Chief executive Terry Meek helped drive Thunder Energy to a $600mln exit and was one of the founders of coal bed methane specialist Ember Energy.
In short both have impressive CVs. But what they also possess, alongside a few grey hairs, is experience and a track record of creating businesses from the bottom up.
You can’t buy that and certainly can’t teach it; you can, however, see all that nous at work at Point Loma.
Quietly the pair and their team have amassed a land position in west-central Alberta that’s host to existing production and ripe for development.
It’s not the hottest area in for oil and gas in Canada, but then that’s the point.
Asset prices are cheaper and there are deals to be struck.
Point Loma’s strategy is two-fold: easy-win ‘behind-the-pipe’ tie-ins (which will help lift output above 800 barrels a day by the year-end), while also tapping the potential of the Mannville and Mississippian formations.
While relatively shallow at 1,500-2,000 metres, these particular horizons were historically avoided because the technology wasn’t available to exploit the ‘tight’ accumulations of oil and gas.
The advent of modern, horizontal drilling and fracking techniques has changed all of this.
Expansion plans and funding
The company has amassed 140,000 net acres and has identified 300 potential drill locations.
The cost of a 15-stage fracked well is put at $1.4mln to drill and complete, while a further $350,000 is needed to ‘tie-in’ the well.
Initial production rates should come in at 260 barrels of oil equivalent a day, providing for a payback on the initial investment of between 18 months and two years .
The company recently raised $2mln via an oversubscribed private placement of stock at 35 cents.
This will be used to drill horizontal wells early next year.
Point Loma has lifted production to around 500 barrels a day of oil equivalent from 150 in July. The current mix of light oil and liquid rich gas provides a ‘net-back’ of around US$13 a barrel of oil equivalent.
There are opportunities to increase production to 5-10,000 barrels a day, and in fact Meek thinks it’s possible to get to 2,000 barrels by the end of 2017.
Financing that growth should become a little easier once the company has updated its reserves report.
This will allow it to go out and borrow against those reserves, rather than solely relying on investors to fund growth.
It should be pointed out that Point Loma is currently debt-free, unlike some of the longer-in-the-tooth operators that are currently shedding assets to keep up with payment schedules on those liabilities.
Opportunities to grow to 10,000 barrels per day
Meek says he and his colleagues have looked at opportunities that could add 10,000 barrels a day – though it is fair to say not all of them fit the company’s exacting requirements.
In what is a buyer’s market, the veteran oil man is unwilling to pay more than three-times cash flow.
The opportunities themselves have ranged from the small, bolt-on variety to the transformative.
So there is plenty of scope to create a business of decent scale.
By growing a significant operation, the company itself, which it must be said has flown under the radar thus far, may achieve a slightly healthier stock market rating than it commands currently.
Heavily leveraged to an upswing in oil prices
This is a company that is heavily leveraged to an upswing in the oil price, while every barrel added to output ought to feed through to the market capitalization.
At the moment its enterprize value is $12.3mln.
Point Loma in the summer carried out its own comparative analysis that showed its assets were worth just over $13,000 per barrel of daily oil production.
Transactions in the sector range from $20,000 a barrel right the way through to $60,000 a barrel.
Narrowing the discount to that lower valuation would require a significant rise in the share price.
Of course this won’t happen overnight, but then the market won’t allow the anomaly to continue indefinitely.
Story by ProactiveInvestors