FPPC 1.60
This is the type of interview that moves a stock. Look at the details and projections.
twst.com
THE WALL STREET TRANSCRIPT
Questioning Market Leaders For Long Term Investors
RAY REAVES - FIELDPOINT PETROLEUM CORPORATION (FPPC)
CEO Interview - published 02/07/2005
DOCUMENT # ABA607
RAY D. REAVES, CEO and Chairman of the Board of the FieldPoint Petroleum
Corporation since 1989, has 15 years of experience in the oil and gas
industry. He began his career in 1986, with North American Oil and Gas.
Subsequently, in 1989 he purchased an interest in 10 of their wells and
formed Bass Petroleum, Inc. Under Mr. Reaves' management in the years
that followed, Bass Petroleum, Inc., gained majority control of the 10
original wells and acquired interests in another 60 wells. In 1998, Bass
Petroleum merged with Energy Production Corporation and, as a result,
FieldPoint Petroleum Corporation was born. FieldPoint has grown to a $6
million asset base with varying interests in over 300 wells and complete
operating control of 59 wells in three states.
Sector: oil & gas drilling & exploration
TWST: Would you start us off with an overview and history of FieldPoint
Petroleum?
Mr. Reaves: FieldPoint Petroleum is an oil and gas exploration and
production company with operations in Oklahoma, New Mexico, Texas and
Wyoming. Our strategy has been first, to grow through acquisitions and
development and second, to grow our reserves through the drill bit.
FieldPoint has successfully executed that plan. In this high oil price
environment, however, we're finding that deals are a little harder to
come by, so we've shifted our focus on drilling for reserves. Thus, we
are beginning a drilling program in Q1 of 2005 with a spud date of
approximately February 15, 2005. This 2005 program will begin in New
Mexico.
TWST: Why New Mexico? What's the appeal?
Mr. Reaves: The appeal there is that our leasehold has nice pockets of
gas reserves. We're going after deep gas ' in the 13,000-14,000 foot
range ' and those are long-lived reserves, meaning 20 plus years. That's
the real appeal of the region. Our focus has always been on long-lived
reserves, whether they be oil or gas, because we think that gives the
company more stability over the long haul.
TWST: Drilling for deep reserves is costly. What are these wells going
to run you?
Mr. Reaves: These wells should be drilling complete at $1.7-$2 million,
so they are costly. For that reason, we've enlisted partners. In the
case of the first well, FieldPoint has enlisted a major partner who will
put up a majority of the money. For example, if the drilling phase costs
$1.3 million and the completion phase costs approximately $400,000,
you're looking at a total cost of $1.7 million, of which $1.3 million
will be borne by our partners. Because FieldPoint controls the
leasehold, it will not participate in that $1.3 million in costs. If we
retain a 20% interest, we pay 20% of the $400,000 completion cost, or
$80,000, but don't have to pay any of the $1.3 million drilling cost. So
that bodes well for FieldPoint in the fact that if you hit a big well on
your first well, your cost basis is so low that you're probably looking
at a one or two month payback. Then, as you enter into the second well
of the program, where we have to pay our share of the drilling costs, we
can essentially cover that cost with the production from both wells.
Given the potential of the wells, the potential return definitely bodes
well for the company in terms of increased revenues, increased
production and increased cash flow.
TWST: Is that a sweeter than normal deal?
Mr. Reaves: I would say so, but only because we own what proved to be a
very attractive drilling site. Consequently, we're not exposed to any
drilling costs, which is really the expensive phase of drilling and
completing a well. Drilling is probably your largest expenditure.
TWST: Why were you able to get such a good deal?
Mr. Reaves: We are looking at deals all the time in terms of
acquisitions, and we acquired the leasehold in New Mexico on April 1,
2004. That property has a total cost basis to us of approximately $1
million, and we're currently cash flowing approximately $40,000-$45,000
a month from it. But we had to kiss a lot of frogs before we found one
that turned into something that we think is worthwhile. Going forward,
we feel like we're going to have to evaluate at least 75 to 100 deals
before we find one or two that make sense. I mean deals that make sense
from the standpoint of existing production, which equates into immediate
cash flow, that offer developmental opportunities, whether they are
behind pipe or other types of re-completion, and development
opportunities through the drill bit. New Mexico offered all three of
those. Our determination to find the right deal and willingness to walk
away from all the others has been critical to our success in building
the company. When a deal doesn't make sense and when they don't meet the
criteria we've set, we walk away. We have to have cash flow and a
certain rate of return for us to go forward with it. New Mexico met
those requirements.
TWST: What kind of return are you looking for?
Mr. Reaves: On average, we're looking for better than a 20% yield. If
you look at FieldPoint historically and you look at all the acquisitions
we've done, from the smallest to the largest, we have averaged
approximately a 24-month payout. In essence, if we put $1 million into a
deal, within 24 months we've gotten $1 million back, and that property
continues to generate cash flow. That has been the norm for us. With
this high oil and gas price environment, you're probably going to have
to stretch that equation out a little. Instead of 24 months, you may
have to anticipate 36 months, maybe 40 months or higher, depending on
the situation. But we have just not had the stomach to look at 50-month,
60-month or 70-month payouts. We don't think that fits our business plan
and if we don't see the opportunity in a deal to bring our money back in
quickly, we avoid it.
TWST: You say you're starting a drill program now. What does it look
like for the rest of this year and for next year?
Mr. Reaves: For the remainder of this year, if we drill four wells,
that's going to be a good target for us. We think four wells of this
magnitude could more than double our daily production on a BOE basis.
Going into 2006, our goal would be to drill an additional four to eight
wells. Having said that, bear in mind that we are also looking for
acquisitions that definitely will involve existing production and
existing development. So that's our goal for 2005, to drill a minimum of
four wells ' maybe more, but a minimum of four. Going into 2006, we'd
like to drill a minimum of four and probably a maximum of eight wells.
TWST: In terms of acquisitions, I hear that everybody's looking for
them. Are they not getting a little tough to come by these days at
reasonable prices?
Mr. Reaves: It's a very competitive environment, yes. That's why I
shared with you earlier the thought that we may have to expand our
horizon in terms of the rate of return and the payout that we're looking
for. Properties are going for outrageous amounts right now. People are
paying exorbitant prices for oil and gas properties and reserves, so
it's definitely more challenging to find low risk deals that have steady
cash flow & upside to grow production. But we have a strong balance
sheet. Our income statement is truly impressive for a company our size.
I think the stronger we get, the more we're going to be able to put
ourselves in a strong competitive position to go after bigger deals.
TWST: You mentioned the balance sheet. What does it look like at this
point?
Mr. Reaves: At this point, we're sitting on in excess of $1 million in
cash with debt of less than $1.5 million. We've got solid properties on
the books and total assets of approximately $6.5 million. We've got
equity of just over $4 million, and believe it will increase along with
our asset base as we continue to make money.
TWST: What has been the experience so far in the region where you're
drilling?
Mr. Reaves: EOG has drilled a well approximately a mile or a mile and a
half south from us. That well, from what I understand, produced
approximately 4 million cubic feet of gas a day in terms of gas
production in November, and averaged 4 million a day in terms of gas
sales too. I think the well is continuing to produce in the 3 million a
day category as of the first part of January.
TWST: So there's some evidence that there is gas around.
Mr. Reaves: There definitely is gas in that area. Obviously, you can hit
dry holes. But we do have some well control, and we do believe this is
an area that will be a very good project for FieldPoint to participate
in.
TWST: Do you have the technical expertise to give you confidence in
that?
Mr. Reaves: Yes, we do. We have geologists who have been studying this
for quite some time. Looking at their work, based on the geology and on
some of the activity in the area, it should bode well for us to
participate in this expensive exploration.
TWST: If we look out over the next year, what are the benchmarks or
milestones that investors should look for?
Mr. Reaves: I think increased production is number one. We currently
produce approximately 230-250 barrels a day BOE. We'd like to see that
increase to about 500 barrels a day BOE by the end of the year, and by
the end of 2006, we'd like to see that double again. So we'd like to go
from the 230-250 BOE a day we do currently to approximately 800-1,000
BOE a day by year-end 2006 or the beginning of 2007. Those are just a
couple of criteria, but I think if you can meet those criteria in
particular, you're going to start to see that equate into higher cash
flow, higher profitability and higher valuations for this Company.
TWST: Is the market appropriately valuing the company at this point?
Mr. Reaves: If you look at our earnings per share, for the nine months
ending September 2004 we earned approximately $0.05 a share, and let's
say we match the third-quarter results with fourth-quarter results. If
it's a match, that would give us approximately $0.08 a share for 2004 or
a 400% increase over 2003 earnings. I believe the market may be valuing
FieldPoint based on our existing assets and production, but may not be
assigning FieldPoint any value for the exciting drilling projects we
have planned and just recently initiated. As you know, high growth
companies tend to deserve higher multiples, so that's a tough question
to answer. I'm going to let the market decide the Company's valuation,
while I focus on improving the fundamentals.
TWST: Do you think the market understands what you're trying to do?
Mr. Reaves: I can't say that they understand what we're doing yet. But I
can say this. As we continue with our strategy, as we continue to seek
quality acquisitions and drill more wells, we plan to get out and share
with the marketplace, share with the capital markets what we're doing,
and we hope for a favorable response.
TWST: When you talk to your investors at this point, what's the key
question or concern you hear?
Mr. Reaves: The key question I hear is, 'Will you be able to continue
maintaining your current production levels?' They're not so worried
about increasing; they're worried about maintaining. The way you do that
is through development, through drilling and through acquisitions. But
we're looking to do more than just maintain. We want to increase our
daily production. With the right acquisition and some successful
drilling, we'll be able to not just maintain but increase production.
TWST: Where do oil prices have to stay to make this all work for you
from a return point of view?
Mr. Reaves: Let me say this, we're profitable at less than $20 a barrel.
We're basing our acquisition strategy on $28-$30 a barrel oil and $4-
$4.50 in gas. Anything above that, the company is very strong. If we
stay in the $40 range for oil and, let's say, the $5-$6 range for gas,
you're going to see our cash flow continue at a wonderful pace. With any
increase in production, you're going to see significant improvement in
cash flow.
TWST: So the current environment is very favorable for you.
Mr. Reaves: It's extremely favorable for us. $40 plus is a windfall for
FieldPoint Petroleum.
TWST: You're not alone!
Mr. Reaves: I'm sure we're not alone. We're just a really small company.
If you try to put together a public peer group, we're probably one of
the smaller companies in our category. So we're not on many radar
screens, and it's up to us to perform through sound management and an
acquisition and development strategy that will pan out for us. If we can
do that, I think we can move up to the next tier, meaning that we can go
from the OTC bulletin board to the AMEX or maybe even the NASDAQ small
cap. These are just some goals that we have. And I think, as we show
continued success, we'll be able to achieve those goals within the next
few years. And $40 oil should help us in any case.
TWST: When you sit down with potential investors, what two or three
reasons do you give them to take a look at FieldPoint at this juncture?
Mr. Reaves: Number one, we're undiscovered and therefore undervalued
relative to our earnings, cash flow and assets. Number two, our drilling
program in New Mexico should increase production, if successful. Three,
we're very well run. Look at the balance sheet. I think it's very
important that you look at the financials on FieldPoint, look at our
debt to equity, look at our income statement in terms of earnings and
cash flow. Those are really the main aspects of FieldPoint that I would
encourage investors to take a look at. If you do that, I believe you're
going to come away impressed. We are small. But when you're small, it
doesn't take much for you to double and triple the size of your company,
and that's what we're hoping to do.
TWST: Can you remain independent or are you likely to become a target?
Mr. Reaves: That's up to the market. Our goal is to continue to add
value. If someone can see that value, recognize that value and wants to
pay up or wants to propose a deal to us, obviously, I'd take it to the
Board of Directors and let them make that decision. But at this point in
time, our strategy is to grow this company, take it from the current
$6.5 million in assets to, let's say, $20-$40 million in assets over the
next three to four years.
TWST: You have been buying shares personally in the market even though
you already have a sizeable stake in the company.
Mr. Reaves: As of my last purchase in November, I own 2,905,000 shares
or about 38% of the outstanding shares. I think it's important for
management to be willing to step up to the plate with their own money
and align their goals with their shareholders. I'm buying shares just
like any other investor with the belief they will yield me a good
return.
TWST: Thank you. (TJM)
RAY D. REAVES
Chairman & CEO
FieldPoint Petroleum Corporation
1703 Edelweiss Drive
Cedar Park, TX 78613
(512) 250-8692
(512) 335-1294 - FAX
www.fppcorp.com
e-mail: fppc@ix.netcom.com
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