Disclosure: I have no existing or prior relationship with American Sands Energy Corp. I am a shareholder.
Over the past month, I've had several conversations with William Gibbs and Daniel Carlson, CEO and CFO respectively, of American Sands Energy Corp. (OTCPK:AMSE), of which I'm a shareholder. Assuming the conversion of all Series A preferred shares into common, AMSE has a market cap of approximately $50 million, and no debt. Readers should take a few minutes to review the company's corporate presentation. On page 11, the company estimates that by 2017, it could generate $39.4 million of annual EBITDA from its initial-phase 5,000 barrels of oil per day "bopd" operation. That's based on an assumed $80 WTI oil price, compared to the current WTI price of $104. The company plans to operate at 5,000 bopd for about 4 years while it builds a much larger facility, which would allow for the production of 50,000 bopd.
Please note, American Sands Energy is an early-stage company in Utah looking to become one of the first companies to mine oil sands in the U.S. As an early-stage, small market cap company, readers should do proper due diligence (including a review of the company's corporate presentation and its SEC filings) and consult with an investment advisor. Further information can also be found at the company's website. A good video clip of the company's pilot plant in action can be found here.
Mr. Gibbs, thank you for your time. Can we start with a brief overview of American Sands Energy?
American Sands Energy Corp. is a pre-production oil company with oil sands resources located near Sunnyside, Utah. We are committed to the safe, clean and profitable extraction of oil from oil sands deposits in North America using a proprietary technology. We have leased oil sand deposits in Utah, containing approximately 150 million barrels of recoverable bitumen. We employ an environmentally-friendly solvent extraction process that produces no tailings ponds, as our process uses no water. We expect to be in commercial production by the summer of 2016.
Can you talk about the efforts of Amoco and Chevron on your property in the 1980s & 1990s?
Yes. A compelling aspect of our company is that Chevron and Amoco probably spent $30-$40 million (on drilling alone) on our property in the 1980s-1990s. These companies drilled a total of 189 holes and did considerable engineering work. In fact, Amoco delivered a full-blown mining plan for both a 25,000 and 50,000 barrels of oil per day "bopd" mining operation. We have access to all this information, and a great deal of this historical data was incorporated into the mining permit application we submitted about six weeks ago.
How is your licensed technology/process different from oil sands operations in Canada?
That's a great question. There's a key difference between oil sands deposits in Canada and the oil sands deposits we are targeting. Canada's oil sands are called "water wet," because they are saturated with water. In Utah, the oil sands are referred to as "oil wet," and are "wet" with hydrocarbons, not water. The deposits are, in fact, very dry and, for a frame of reference, resemble oil-impregnated sandstone. Our process, for which we have an exclusive license in Utah, uses a proprietary solvent solution that liberates the bitumen from the sands. If there's a single takeaway from this interview, it's that our process does NOT use or produce water, and therefore, we will not be creating any tailings ponds. Let me repeat that, no tailings ponds. Without the need to handle and remediate vast quantities of water, we believe our projects will be economically superior and more environmentally-friendly than other oil sands operations. For example, the energy costs we incur could be as much as 60% lower than mining operations in Canada, which require expensive steam generation facilities. And, our capital required to begin operations is significantly lower, without the need to plan for, design, permit and build wastewater tailing ponds.
You currently have access to a contingent resource of 150 million barrels of oil. Can you grow the resource?
Yes, we can. We have taken the appropriate steps to lock down a sufficiently large resource (150 million contingent barrels) to get us well underway. However, our leases are only a portion of the total Sunnyside deposit, which consists of a large, contiguous resource of about 1.1 billion barrels. Of those incremental barrels at Sunnyside, approximately 475 million barrels are in private hands. We are in contact with these holders about acquiring or leasing their property, and believe that when we're ready, obtaining access will not be a problem.
How much of the future value of the company could come from activities outside of Utah?
We target only the "oil wet" oil sands deposits, of which Utah is a major source within the U.S. We are looking at opportunities to acquire assets outside of Utah, and in fact, outside of the U.S. We believe that there are dozens of deposits highly amenable to our licensed extraction technology. For now, the overwhelming majority of our time and capital is devoted to Utah. As our Sunnyside project continues to be de-risked, we see the value (to AMSE) of these other opportunities as growing stronger. In most cases, few if any viable alternative solutions exist for these oil sands deposits, so the opportunity is not running away from us.
American Sands Energy recently submitted a Notice of Intention to Commence Large Mining Operations, essentially a Mining Permit application. Please explain the process by which this application will be reviewed by the State of Utah.
On March 6th, we submitted our Notice to Commence Large Mining Operations application, a culmination of years of hard work by us, and drawing extensively upon the considerable efforts of Amoco and Chevron in the 1980s & 1990s. We are very lucky to be working with very talented people, both in-house and through third-parties, that helped us in this all-encompassing process. The main agency we are dealing with, the State of Utah's Division of Oil, Gas & Mining "DOGM," is highly organized and professional. We will continue to have periodic conversations with DOGM as they deem appropriate. We will provide them with any additional information they require and answer any questions they may have.
To what extent is the Bureau of Land Management (BLM) and/or other Federal agencies involved in the permitting process?
Another good question, thank you. No matter how many times we tell our story, investors continue to assume that we face difficult and time-consuming interactions with the BLM and other Federal entities. This simply is not the case. From a permitting perspective, virtually everything we need to begin operations is accounted for in the mining permit application that we submitted on March 6th. While we expect routine back and forth conversations with the State of Utah's Division of Oil, Gas & Mining, "DOGM," our plan is to have all permits and approvals in place within 9-12 months, and to commence mining 6-9 months after that.
Some have voiced concern regarding how American Sands Energy will get its bitumen to market. Is this a potential problem?
We don't think this will be a problem. Our site is located about 150 miles from Salt Lake City, which has close to 200,000 bopd of refining capacity. In the past, as much as 40% of Salt Lake's feedstock came from the Canadian oil sands, with which our bitumen is very comparable. Initially, we expect to truck 5,000 bopd, approximately 30 trucks a day, to the Salt Lake City refineries. We are just 7 miles from rail, which would expand our options to include refineries in California, Texas, Louisiana and even the East Coast, if the economics made sense.
Since underground mining of oil sands is not done in Canada, how feasible is that approach in Utah?
We believe our approach to mining is very feasible. Our confidence in this comes from the work done by us and a number of third-party mine engineering firms. Multiple highly-qualified firms contributed to a number of comprehensive studies and designs that were included in our mining permit application. Underground mining of coal deposits has been going on for decades in Utah, creating an ample supply of local contract miners. We don't feel as if we are pushing any limits in this respect.
Your Chief Operating Officer was quoted as saying that first commercial oil might be achieved "in the summer of 2016." What events could delay that time frame?
Delays in getting permitted and difficulty raising capital are the two main risks. We've already discussed the permitting process and how long we think it might take. Even if we run into delays on permitting, we can still move forward on a dual track with some of the initial mine development work (before breaking ground). We remain comfortable with our summer of 2016 estimate for first commercial oil.
Upon the closing of your Series A preferred deal, how many months is American Sands Energy funded for?
It really depends on how aggressively we move on the project. If, for any reason, we need to slow our timetable, we think that we are funded for up to 24 months. Investors know that we have an important capital raise ahead of us; if permits come in as expected, in 9-12 months we could be looking to raise the capital required to commence operations.
Roughly how much capital will be required to get the proposed 5,000 bopd plant and associated mining operations up and running?
$75 million would fully fund us through production and sales of first oil. If necessary, we could move forward with less. The amount we raise is highly dependent on market conditions. If capital markets are agreeable, we could also look to raise more than $75 million, giving us the ability to acquire or lease contiguous property and pursue oil sands extraction opportunities in other jurisdictions.
Might you be able to raise a portion of that capital from non-equity sources?
Yes, it's certainly possible that we will be able to get a portion of our capital needs from non-equity sources. But again, that will only be determined by market conditions 9-12 months from now. While we would like to raise both debt and equity, we are assuming that it will be all equity. One simple example of non-dilutive capital that may be available to us is equipment financing. We have had preliminary talks with a few suppliers. That alternative might be tied to the final issuance of permits and/or an equity raise.
Thank you again for your time and thoughtful answers. In summing up, what key points should my readers leave with?
It was my pleasure. Thank you for your interest in American Sands Energy. I think we covered a lot of ground today. To sum up, I simply reiterate that we have an extraordinary opportunity to be among the first oil sands companies in the U.S. Our licensed technology does not use water, and therefore, avoids the huge financial, environmental and political concerns surrounding tailings ponds. Our resource of 150 million contingent barrels is significant, and can be expanded by an additional 475 million barrels when the time is right. We hope to be in production at a run rate of 5,000 bopd in 2016. While AMSE is a early-stage investment opportunity, we believe that the upside in our company's valuation could be substantial, if we achieve our targets in coming years.
Disclosure: I am long AMSE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.