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Aroway Energy: On Track to Double Production a Second Year in a Row
October 29th, 2012Aroway Energy is a junior oil producer that I closely follow. Last week, I caught up with Chris Cooper, President and CEO, to get an update on Aroway’s story as we close in on the end of the year. Last year when I interviewed Chris, the company was on its way to hit its 2011 exit guidance of 600 boepd. Just one year later, Aroway is gearing up its drilling program towards meeting 2012’s exit guidance of 1,200 boepd.
That’s 100% production growth in 1 year – no small feat for a junior producer.
The company has come a long way since its IPO in 2010. Production quickly grew from 0 to over 500 boepd within 12 months. Its core land base went from 4 to 96 sections during the same time period.
Today, Aroway has access to more than 123 sections in the Peace River Arch area of Northern Alberta. This geologically rich area is known for its prolific oil, liquids and dry gas potential from multi-stacked formations.
Aroway’s prime acreage in the Peace River Arch area. click to enlarge.
It is important to highlight Aroway’s area of operations; having right sized assets is crucial for achieving production growth targets without breaking the bank. Aroway is not chasing a capital intensive resource play where each well costs millions of dollars like the Cardium or the Slave Point.
The company mainly targets oil and liquids rich reserves in the Leduc & Charlie Lake formations.
Leduc wells are about 2,100 meters deep and cost roughly $1.1 million to drill, complete and tie-in. Each well typically produces at 200-250 boepd for a few months before natural declines kick in. But every now and then you hit a bonus well that produces 2 or 3 times that amount. Chris hopes the latest oil pool discovery from the summer drilling program could potentially be one of those. He promised to provide more information in an operational update come November.
Charlie Lake wells are about 1,400 meters deep and cost around $0.5 million to drill and case, and an additional $150k to equip and tie-in depending on its proximity to existing infrastructure. Each well produces at 120-180 bopd for about 4-5 months before natural declines kick in. Production subsequently settles around 80 bopd for the next 2 years.
The economics on these wells are fantastic; it costs the company about $5,000 to bring a barrel of oil online. The payout period (recovery of capital) is measured in months, not years. If the targeted formation turns out to be uneconomic, the well isn’t written off as a total loss. It becomes a recompletion candidate for another prospective zone.
Following a 55 square Km 3D seismic program earlier this year, Aroway and its partner assembled an inventory of approximately 75-85 drilling prospects. The company enjoys ample running room thanks to its multi-year drilling inventory.
The upcoming winter drilling program is expected to begin in the next 2-3 weeks. It includes drilling 2 wells targeting light oil from the Ellerslie formation in the Kirkpatrick Lake area. The property (1.25 net sections) was recently acquired at 100% working interest.
This constitutes more than a second core area for Aroway as it will assume operatorship for the first time – a development Mr. Market usually looks favorably upon. Operatorship means having the ability to adjust drilling and capital expenditures as a company sees fit. Aroway is planning to expand its acreage through land sales and acquisitions.
By the end of the year, Aroway would have crossed 2 important milestones in its history: the first one is growing production above the 1,000 boepd threshold and the second one is operating its own production.
Financially, doubling production will not imperil the balance sheet. The company will exit 2012 at less than 0.4x debt to cash flow – an enviable financial position. This is why right sized assets are important for a junior producer; the company can grow its production without sinking heavily into debt.
The annualized cash flow for 1,200 boepd (85% oil) is more than $13 million assuming an average realized price of $85 Edmonton Par and $3.30/mcf AECO gas in 2013. That’s $0.25 in CFPS (cash flow per share.) That’s also 4 times the reported cash flow for fiscal 2012 at $3.2 million!
The stock is currently trading at less than 2x CFPS multiple.
On an EV/BOED basis, AROWAY ARW.V 0.465 [-0.015] is trading at around $23,000/boepd. That’s very cheap when compared to peers considering more than 85% of production is weighted to oil & liquids. I believe the upside potential is huge but contingent to a successful conclusion of the winter drilling program.
Chris is confident the 1,200 boepd guidance will be met. The company has about 250 boepd of natural gas production that can be back online once prices settle around the $3.50/mcf mark.
I have been following Aroway for about 2 years and I believe Chris will deliver yet again. I am betting on his track record of setting and meeting goals since Aroway’s early days. Having skin in the game maintains a high level of commitment as insiders own 22% of the stock on a fully diluted basis. Their interest is perfectly aligned with that of shareholders including me.
http://www.beatingtheindex.com/aroway-energy-on-track-to-double-production-a-second-year-in-a-row/
AROWAY ENERGY INC. COMMENCES SUMMER DRILL PROGRAM
June 26, 2012
Calgary, Alberta – AROWAY ENERGY INC. (TSX-V: ARW) (OTCQX: ARWJF) (www.arowayenergy.com) (the “Company”) is pleased to announce a drilling rig has been mobilized to the first location of the summer drill program and drilling has commenced.
The Company and its Joint Venture Partner plan to drill up to eight (8) oil wells as part of a two stage drill program. Each stage will consist of four (4) consecutive vertical wells targeting 3D seismically defined Leduc and Triassic prospects. Drilling and subsequent testing of the first four (4) wells will begin immediately. Stage 2 of the drill program will begin after testing of the first four (4) wells.
Chris Cooper, President & CEO of Aroway Energy commented, “The long wait for road bans to be lifted is finally over and we have put together an excellent drill program to carry us through the fall. Our extensive 3D seismic has provided strategic data for us in the development of our upcoming drill program.”
Results of the drill program will be released as they become available.
ABOUT AROWAY ENERGY INC.
Aroway Energy Inc. is a Western Canadian junior oil and gas production and exploration company participating in oil exploration prospects, through a joint venture partnership. Aroway and its Partner have assembled an impressive land package of 121 sections (77,440 acres) with 3D seismic coverage over 75% of its lands, all within its core area, the Peace River Arch. All of the Company’s exploration and development targets are in close proximity to tie-in, gathering and plant infrastructure, controlled and owned by Aroway’s Joint Venture Partner. Aroway is currently producing approximately 650 boe/d (90% oil) and has an additional 200 boe/d of shut in natural gas. Aroway expects to exit 2012 with total production of approximately 1200 boe/d.
http://www.arowayenergy.com/news/news_releases/2012/06/aroway-energy-inc.-commences-summer-drill-program
"In a good spot" - Resource Clips on May 9th, 2012
http://resourceclips.com/2012/05/09/in-a-good-spot/
With no end in sight to uneconomical natural gas prices, Canadian energy companies strive ceaselessly to improve their oil-to-gas production ratios. This has led to a surge of drilling in such oil-rich formations as the Cardium, Viking and Bakken. Of course it is always easier for majors and intermediates to simply buy juniors with good ratios.
One junior close to being almost entirely oil-based is Aroway Energy (ARW:CA). With most of its operations based within northeast Alberta’s Peace River Arch, Aroway recently surpassed its 2011 exit production target of 600 barrels of oil equivalent per day (boe/d) by over 10% (to 670 boe/d).
The company’s 2011 performance was rewarded by being named to the TSX Venture 50, with Aroway ranked fifth among the 260 junior energy companies on the index. “We’re 100% oil-focused, and now it looks like 95% of our production will be oil,” says Christopher Cooper, Aroway‘s President/CEO. “Because there are a lot of larger gas producers in our area, it makes us a bit of an attractive target. Some of those gas-weighted companies aren’t making money on the gas, so they’re going to be looking for oil acquisitions.”
In the meantime, Aroway will continue to grow organically through the drill bit. On deck are nine to 10 more wells to be drilled before the end of summer, with a 2012 net exit production target of 1200 boe/d.
The company has all the cash it needs for exploration. “The last financing we did was in December 2010, and we haven’t had to do one since,” Cooper reports. “With our current cash flow and our bank line, which hasn’t been drawn on, we have no debt; we are fully funded through 2012.”
Beyond this drill program, there is room for regional expansion. Aroway started 2011 with 40 sections of land in the region. It now has 121 sections, all contiguous. All wells to date have been vertical, most of them targeting the Leduc zone, which is around 2,200 metres deep. There are also targets within the Triassic zone at 1,500 metres, as well as three to four shallower zones, all of which Aroway and its (private) joint venture partner insist are oil bearing. So far, these wells have been simple and inexpensive, requiring little to no fracking or horizontal drilling.
“We have a really big prospect list of new wells that can be drilled, which is another thing that a lot of companies like to see, if they’re going to buy it,” Cooper says. “They want to make sure there is still meat on the bone and a lot of drilling they can do.”
When speculating which companies could be interested in Aroway, one must first consider its closest neighbours. These possibles would not only want to increase their oil production but also their land holdings, which aren’t getting any cheaper to acquire. Aroway bought its land base at prices of $100 to $150 per hectare, whereas companies now face prices of $800 to $900 per hectare and more.
Potential suitors Birchcliff Energy (BIR:CA) Canadian Natural Resources (NYSE:CNQ), Crescent Point Energy (CPG:CA), Shell Canada (NYSE:RDS.A) and the Abu Dhabi National Energy Company “TAQA North” are all nearby. Birchcliff, with just over 21% of its production coming from oil, goes to the top of the list because it continues to suffer from low natural gas prices, and its market cap has fallen below $1 billion.
“I’m not going to comment on whether Birchcliff is going to acquire us, but they are a big company in our area,” Cooper says. “Thankfully, there are a lot of big, big players pretty much surrounding our land base. So we’re in a really good spot.”
At press time, Aroway had 54.3 million shares trading at
.65, for a market cap of $35.3 million.
CEO said in this interview with Jay Taylor from April 24, 2012 http://www.arowayenergy.com/investors/presentations-and-coverage
that a new reserve report will be released before October 2012 with the year end ...
check the new updated corporate presentation http://www.arowayenergy.com/
or http://www.arowayenergy.com/uploads/default/files/arw-presentation.pdf
Interview available here http://www.voiceamerica.com/episode/61277/juggling-dynamite-set-off-by-government-market-manipulation
starting at minute 17 ...