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A previous article discussing comparative reserves of "pure-play" Mississippi Lime E&P Companies mentioned Osage Exploration (OTCQB:OEDV) but could not go into detail regarding Osage because Osage had not yet released its 2012 reserve report. Since then, Osage has released its report. Osage is one of the top performing publicly-traded Miss Lime pure plays in the past six months, second only to Petro-River (PTRC or GRAVF.PK), and thus its reserve report merits an update, particularly since valuations of other companies mentioned have changed in the interim.

Osage's reserve report can be seen here:

(click to enlarge)

Remarkably, despite a $76 million market cap and $79 million enterprise value, Osage only has $20 million in proved reserves. (also interesting, there is a mistake in Osage's 10-k, which is where this reserve report was located - it can be seen in the 2012 "Columbia" column in the bottom row - the number should be positive, not negative). Osage is trading at 4x its proved reserve value, similar to Red Fork's 5x multiple, and at a premium to SandRidge's (NYSE:SD) ~1x multiple and AusTex's (OTCQX:ATXDY) 0.4x multiple.

A close friend of mine likes to say "people will do anything to avoid reading a 10-K". While searching for Osage's proved reserve report in its 10-K, I came across two paragraphs that should be read by every investor and propsective investor in Osage -

The company has an accumulated deficit of $8,074,786 and a working capital deficit of $643,843 at December 31, 2012. In 2011, we recognized a one-time gain of $3,109,646 from assignment of leases in Logan County, Oklahoma. Our operating plans require additional funds that may take the form of debt or equity financings. There can be no assurance that any additional funds will be available. Our ability to continue as a going concern is in substantial doubt and is dependent upon achieving a profitable level of operations and obtaining additional financing.

We anticipate we will need to raise at least $10,000,000 to sustain operations over the next 12 months, with the majority of the capital being used to drill additional wells in Logan County, Oklahoma. At present, the revenues generated from the Cimarrona and Logan County properties are only sufficient to cover field operating expenses and a portion of our overhead. We have undertaken steps as part of a plan to improve operations with the goal of sustaining our operations for the next 12 months and beyond. These steps include (A) assigning a portion of our oil and gas leases in Logan County, Oklahoma (B) participating in drilling of wells in Logan County, Oklahoma within the next 12 months, (C) controlling overhead and expenses and (D) raising additional capital and/or obtaining financing. There is no assurance we will successfully accomplish these steps and it is uncertain we will achieve profitable operations and/or obtain additional financing. There can be no assurance any additional financings will be available to us on satisfactory terms and conditions, if at all. In the event we are unable to continue as a going concern, we may elect or be required to seek protection from our creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.

Most small E&P companies are risky and dependent on outside capital to finance their operations, but this operating deficit and cash need seems particularly challenging. This compares unfavorably to Sundance (OTCPK:SDCJF), which is active in the Miss Lime, among other plays, and which has over $100 million in cash. And it compares unfavorably to Sandridge, which has billions in liquidity after its Permian sale and Austex, with its drilling program now fully financed by cash on hand (roughly $10 million) and cash flow.

On an enterprise value versus production basis, Osage also doesn't compare favorably. It is currently producing 240 boepd net, versus an $80 million enterprise value, and is projecting production of ~400 boepd by the end of 2013. So on a run rate, it is trading for ~$333,000/boepd and on an exit rate, it is trading at ~$200,000/boepd. This compares to Sandridge and Sundance at approximately ~$115,000/boepd for exit 2013, and Austex at ~$60,000/boepd for exit 2013.

None of this is to say that Osage is a "bad" investment. It is certainly risky, as indicated by the note in the 10-K, and it may need to raise capital, but it has achieved great well results, similar to Austex. However, it is more richly priced than some of its peers, particularly Austex. Both Osage and Austex are small companies which incur additional investment risk. Caveat Emptor.

Source: Mississippian Proved Reserves Update: Osage Exploration