NWTR Going International With 9 Acquisitions In 5 Years
Over the past year I have published several articles suggesting oil and gas companies of all sizes that investors should consider when trying to capitalize on the U.S. oil boom. As many of you already know, the United States is on pace to become the largest producer of oil in the world by 2015. Every single one of my oil and gas recommendations from 2013 are up nicely with two having gained as much as 40% and 50%. With that being said, I want to provide an in-depth look into perhaps the most unknown oil and gas company that I've mentioned that has the potential for a big year.
New Western Energy (OTCBB: OTCQB:NWTR) has projects in Kansas, Oklahoma, Texas and Pennsylvania totaling 195 wells holding potential reserves over 20 million BOE. A method of valuing oil and gas companies is the ratio of market capitalization to proven reserves. In a report conducted by Zacks Investment Research, they chose to value New Western Energy at the median value $6.0 per barrel of oil equivalent when comparing similar small oil companies' valuation ratios and figures. Given an estimated reserve of 20.2 million barrels of oil, this implies a market capitalization of $125 million, nearly nine times greater than currently listed. In concluding their research report, Zacks Investment Research determined that a fair equity value for New Western Energy based on this ratio would be about 809% higher than its current share price and has an Outperform rating on the stock.
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Too few investors are familiar with the name New Western Energy . You would think that a company with 8 successful acquisitions since 2009 that continues to increase production revenue and expand their lease portfolio would be getting more attention. Perhaps the company is undiscovered because there has been a history of losses that negatively impacted the ability to achieve business objectives. New Western needed additional funding to expand its drilling program which it received through a positive private placement in November, 2013. Without such additional capital the company will not be able to meet its objectives on a sustainable positive net free cash flow. However, things are quickly changing as the company continues to push forward expanding its portfolio. In fact, New Western Energy just announced a Letter of Intent to acquire Legend Oil and Gas Ltd. for what would be their 9th acquisition in the past five years. The acquisition would immediately add about 135 BOE/d or about $1.06 million per quarter with the potential to play in on about 110-150 BOE/d from shut properties with proven reserves. A deal would also expand New Western's lease portfolio into the exploding oil and gas area of Alberta, Canada as well as British Columbia. The northern Alberta reserve is the 3rd largest deposit in the world.
According to Javan Khazali, President of New Western Energy, "The strategic acquisition of Legend Oil not only increases our holdings in Kansas but also allows us to diversify our geographic portfolio outside of the U.S. and into the diverse energy region of Western Canada. From an operating strategy point of view, we will immediately accelerate revenue growth through our combined production rate while having opportunities to aggressively develop oil & gas properties in historically proven zones in the near term. We are extremely excited to join forces with the Legend Oil management team that has shown in-depth technical expertise and tremendous exploration and operation capabilities. We expect this value creation to reflect on our strong post -- transaction balance sheet with substantial increase in pro forma liquidity that will further enable us to continue organic growth and fund future acquisitions."
"The acquisition of Legend Oil by New Western creates a combined entity which substantially benefits the shareholders of both companies. The significant access to capital by New Western led by its President and CEO; Javan Khazali and the production assets and technical strengths of the Legend management team will create a larger production and revenue base as well as enhancing the management of the combined entities. We are excited about the potential for growth this business combination will afford in 2014 and beyond," said Marshall Diamond-Goldberg President/CEO of Legend Oil and Gas Ltd.
Completion of the acquisition will be subject to the negotiation and execution of a binding agreement and the satisfaction of a number of conditions, including, but not limited to each of New Western Energy and Legend Oil being satisfied with the results of their respective due diligence investigations.
This deal makes perfect sense for New Western Energy as risk is low with a potential high reward. Not only does it increase the company's lease holdings in Kansas, their core lease area, but it expands their portfolio into the oil and gas-rich lands of Canada. Legend Oil's 100% interest in the Piqua Project in Kansas will add 1,040 acres with 44 wells currently producing 18 BOPD to New Western's already 3,050 acre Kansas holdings. In 2011, an engineering evaluation of the Piqua Project determined there to be 97,461 barrels of proven reserves for a $2.6 million value when using a 10% discount for price volatility. Legend's maintained a 100% drill success rate here while managing a $25/barrel operating expense.
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Still, the most attractive part of this deal for New Western is establishing a footprint in Canada. Legend's 100% interest in the Berwyn/Grimshaw Project produces about 17 BOE/d while varying interests in locations of the 3,046 acre Medicine River Project yield about 45 BOE/d currently for the company. Legend Oil and Gas also owns a horizontal well completed in the Pekisko formation that, although has been shut, could still potentially produce 20-30 BOE/d once reactivated. Additional percent interests are also owned in the Leduc formation gas well. The well tested at 3.0 MMCF/d (million cubic feet per day) with 30-40 BOE/d per 1 MMCF for total potential of 90-120 BOE/d.
Legend also owns anywhere from 9%-25% interest depending on the block on the 5,500 acre Clarke Lake property. This is a prolific gas producing property with gas wells with reserves ranging from 80+ BCF of gas. Suncor, a $52 billion energy company, has four producing wells on this very same property. In addition, Legend owns a small percent interest in the Wildmere property producing 24 BOE/d.
Along with its joint venture partner, Legend Oil and Gas owns a 40% interest in the 6,400 acre Joarcam property. This area has produced 55 million barrels of light oil to date and would enable New Western Energy to make its mark in eastern Alberta, Canada. This property currently produces about 1,000 BOE/d. Legend Oil and Gas also produces approximately 50 BOE/d of mainly oil from four minor properties in Alberta and B.C. Some are small interest properties, such as Fort St. John and Boundary Lake. Others, such as Inga B.C., are high interest properties with development potential. Inga carries a 90% working interest in ¾ section of land currently developed with one well producing over 11 BOPD.
I am impressed with New Western management's ability to evaluate risk and identify acquisitions greatly beneficial to the company's production operation. Their strong due diligence practice can be seen through the quality of deals they have conducted in the past five years. They have been able to keep costs low while maximizing existing wells and going after proven reserves. Management's mindset reminds me of Occidental Petroleum, a $75 billion giant, that has been known to say is in the "oil recovery" business not the "oil discovery" business. This helps keep costs low and implement an effective risk management system.
This strategy has worked brilliantly thus far for New Western Energy as they have successfully completed 8 acquisitions in the past five years. As long as the company is able to secure the necessary capital, there is no reason to believe management will slow down. The Legend Oil and Gas deal would not only be their 9th successful acquisition but will also enable New Western to make its mark in Canada. I may be getting slightly ahead of myself, but if management keeps this pace, they could develop a portfolio and asset base that would qualify for an up-listing.
Although I am very optimistic about the future of New Western Energy, it is a micro-cap and investing in micro-cap companies can be risky. If the history of losses continue it will have a negative impact on the company's ability to achieve business objectives. Additional funding would be needed to expand its drilling program. However, according to Zack's Investment Research, New Western Energy should be in the clear and is expected to produce positive numbers for shareholders down the road. It appears this small company has made it over a crucial hump thanks to a talented management team and can now begin to pick up speed
New Western Gas Corporation (NWTR) Announces Its Authorization to Proceed With the Drilling and Completion of the Farwell 34-D4 Well, the First of an Announced Three Well Drilling Program on Its Fredonia Gas Prospect
IRVINE, Calif., Jan. 28, 2014 (GLOBE NEWSWIRE) -- Today New Western Gas Corporation, a wholly owned subsidiary of New Western Energy Corp. (NWTR), an independent energy company engaged in the acquisition, exploration, development, and production of oil, gas and other minerals in North America, announced its authorization to proceed with the drilling and completion of the Farwell 34-D4 well, the first well of a planned three well development program on its Fredonia Gas Prospect. The Fredonia Gas Prospect is located in the central portion of the Cherokee Basin Structural Province, which extends over much of southeastern Kansas. This maturely explored basin is best known for its oil and gas production from shallow Pennsylvanian aged Coal and Sandstone reservoirs.
This announced drilling of the first off-set Proved Undeveloped well site location ("PUD" location), is part of New Western Energy's continuing development of its coal gas program known as the "Fredonia Gas Prospect". The Fredonia Gas Prospect contains in total 9 existing coal gas producing wells (four of which have multiple potential undeveloped coal gas reservoirs behind pipe) and 9 undeveloped coal gas direct off-set PUD drilling locations. New Western Gas Corporation will continue with the development of these direct off-set PUD drilling locations through this announced three well drilling program, as well as continuing with its previously announced recompletions of existing behind pipe undeveloped coal gas reservoirs over the next several months in order to quickly bring additional natural gas production online.
Javan Khazali, President and CEO of New Western Energy Corporation, stated, "We are encouraged by the success of the recompletion operations we have performed on the Fredonia Gas Prospect to date and we are even more excited about starting this direct off-set drilling program. The Farwell 34-D4 well will be the first of a planned three well drilling program that will not only allow us to bring on new gas production from this direct offset well location, but will allow us to gather additional information about the coal gas potential of our existing behind pipe coal gas reservoirs as we gather and analyze further information that will be gained through the drilling and completion of this well."
Based upon the recently prepared Estimate of Reserves prepared by Lee Keeling And Associates Inc., the Fredonia Gas Prospect contains approximately 1,185,530 MCF of proven remaining recoverable gas reserves.
About New Western Energy Corp.
New Western Energy Corp. is an independent energy company engaged in the acquisition, development, production, and exploration of oil, gas and minerals primarily in North America. To learn more about the Company, visit: www.newwesternenergy.com.