth and recently positioned the financial side to do just that.

SH: With over 17 billion barrels of oil in place, the company is estimating production to increase ten-fold over the next five years. These are big numbers and big goals. How to you accomplish it?

RZ: With the resource now proven out, it will all come down to the execution of the plan both from a technical and a financial perspective.

The plan entails systematically building out the production base and the egress (takeaway) to handle the production growth to 30,000 and beyond. The Team has developed a timeline and list of deliverables and we are painstakingly focused on the efficient and timely execution of this plan. Pad development will start this summer and the facility build-out and concurrent pads will follow into 2022.

Financially, we will have cash and no debt well into 2022 but will have to take on some debt (less than half a year’s trailing cash flow) to accomplish our goals.

SH: The company looks to be an exceptional financial position with over $57 million in cash on hand and zero debt. What’s the ‘secret sauce’ here?

RZ: We have always maintained a conservative balance sheet with minimal debt but felt that the time was right to cash up and kickstart the Mica Project. In Q121, we were able to sell 10 sections or about 4% of our lands to a large producer for $30 million and raise an additional $33+ million. We believe this is sufficient such that no further dilution is required, but note that Mica Project only utilizes 30 of our 230 sections of land to get to our goal of 30,000 boepd.

SH: You’ve recently announced the completion of $33 million dollars in bought deal financing. This may be news to many investors. Can you unpack the benefits of it?

RZ: The benefits are two-fold - first there is the financial side which clearly solidifies the balance sheet so we can execute the Mica Plan and grow the value for shareholders but there is the added benefit of expanding our shareholder base to several new institutions and many new retail investors that will increase our liquidity over time.

SH: The Company looks set for strong growth in 2021. For company shareholders and potential investors, what kind of near-term and future development and progress can we expect at your Montney Project?

RZ: We will unveil a full and comprehensive plan later in the quarter, but there are a number of key items that will happen this year. In Late May, we will complete a well in the Basal Montney zone that could open up a whole new Montney bench for development. This will be followed by the kick-off of the first test Pad in late July which will be completed and on-stream in the fall. The test pad will have wells that are 50% longer than previously and use more than 3 times the number of fracs. We are incredibly excited to see the results of these wells given the success competitors have had utilizing advanced technology. We will also be routinely updating shareholders as we move through various mile markers on our infrastructure and other aspects of the overall plan.

SH: I have to mention your stock has had a very nice bump over the last 12 months…more than doubling in value since. What can you tell our investor audience regarding the current valuation of your stock and why you think it’s still a good buy right now?

RZ: Our current market cap is about $150 million but the enterprise value for the assets once you back out the cash of $57 million is under $100 million. Companies that have production of 30,000 boepd (our target) have enterprise values $500 to $750 million.

As we execute our plan, the enterprise value will gravitate to those Companies or 5 to 7 times where we are today. I believe investors who buy today are getting in at ground floor and will reap the benefits in due course.

SH: Can you tell our audience a little bit about your corporate management and board teams, along with the experience and innovative ideas they bring to the energy exploration space?

RZ: Yes. Our management team and board give us an unfair advantage for sure. Our management team has worked together for over 15 years and we like to think we have an instinct for the business. We were one of the first movers into the BC Montney formation and have captured a disproportionate share of the Montney oil window in this world class resource. Our board also brings Montney expertise, strong governance, capital markets depth and creativity on the deal side of the business. As a group, I’d say we have embraced technology to our advantage and have been agile in adapting to changing business environments.

SH: And finally, Rob, if there’s anything I’ve overlooked please feel free to elaborate.

RZ: I think the only major item we have not discussed is ESG. We are very focused on safety and the environment are always looking at ways to minimize our environmental and carbon footprints. Leucrotta plans to release its inaugural ESG report for Q2 2021 where we can share our historical records and future plans with our stakeholders. Thanks Dave and thanks for having me on Stockhouse.

SH: Thanks again for joining us, Rob. Be well and stay safe.

We’ve been speaking with Rob Zakresky, CEO Leucrotta Exploration Inc. I’d like once again to thank Mr. Zakresky for joining us and sharing this insightful information about his company with our Stockhouse video podcast audience and investors. And, as always, investors are reminded to do their own due diligence before making any investment decision. I’m Dave Jackson for Stockhouse Media and the StockTalk Video Podcast. Thanks for watching.

FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.

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