Richard / Probe
Probe is talking about 2 cents /share in 1996, and 20-24 cents in 1997.
No kidding it's trading at a high multiple -- $1.03 at the close Tuesday.
Their story: They were originally known as a heavy oil company -- their
first core property was at Kitscoty, Saskatchewan. Not only was it heavy
oil, they weren't producing very much. Now they've done steam injection
through some existing vertical wells, so the output from the field is up quite
a bit, which will bring costs down in and of itself. Second, they foucssed
on light oil in their exploration this year, and were successful. The
current profile is 56% light oil, 28% gas, and 16% heavy oil.
Price projection for next year is $18.35/boe, vs. their estimate of $16.36
for this year.
The presenter was Stephen Gibson, the president. He was very candid that
they were one of the high cost producers - "we've been great at finding,
and lousy at lifting". That is a priority for them, but the increase
in light oil in the mix is supposed to be part of the answer.
He also said that their production reached 1,000 boe/d yesterday.
FWIW, he indicated that their target for YE 1996 is 1,800 boe/d. Yes
the end of calendar 1996.
You probably have the projections for '97, but I'll throw out a couple
of figures here. Average production of 2,008.5 [sic] boe/d, vs. 387.26
average in 1996. On that basis, we're talking a five-fold increase in
the average, but a doubling relative to today. I don't have their exit
forecast for '97. The currently have 86,000 acres, on which they will
drill 17 wells.
Gibson made a favourable impression. Asked how they intended to finance
their $16 million capital program for 1997, he said something to the
effect, "I've got a million and a half shares in this company, so I'm
not interested in dilution any more than you are." At another point,
he reiterated that he is in this for the same reason that everyone else
is -- to make money on the shares. Is that sincere? Who knows, but
at least he's making the right noises.
One issue that maybe you can help me with. This presentation introduced it
in a sort of back door way, but I haven't heard any other junior producer
mention it. Gibson made a big deal about not participating in the
Crown auction process, saying that they'd do practically anything else
to get land, including going after abaondoned properties (which Probe did
at Leduc). My question: when they take over a producing well that
was spudded 40 years ago, in the days before environmental standards,
are they budgeting for site reclamation costs? Some of these sites
are likely to be a real mess - drilling mud, petroleum, heavy metals,
etc, etc. With the current regulations, it could cost many millions
of dollars to get out of the site. Have you looked into this at all? |
