Has 6,500 acres of assets in the Permian basin -- the USA's premier oil address
At an inflection point of growth, with potential to boost output
Experienced management and boasts no debt
Permex Petroleum Corp (CSE:OIL) (OTCMKTS:OILCF) has low cost, high quality oil assets in the famous Permian basin of West Texas and South East New Mexico.
It acquired over 6,500 acres during the downturn in the oil and gas sector between 2015 and 2018, paying bargain basement prices of around US$2,000 per acre, against current land valuations as high as US$95,000 per acre in the area. Across eight properties, the junior oiler has 145 wells, which it owns and operates, and 72 producing wells. The current gross output across the group is 240 boepd (barrels of oil equivalent per day).
There are also 37 shut-in well opportunities to be brought back on line and two water supply wells, which allow for waterflood recovery (enhanced oil recovery) projects to be carried out.
Of the eight properties, six qualify for waterflood techniques, the firm has said. Permex has no debt.
Why the Permian basin?
The Permian basin is a huge oil and natural gas producing area, part of the mid-continent oil producing area, which is home to cities like Midland and San Angelo, and so it has plenty of necessary industry infrastructure already in place. The region produces over 3.3 million barrels per day, which represents more than 30% of all output in the United States.
In terms of reserves, proven reserves in the USA sit at around 38 billion barrels and over 10 billion of that is in the Permian. There are 475 rigs in the Permian, which is more than 40% of US rigs.
The group, as of November last year, had total proved and probable (2P) reserves of 7,695 mbbl (thousand barrels) oil and 8,243 mmcf (million cubic feet) of gas.
Future net income of these proved and probable reserves based on forecast prices and costs is US$322.5 million.
At the turn of the year, updating shareholders on plans, Permex said it aimed to lift production in 2019 and begin its San Andres Horizontal well drilling programs in Gaines County, Texas.
Notably, it said group acreage in the Permian had increased by 25% from the fourth quarter of 2017 to the same period of 2018. 2P (proved plus probable) reserves totalled $142 million, or 9 million barrels of oil equivalent, an increase of 22% year on year. It is targeting output of between 500 and 1,000 boepd (barrels of oil equivalent per day) in the second half of 2019, rising to 1,000 to 1,500 in the first half of 2020.
In April, shares began trading on the OTCQB market under the ticker symbol 'OILCF' as the junior oiler expands its presence in the US. The same month, it said it woiuld raise up to C$1.5 million to restart waterfloods and bring online additional shut-in wells.
San Andres asset a boon
The San Andres & Taylor property in Texas allows Permex to convert vertical wells into horizontal wells to lift output. The property boasts 1,226 acres and has 35 active wells, two shut-ins and 15 water injections.
There are no depth restrictions to drilling and the company owns all basement rights on this property which includes the sought after Wolfcamp formation. Permex says around 12 billion barrels and two trillion cubic feet have been exploited already from the reservoir and it has more to give.
Significantly, Permex has recently confirmed interest from potential partners for a possible horizontal joint venture drilling program at San Andres amid increasing interest in the area from big cap oilers.
Public production data from nearby horizontal wells show Texas-based Ring Energy Inc (NYSEAMERICAN:REI) brought wells online at over 400 boepd or 80 boepd per 1,000 foot lateral, while others such as Chevron USA (NYSE:CVX), Occidental Petroleum Corporation (NYSE:OXY), Hess Corporation (NYSE:HES) and Steward Energy continue to invest in the region, it said in a recent statement.
What the CEO says
CEO Mehran Ehsan told Proactive earlier this month: "One of the main things we've been doing is EORs (enhanced oil recovery). We wanted to devote organic cash from the properties themselves and put it back into the fields to increase production through EORs. We've done that. We brought online shut-in wells and increased our infrastructure within the region in prepartion for drilling horizontal wells. That is the main goal of this company -- to drill our horizontals for scale."
He couldn't say when the firm would spud the first one, but noted: "2019 will be a time where one horizontal well will be online in our company".