Look what I just found on the OEL web site at ospreyenergy.com
THAMES CAPITAL CORPORATION
Singapore - Perth Australia - Toronto Canada
INVESTMENT UPDATE SEPTEMBER 12, 2000
OSPREY ENERGY LTD.
Symbol: OEL (CDNX)
Recent Price: $2.40
52 Week High/Low: $2.55-$0.36
Share Capital:
Basic 6.7MM
*Fully Diluted 11.1MM
Market Capitalization: $16.1MM
Market Float: $14.0MM
Managers/Directors own: 13%
Charts: Courtesy of The GlobeInvestor.com
Report prepared by: Grahame M. Notman, Senior Oil and Gas Consultant Tel: (416)-350-3528
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HIGHLIGHTS
In my initial research report on Osprey Energy in December 1999 (OEL $0.60) and a subsequent investment update in June of this year (OEL $1.00) we outlined the potential impact on the company from its activities in oil and gas development in Louisiana. Osprey’s corporate objective is “to continue to pursue opportunities in the Oil and Gas market place to enhance shareholder value by increasing cash flow and building reserves”. Through its association with its joint venture partner BPR Energy, this objective is on target.Operations in Louisiana continue to expand with BPR Energy. This company’s President, Bernard Robichaux, has extensive experience running and developing oil and natural gas production in Louisiana and has a strong working relationship with many of the major oil companies operating in that State. A key point in Osprey’s development is Mr. Robichaux’s expertise in enhancing production from wells previously determined to be uneconomic and non-core based upon the investment by the previous operators.
Osprey is involved in three areas in Louisiana, the Cotton Valley trend in the north, and the Bayou Choctaw and Livingstone fields in the south which were all initially acquired by BPR.
The Cotton Valley play, the largest of the three fields, covering over 20,000 acres in four counties, was acquired from the previous operator Union Pacific Resources (UPR). This company drilled nine Austin Chalk wells (total depth of over 18,000 feet), three Cotton Valley wells (14,000 feet deep) and one salt-water disposal well. Each of the wells cost between US$6 to US$7 million to drill and complete. Eleven of these wells were initially tied into a natural gas gathering system and produced during 1997 and 1998. UPR shut the field down after production declined to uneconomic levels relative to the funds expended coupled with the then low price for both oil and natural gas. Anadarko, a large producing company, is one of the most active companies in the Cotton Valley trend and has had significant success re-completing uneconomic gas wells in the Vernon field which offsets Osprey’s acreage. One such well (Exco Resources #1) had marginal production until Anadarko stimulated the reservoir with a new patented fracing technique and the well tested at a flow rate of 8.5MMcf/d.Through an association with Anadarko, which is presently operating the partnership’s Giddens well (50/50), BPR is confident that this application can be used successfully on many of its Cotton Valley wells. Osprey commenced production from six wells and has scheduled three additional wells for completion before the end of December. Osprey paid US$1 million for a 75% working interest in Cotton Valley, which included all the production equipment and the gathering facilities. This interest reverts to a 50% working interest after it recovers all of its costs (payout).
The Bayou Choctaw field and the Livingstone field are located just outside the city of Baton Rouge, the centre of the oil and gas industry in Louisiana. Osprey initially acquired a 15% working interest in these two properties. However, after reviewing the well logs and a 3-D seismic evaluation of the Bayou Choctaw field with its US consultants, Osprey acquired an additional 45% working interest by paying US$300,000. These funds are being used to complete remedial work on the property. To date five wells have been reworked and are producing in excess of 100bbls/d of oil and 200Mcf of gas. This production rate is expected to increase as gathering facilities and pipeline refurbishment is completed and an additional seven wells are put back on production before the end of the year. Each of the wells is expected to produce more than 75bbls/d and Osprey will receive 100% of the net revenue until payout. Subject to obtaining additional financing there is extensive acreage available to BPR in the area.
The Livingstone field basically consists of two wells and the necessary production infrastructure built by the previous operator, Occidental USA (OXY). This company spent approximately US$7million on each of the two wells, which were drilled and completed horizontally in the Austin Chalk in mid 1997. The initial production from the two wells – 725bbls/d of oil and less than 1MMcf/d of gas- which then declined to less than 100 bbls/d, was not considered high enough by OXY and the field was sold to Union Pacific Resources (UPR) in a package of properties. BPR acquired the Livingstone field as it felt that the wells would respond to a workover technique used successfully on similar wells. BPR expects production to recover to around 300bbls/d before the end of the year. Osprey holds a 30% interest in this field.
The present production from the three Louisiana properties is around 550BOE/d of which natural gas accounts for 35%. Although this is somewhat behind schedule from previous forecasts Osprey still anticipates that this first stage of development will increase its production to 1,175BOE/d of which natural gas would represent 60%.
The other joint venture for Osprey is its 5% interest with Crestar in the Jenner field in southern Alberta. The first 12 well program has been completed and production is approximately 1,800bbls/d (90bbls/d net to Osprey).
Osprey's total production base of around 1,275BOE/d is forecast to increase its 2001 cash flow to almost $12million ($1.10/share). However, to achieve this level of cash flow Osprey will need to raise an additional C$2million over the balance of 2000. It is actively pursuing different forms of such a financing and is optimistic that the necessary funds will be raised. Helping these financial negotiations is the fact that the preliminary reserve estimates for the Louisiana properties are almost 10BCF of gas and 3.5MM bbls of oil,net to Osprey. Using a reference price for oil of US$25.00/bbl and for gas US$3.50/Mcf results in a NPV (discounted at 10%) of $4.50/share.
Based on the outlook for a rapid acceleration in the company's growth in both cash flow and reserves, exclusively from development drilling, i.e. no exploration risk, the shares appear significantly undervalued.
This report contains information that has not been approved by any Securities Commission. While the information in this report cannot be guaranteed, it was obtained from sources believed to be reliable, but in providing it, Thames Capital Pte Ltd. and Thames Capital Corporation do not assume any liability. All statements, other than statements of historical fact, included in this report, including, without limitation, statements regarding potential reserves, exploration results, and future plans and objectives of Osprey Energy Limited, are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Thames Capital Pte Ltd. and Thames Capital Corporation, its officers, directors and employees may from time to time acquire, hold or sell a position in the securities mentioned herein. Within the past 12 months Osprey Energy Limited retained Thames Capital Pte Ltd. and Thames Capital Corporation as its financial advisors.
This report is intended for information only, and should not be considered as advertising for the purposes of offering of securities by the issuer mentioned herein. The use of this report should not be construed as a recommendation to purchase or trade the shares of Osprey Energy Limited. Thames Capital Pte. Ltd. and Thames Capital Corporation assumes no liability for any investment losses as a result of the contents of this report and investors are advised to consult with their registered financial advisers prior to making an investment in the securities of Osprey Energy Limited |
