This Oil Junior Is Set To Enter The Big Leagues In 2018
The week after crude oil reached $26/barrel in February 2016, I had my first conversation with Allen Wilson of Jericho Oil (TSX-V:JCO, OTC:JROOF). At the time, Jericho was already several months into its strategy of acquiring high quality producing oil assets in the mid-continent region of the United States. While Allen laid out Jericho's unique strategy for picking up oil assets that could be operated profitably at oil prices less than $30/barrel, I was wondering how they would make this strategy work as a publicly traded company (public company shareholders can be impatient and want to see quick progress). Jericho's strategy seemed more like a private equity type of strategy, however, the company's unique financial backing ensured that Jericho could implement this strategy patiently and effectively.
Fast forward over two years later, crude oil is back near $70/barrel and Jericho's strategy of rolling up distressed and undercapitalized oil assets in 2015/2016 looks like a stroke of genius. However, in February 2016, with the oil industry in the steepest part of its downturn, it took a great deal of foresight and financial fortitude to be a buyer of oil producing assets. Jericho has now built a 70,000 gross acre position at an enviably low cost basis.
Jericho Oil Stock Snapshot:
Shares Outstanding - 127.1 million
Recent Share Price - C$.92
Market Cap (undiluted) - C$117 million
Warrants (C$.60 exercise price) - 25.2 million
Options - 7.7 million
Year-end 2016 2P Reserves: US$52 million
Jericho's patient strategy came to fruition in a big way in August 2017, when the company was able to quickly close an opportune acquisition of approximately 9,400 net surface acres in the oil window of the Anadarko Basin STACK play in Oklahoma in a STACK Joint Venture (Jericho purchased an initial 31% interest a that time, with its private family partner acquiring the balance). The STACK JV paid roughly $2,300 per acre for its August 2017 acquisition, a price that may have ‘bottom-ticked' the market (WTI was trading around $47/barrel at the time). In the last couple of months there have been several transactions in the STACK at more than $10,000 per acre (Chaparral Energy was recently pleased to close a $60 million STACK acquisition at $8,500 per acre, while Silver Run Capital's acquisition of Alta Mesa was priced at ~$17,000 per acre).
The STACK has become a highly sought after oil producing basin with the best economics in the continental United States:
"We expect the SCOOP/STACK to provide the highest oil production CAGR for the rest of the decade among all major oil basins." ~ Goldman Sachs
The first well Jericho's STACK JV drilled, in partnership with Staghorn Petroleum, has brought online in the STACK play achieved a peak 24-hour rate of 957 oil-equivalent barrels per day (68% oil) at 211 Boepd per 1,000 feet - the projected 30-day normalized rate (IP30) for this 4,518 ft perforated lateral well is 770 BOE per day (67% oil).
Jericho's STACK JV plans to now complete another 4-5 more wells in its STACK play in 2018 (with Staghorn and another top tier STACK operator). In addition, Jericho is on the hunt for "tuck-in" acquisitions which will complement its current property package. Another positive catalyst for Jericho over the coming months is an anticipated move to the "big board" (TSX listing).
The STACK shale oil play is particularly attractive due to the potential for achieving oil flow from multiple formations spanning a 700 feet thick pay area (Chester/Manning, Meramec, Osage, Woodford) from the same horizontal well; moreover, the rock is ideal for multi-stage fracture stimulation.
2018 is poised to be the year that Jericho steps onto a bigger stage after spending the last 2 ½ years building a firm foundation as a mid-continent focused oil E&P junior.
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January 27th, 2023
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