Material Change Report / Tier III Portfolio
This notice also serves as a correction to the chained message where I transposed numbers.
The financial numbers remain the same.
These are the follow up comments in regards to the companies that I acquired shares of.
Keep in mind, my comments are just to provide some detail regarding these companies which I
believe offer superior returns on investment. Keep in mind, this is just one persons
opinion - this time it is mine. My objective is just to draw attention to these companies
for people to perform due diligence upon.
E3 Energy
TSX: ETE
Purchased 2500 Shares at $1.25/Share
Total Amount $3125.00
Company has made progress to date in establishing and sustaining production.
Production increased from 409 boed in the second quarter to 756 boed in the third quarter.
Current production is 1100 boed.
Cash flow is now over $1.0 million a quarter and I am estimating that cash flow will be
in the neighborhood of $2.2 to $2.5 million at the end of 2004.
For fiscal 2004, the Company is currently anticipating to incur approximately $11 million in
internally generated exploration and development ("E&D") capital expenditures, reflecting a
36 percent increase over the estimated level of E&D spending in 2003.
There are 39 million fully diluted shares outstanding.
Bank debt is currently $5.5 million and they have another $3.5 million to draw down upon if
desired. That could be in the form of a property acquisition and if such property
is producing with future exploitation and development characteristics, the move would
further enhance reserves, net asset value and thus, share value.
The added debt, coupled with current debt, for year ending 2004 would amount to $9.0 million
in comparison to annualized 2004 fourth quarter cash flow of around $8.0 million. This
estimate results in a favorable debt to cash flow multiple and completely ignores cash flow
growth in year 2005.
It’s difficult to label a young company upstart as a value play – but that is exactly what
it is.
The company has applied to be listed on the TSE.
My 12-month share Price Projection is $1.85
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Expedition Energy
TSX: XPD
Purchased 7500 Shares @ $0.40/Share
Total Investment $3000.00
Another Upstart Company That I like.
How this company formed is as following
www2.ccnmatthews.com
&
www2.ccnmatthews.com
In late September Expedition Energy Inc. (formerly ABX Resources Inc.) completed a five to
one consolidation of its common shares and changed their name to Expedition Energy Inc.
Scott St. John was the sole person behind the company, serving as President and CEO.
He has 24 years of experience and was the former President of Mesquite Exploration.
Mesquite started out very similar to this start-up company – starting with 40 boed
and going to 1835 boed before being sold to High Point Resources for $48.5 million.
In mid-November, Expedition announced the appointments of Alan R. Bamsey as Vice President
of Operations, and Greg M. Dyble as Manager of Exploration & Development.
Alan Bamsey is a professional engineer with over 25 years experience in the Canadian oil and gas
industry and has extensive experience in exploitation and reservoir engineering, drilling and
completion activity, property evaluation, acquisition & divestiture, and production operations.
He was most recently employed as Vice President of Engineering & Operations with Lexxor
Energy Inc., contributing to Lexxor's growth from 900 boepd to 2500 boepd in a 2 1/2 year
period.
Greg Dyble is a professional geologist with 26 years of progressive geological experience
in exploration and development, vertical and horizontal wells utilizing overbalanced and
under balanced drilling in the Western Canadian Basin. His skills most recently (since July 2000)
at NAL Resources, Murphy Oil, National Fuel Exploration and Rio Alto Exploration. During
this time Mr. Dyble was responsible for adding 18 bcf of gas reserves and evaluating three
existing pools for further development, all in central Alberta.
On December 17, Expedition announced they had completed short form offering financing for
gross proceeds of $1,960,000 to be used to fund Expedition's exploration and
development program in Alberta and Saskatchewan.
Expedition issued 4,000,000 units, each unit consisting of one flow-through share and one
flow-through share purchase warrant at a price of $0.49 per unit. One flow-through share
purchase warrant will entitle the holder to purchase one flow-through share at a price of
$0.80 per share, if exercised on or before December 15, 2004. This established 12.9
million shares outstanding and, a fully diluted amount 19.1 million shares.
With a new team in place, the company will be pursuing low to moderate risk development drilling
on their acreage with focus on natural gas. They will also actively pursue joint ventures and
farm-in situations.
Expedition’s immediate plans are to be active in the Highvale area of Alberta. They have
purchased 250 mcfd which was shut in due to facility constraints. They are planning
to increase acreage, expand infrastructure and drill there in first quarter of 2004.
Their 2004 CAPEX has been announced and consists of $765,000 for land, 2,833,000 for
drilling and $600,000 for facilities and #3,000,000 has been earmarked for acquisitions.
This totals 7,198,000 and in comparison, only $1,340,500 was expended in their 2003 short
year of operations.
Expedition anticipates exiting 2003 with production of 75 boed. With 2004 established
projects, they see an exit rate of 475 boed in 2004. That’s a hefty increase by any
measuring stick. Natural gas will consist about 62.5% of the total.
Expedition has forecasted 2003 cash flow to amount to $2.2 milion or, $0.125/share.
Assumptions for 2004 are US$24.00 WTI, $20.25 Heavy Oil and $5.25 natural gas. Based
upon their estimate of 2004 fourth quarter estimate of $0.20/share, when annualized –
is $0.20 share for 2005. Keep in mind, this stat completely disregards any
growth in 2005.
The company has gone as far as to estimate that their net asset value at the end of the year
2004, will be in the vicinity of $14.5 million which equates to $0.83/share.
My 12-month share price projection is $0.80 which is in line with the estimate net asset
value and forward cash flow estimates.
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Rio Alto Energy International
TSX: RXI
Purchased 2000 Shares @ $0.84/Share
Total Investment $1680.00
This purchase adds to the existing holdings which now total 6000 shares. I had previously purchased 4000 shares at a price of $0.68/share.
Rio Alto is a market laggard. Share price is not advancing as with most other junior oils. It is my belief that this is a combination of two reasons - temporary production problems in South America, along with the unpopular sentiment towards international junior oils.
Rio Alto has resolved their problems in South America – but is experiencing decline in production. I believe cash flow and earnings will return to attractive levels – in comparison to the share price.
Therein lays the reason I really like Rio Alto. This is a cash flow generating cow. Their game plan is simple and straight forward – pour the larger portion of cash flow into Western Canada. They are doing a good job with that objective in mind. Thus far they have accumulated 30,000 acres of real good prospect value and have begun to work that acreage.
20,000 acres is held in the Kakwa area of Alberta. They have had a natural gas discovery there and have added another producing well. Production is averaging a net 600 mcfd per well. Another focused area is Bigstone where they have put two wells on production with a net 650 mcfd average for each.
I firmly believe this is the start of something that is going to be huge for the company. Long term outlook is real positive in my eyes. The company expects to spend $20 million in the first half of 2004 - $17 million of that total for Western Canada.
The company has no debt and a significant amount in cash surplus. I believe Rio Alto has positioned itself for giant strides related to growth in 2004.
My 12 month price projection is $1.30/Share and is subject to revision to the upside based upon results of the first 6 months of Canadian activities.
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Disclaimer: I have actually taken personal positions in E3 Energy and Expedition Energy, in addition to providing model portfolio acquisition of shares in this company. |
