28
Mar
Storm Cat Energy – Part I – Small Package, Big Growth
Storm Cat Energy (SCU) March 28, 2007. $0.97.
A Penny For Your Thoughts. First, you've got to love the name. Denver based E&P with 27 employees. All production comes from coalbed methane, CBM, in the Powder River Basin of Wyoming. Early stage plays in Canadian CBM and U.S. shale (Fayetteville).
Year end 2006:
- production: exited 2006 at 8 mmcfepd net from 318 wells in the PRB.
- proved reserves: 28.7 Bcfe
Year end 2007 goals:
- production: exit over 25 Mmcfepd net (up 3 fold)
- proved reserves: 80+ Bcfe.
Warning: These are not high risk plays but management has set pretty lofty goals. I like the growth profile and the low cost nature of the plays however management has, in my opinion, violated my golden rule for small cap E&P companies: "Under Promise and Over Deliver".
By plotting out fairly aggressive production goals on a quarterly basis management has set a pretty high mark for themselves. While I believe their stated goals are achievable (a 6 fold increase in production in 2 years as you'll see below) I think they've left little room for error. Personally, I'd rather leave room for upside surprise than have to explain missed numbers or worse, be forced to reduce guidance. Perhaps they're bagging the numbers already and if that's the case I'm just being overly cautious. We shall see soon enough.
They also include production from new plays that have not yet seen their first Mcf of gas. To be fair this is pretty low risk stuff and it's not as big a sin as including a risky exploration production wedge would have been. For the most part their plays involve a relatively straightforward manufacturing operation (both CBM and shale), with a process perfected by others that the management team's commendable experience level should allow it to emulate and improve upon.
Even if I risk their Canadian and Fayetteville shale plays quite heavily they should easily be able to achieve remarkable production and EBITDA growth over the next several years.
Disclosure: I own a position here.
Primary Risk: The Balance Sheet.
- Negative working cap: not generally a big deal for an E&P
- Quite a bit of new convertible debt:
- $50 million in two tranches issued Jan and March 2007
- 9.25% interest
- converts at $1.17 per share when:
- 18 months after issuance when
- stock exceeds $2.05 for 20 out of 30 days
- potential dilution of ~43 million shares (61%)
- 18 months after issuance when
- Projected EBITDA coverage moves to >5x by 2008.
Production Growth Profile (provided by the company as of March 2007)
click to enlarge. This is the company's read on production growth: current production of ~ 8 Mmcfepd (1Q07) grows to ~54 Mcfepd by the of 2008. A nearly 6 fold increase in less than 2 years. Half of the growth comes form the PRB, with the Canadian properties and the Fayetteville shale contributing the remainder.
Areas of Operation
Powder River Basin( Wyoming) - Coalbed Methane - CBM
- All of their currently booked reserves and production
- Acquired 10.3 bcf in 2006 from Barrett.
- Acres: 31,900 net
- Operate roughly 90%.
- 2006: Spud 86 wells.
- PRB Well Economics:
- Well costs: $150,000.
- Average net risked reserves: 0.137 Bcf.
- F&D: $1.09 / Mcf.
- Low lease operating expense, LOE.
- Typical well:
- After dewatering (3 months) peak production of 0.185 Mmcfgpd by month nine, then 33% annual decline.
- declines to 0.6 in 6 months and tails out at a 15% decline thereafter.
- 2007 : Drill and compete 170+ wells (double production
- 2007 capex: 150k X 170 = ~ $26mm - working interest
- Prospective acreage for another 340+ drillsites.
Summary: manufacturing operation, little to no exploratory risk
My forecast for PRB production growth (note: this is a bit rigid but should be pretty fairly accurate and tracks management's guidance pretty closely)
click to enlargeFayettville Shale (Arkansas)
- 14,000 net acres (bought in at $165/acre). Close proximity to Southwestern's (SWN) producing Fayetteville gas fields.
- Step #1: Participate with Southwestern operated wells
- 14 wells in various stages of drilling and completion now
- SCU has low working interest here (1-8%)
- This is a good way for a small E&P to cut it's teeth in a new play while learning from the dominant, seasoned player.
- Step #2: 2007 Storm Cat to drill as operator ~ 12 gross / 6 net wells beginning mid 2007.
- pipeline planning and access underway.
- Fayetteville Shale Well Economics:
- $1.8 mm to drill;
- avg net risked reserves: 1.008 Bcf;
- F&D: $1.79
- LOE: low
- Typical well:
- 1.3 Mmcfgpd IP
- declines to 0.6 in 6 months and tails out at a 15% decline thereafter.
- 130+ drilling locations remain on acreage
Onshore Cook Inlet (Alaska)
- 24,500 net acres
- 22 identified
- 1 well planned 2007
Elk Valley (British Columbia)
- 100% working interest
- 77,775 net acre CBM play
- thick: 290 ft avg coal thickness
- gassy coals: 250 -600 standard cubic foot per ton
- thinking 250+ wells
- near infrastructure
- 5 wells drilled 2006, fracced and now dewatering
- expecting preliminary productin 2H07
- On paper these look extremely attractive but since they haven't decided to drill more yet (pending production from the first wells) I'll wait to give them credit here in my model.
Alberta
- Manville CBM play
- 3 wells drilled to date.
- 5 wells planned 2007
- Ditto the "looks good on paper" comment of the Elk Valley section above.
Even without adding SCU's other plays just yet, the production profile is impressive (Mcfgpd)
Part II. Financial addendum to follow shortly
Any concern to the CEO taking leave??
March 29th, 2007 at 12:54 pmAlways, a concern. I’ve got a note into the company about that. I’d guess he’s sick although he’s not very old. “Personal reasons” can me a lot of things.
Still the new guy and his team look pretty seasoned.
March 29th, 2007 at 12:58 pmzman – i have a couple of quick questions on the production tables shown above:
1) it appears, despite noting 43 wells, that first quarter drilling is only 21.25 (half) and results in a staggered effect thereafter. Is this correct and is it due to actual activity and time passed in this quarter?
2) on the fayettville table production doubles in the first quarter and then falls by half. This does not appear to track your noted assumptions that it declines to .6 in six months and tails out at 15% decline. can you clarify. Also, can you provide additional detail on your assumptions for the decline curve (appears you drill 3 wells, then another 3 with no decline on the first 3, then a 50% drop following by a 30% drop)? seems odd. Thanks
March 30th, 2007 at 11:19 amMSR –
1) I just assumed an evenly drilled year which is a bit simplistic. It’s not based on wells drilled and I just risked to give my estimates some leeway.
2) I meant to post my assumptions with the chart (like in the PBR) but I chopped it off by mistake. I’ll repost.
The production basically shadows the company’s although it’s little less aggressive. I wanted to see what it would take to get to the company numbers and then I back it of using the risked IPs and risked decline rates. I’d rather err on the side of caution than pull in numbers.
I’ll repost that chart with the assumptions over the weekend.
March 30th, 2007 at 11:59 amGreat. Thanks
March 30th, 2007 at 1:19 pmPresident, who had been on leave, quit effective immediately.
April 10th, 2007 at 2:34 amDoes this not confirm that this is merely a pump and dump play? I have taken a cursory look at this company a couple times, but it seems to be promo play, with constant PR.
June 14th, 2007 at 2:41 pmVice President of Canadian and International Operations resigns effective July 31. I’m starting to get that rats leaving a sinking ship feeling…
July 11th, 2007 at 11:21 amJohn,
Always double post on the main page. I just saw your comment and I punted at $1.10. It doesn’t say a lot to have the leader of the Canadian division, a division with so much promise, leave to pursue other opportunities. Out with roughly a 25% gain.
July 11th, 2007 at 11:28 amThis company should have big results in early 2008. Stock seems cheap at this level.
August 30th, 2007 at 8:28 pm481233cc12
481233cc12
April 25th, 2008 at 2:41 pmNo deposit forum
No deposit forum
May 1st, 2008 at 2:29 pmNo deposit free cash sign up bonus usa players
No deposit free cash sign up bonus usa players
May 1st, 2008 at 2:30 pmVip lounge redeem code
Vip lounge redeem code
May 1st, 2008 at 2:35 pmGambling redeem coupons
Gambling redeem coupons
May 1st, 2008 at 3:59 pmBingo 500% deposit bonus
Bingo 500% deposit bonus
May 1st, 2008 at 4:03 pmNew bonus casino usa
New bonus casino usa
May 1st, 2008 at 4:06 pmAtlantic city casions
Atlantic city casions
May 20th, 2008 at 1:46 amNew code cirrus
New code cirrus
May 20th, 2008 at 1:47 amNo deposit required roulette
No deposit required roulette
May 20th, 2008 at 1:51 amFree download game lines
Free download game lines
June 4th, 2008 at 2:21 pmCasino bonus code no deposit
Casino bonus code no deposit
June 4th, 2008 at 2:24 pmNo sign up and free poker
No sign up and free poker
June 4th, 2008 at 2:26 pmNo cash instant poker
No cash instant poker
June 4th, 2008 at 2:29 pmFree poker without signing up for kids
Free poker without signing up for kids
June 4th, 2008 at 2:30 pmNew no deposit free chips
New no deposit free chips
June 4th, 2008 at 2:32 pmCasino slots no deposit
Casino slots no deposit
June 4th, 2008 at 2:33 pm[…] unknown wrote an interesting post today onHere’s a quick excerptFree poker without signing up for kids. Free poker without signing up for kids. […]
June 4th, 2008 at 2:49 pmFree play casino promotion
Free play casino promotion
June 4th, 2008 at 2:55 pmVip lounge no deposit casino coupon code
Vip lounge no deposit casino coupon code
June 4th, 2008 at 2:57 pmOnline blackjack no money
Online blackjack no money
June 4th, 2008 at 2:58 pm[…] Talk to the author know. […]
June 4th, 2008 at 3:33 pmInstant no deposit casino bonus playtech
Instant no deposit casino bonus playtech
June 5th, 2008 at 4:19 amSign up bonus casinos
Sign up bonus casinos
June 5th, 2008 at 4:20 amNo deposit poker latest offers
No deposit poker latest offers
June 5th, 2008 at 6:44 amWin real money playing slot machines
Win real money playing slot machines
June 5th, 2008 at 6:45 amFree casino cash codes
Free casino cash codes
June 5th, 2008 at 6:46 amPlay slot machines without signing up
Play slot machines without signing up
June 5th, 2008 at 6:50 amCoolcat no deposit bonus chips…
Coolcat no deposit bonus chips…
July 26th, 2008 at 2:12 amJoyland casino no deposit…
Joyland casino no deposit…
July 26th, 2008 at 2:23 amOnline casinos us…
for free to join…
September 17th, 2009 at 8:57 amfilmy megavideo…
[…]Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Storm Cat Energy – Part I – Small Package, Big Growth[…]…
October 22nd, 2011 at 8:33 amfreerolls…
[…]Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Storm Cat Energy – Part I – Small Package, Big Growth[…]…
March 27th, 2012 at 4:40 pmcell phone spy agent
…
September 16th, 2014 at 11:19 am50 twarzy Greya chomikuj
…
February 18th, 2015 at 3:08 pmholiday gift ideas for coworkers under $10
…
May 31st, 2015 at 2:02 pmchristmas gift ideas for coworkers cheap
…
June 12th, 2015 at 10:31 pmbraces For carpal tunnel treatment
…
July 16th, 2015 at 1:51 pmblackjack indonesia
…
July 25th, 2015 at 11:19 pmvps hosting
…
August 13th, 2015 at 1:10 ambuy backlinks
Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Storm Cat Energy – Part I – Small Package, Big Growth
August 7th, 2016 at 4:29 pmcasino Online free credit rm10
Storm Cat Energy – Part I – Small Package, Big Growth | Zman's Energy Brain ~ oil, gas, stocks, etc…
September 23rd, 2019 at 7:22 pm