Petro Resources: Wall Street Analyst Forum Presentation Transcript

Feb.13.07 | About: Petro Resources (PRC)
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Petro Resources Corporation (PRC)

Wall Street Analyst Forum

February 13, 2007 10:30 am ET

Executives

Gerry Scott - President of Wall Street Analyst Forum

Don Kirkendall - President

Presentation

Gerry Scott

Good morning, ladies and gentlemen. I'll try to adhere to the public schedule as much for the webcast attendees as for the physical attendees. So I'd like to welcome the investors who are listening and viewing the webcast on either a live or retrieval basis.

And as I mentioned earlier this morning, this is the first analyst conference for us and the first analyst conference that we're aware of that's actually doing a web searchable transcript of every single presentation and Q&A. So if you go on to Google Finance, Yahoo Finance, AOL Finance, or you go in the SeekingAlpha.com, they are the folks doing the transcription, you can actually access the presentations over the Internet, both by webcast, but also now on a web searchable basis by transcript.

So I'd like to introduce the next company in this morning's program, Petro Resources Corporation. They are American Stock Exchange listed company. They are independent exploration and production company headquartered in Houston, Texas, and is focused on the exploration and production of domestic natural gas and oil reserves as a non-operator.

Their primary areas of interest are in the Gulf of Mexico, Texas, Louisiana, North Dakota, Colorado and Kentucky with a specific goal of aligning exploration efforts with very successful operators, each showing a unique set of advantages or expertise in their particular area of the exploration.

Although PRC was formed approximately 18 months ago, it's been diligently building a comprehensive drilling prospect portfolio that is both geology and geographically diversified, which is quite unique among small exploration companies. PRC has recently announced a series of successful wells from several different prospect areas to successfully -- two additional development drilling, booking new reserves and more important -- most importantly, significantly increasing revenues in 2007.

So without any further introduction, I'd like to introduce Don Kirkendall, President of Petro Resources.

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Don Kirkendall

Thank you, Gerry. Good morning. I am Don Kirkendall, President of Petro Resources Corporation. It's our first trip to New York to address the Wall Street Analyst Forum. We appreciate the opportunity here.

See if I can run through the PowerPoint. We are a diversified oil and gas exploration company. We are a non-operator, which means we do not physically operate the properties that we invest in. Our mission in the market is finding well qualified operators that allow us to diversify our portfolio without having to deal with the day-to-day operations and scheduling of the drilling, scheduling of production equipment, and cruise and such.

Our forward-looking statement, I am sure you've seen that before. We'll get right to the point.

Why would you consider PRC as an investment? We are a small company but we are growing rapidly. Management is experienced, but we're driven to succeed. I've got 26 years oil and gas experience. The CEO, Wayne Hall, has got 26 years in exploration. We both have built companies in the past, and we feel we can certainly do the same today for PRC shareholders.

PRC, although we're small, I think you will see that -- we'll give you a big oil-type diversity with small company focus when we get into the -- our prospect base, you can see our map. I think you'll be impressed at how diversified a company we are and we built this diverse in a very short period of time with a small staff.

Our exploratory drilling is finding reserves with both onshore and offshore in the Gulf of Mexico, which is very unique for a company our size. Again, our prospect portfolio is diversified enough to help reduce overall risk. A lot of small companies bet too much on drilling in one area, and it can be the death now for some companies, and we are not going to do that.

Again the portfolio is also large enough to ensure long-term development. It doesn't do any good to hit one good well, if you can't follow it up with more developmental drilling in the area.

A little bit on our capital structure there, just under 20 million shares out, 7.7 million warrants, no preferred, no debt. We do trade on the American symbol "PRC." Daily volume about 11,000 shares. The past couple of weeks or so, volume is up beyond that. Market cap is about $60 million.

A quick look at the balance sheet. You can see total current asset as of 9/30 about $7 million. Almost all of that is cash. We raised money from two pipes, both being registered about a year ago. And so we've been able to shepherd $14 million into the company that we show you today.

I like this graph -- this photograph not only because I took it, but I think it very graphically demonstrates what the company has done. Actually when I took the picture, I didn't realize it was doing to be -- I could use it as a graph. But when I saw it in the field, I thought that looks just like a graph. Well, it's amazing. Sometimes luck works.

But over the past year, year and a half while we've been trying to gain a little traction in the business, taking small pieces of deals here and there, you can see that our production has been relatively minimal. And probably, later on the first quarter here, we get our North Dakota acquisition closed, we should be looking at about 1,200 mcf a day from both onshore and offshore and about 300 barrels a day net to our interest, which for a small company is considerable production.

On the right side we have our cooperate milestones. We got started in July of '05. Our two pipes are shown there in a 11/05 and 2/06. They were registered together in the same SB filing. May, we seated our Board and a very well qualified board it is. I urge you to take a look at our website -- and I'll give you that address later -- you can look at our Board members bios, but a very impressive group. In August '06 we moved -- offered the print sheets on the American on the symbol "PRC."

Quick look at exploration milestones. Well, I'll show you a map on this later. But we're seven of nine wells in the Gulf of Mexico with two drive holes which is not a bad record. Four out of four wells in the Canyon Sand, which is in Crockett County. We are drilling right down the New Albany Shale, two wells down, look pretty good. We have a third well drilling right now. Just brought on a James Lime Discovery, and our Williston Basin acquisition is pending right now.

Our goals, strategy and our business model. Our business is no different than anybody else's in oil and gas. We're trying to find gas reserves for less than $2 for mcf and $12 a barrel. That will translate into growth for our shareholders and proved growth of the reserves.

Our strategy is somewhat unique. We don't want to operate necessarily. I have developed an operating company in the past. Operation is not always cracked up to be. It's a lot of -- gentleman is laughing knowingly. Have you done that?

Unidentified Audience Member

No, but I know about that.

Don Kirkendall

Yes. Operations give some people the illusion of control. There is very few operators that really have control over their business today. Well, what we try to do is we try to find very well qualified partners to operate with across the country. And we've a done a very good job of doing that and we build the company diversified through their expertise.

We're growing production reserve growth by finding underexploited place. We can't compete with the Kerr-McGees or Anadarkos now in the world. We have to find those underexploited place and work on them. We control our overhead cost by minimizing staff and limiting extraneous cost. And when I say extraneous cost -- pick a resource, we have salaries. We have no benefits. We have no insurance. We had no 401(k). I mean it's a barebones operation. And I think you'll see that for a company of four people we're doing pretty well.

Some people argue that non-operator model isn't -- doesn't necessarily work. But I think I can show you that indeed the non-operator does work. We've been able to attract the necessary capital. Our portfolio, you will see, is comprehensive and our drilling is showing successes.

Little more on the model. We acquired ready-to-drill prospects and leasehold opportunities. We screen the industry for qualified operators to drill with. And we don't contend with the day-to-day well operations.

The advantages. We can leverage our operating partners into very unique areas to drill. Our business is easily scaled up, simply by taking larger working interest positions. If we find something that we want to really take a big chunk off, we can negotiate a bigger working interest position. All it takes is the capital. The non-operator model is better allocation of capital. We put more in drilling and less in overhead. And to better allocation of time, we can put more in business development and less on administration and the large staff.

Again, I urge you to look at our website, which is www.petroresourcescorp.com and then turn to last page as well. Wayne Hall, CEO, he co-founded Hall-Houston Oil, 1983, drilled 300-plus wells in Gulf of Mexico with success rate of better than 81%, which is outstanding.

I have got 26 years in the business both pipeline, natural gas, marketing, started my own operating company -- drilling company years ago as well. So here, I used to building companies.

Quick look at our key operators, offshore, we are drilling with Hall-Houston Exploration. That’s Gary Hall. He and Wayne, the CEO, had Hall-Houston Oil Company. They sold that to Energy Partners several years ago. Gary has reassembled his finding team back drilling in the Gulf of Mexico

We have a 5.3% interest in the drilling fund. It’s a 150 million drilling fund. And that’s how we are working offshore. There are 7 out of 9 -- as I said earlier, 7 of 9 prospects drilled so far. These are approaching 80% success rate. There is very few companies our size who are drilling offshore, ones that are certainly don’t have an 80% success rate.

On the right, we have Approach Resources. We are drilling with them in Permian Basin of Texas, Canyon Sand prospect, which is a look alike to the Northeast Arizona field that they have. They have a couple of 100 wells down with about a 99% success rate. Now, we think that this 14,000 acres that we have is kind of look-alike -- sorry, 18,000 acres, it’s a look-alike to the Arizona field.

The last group that really kind of balances itself, I am just identifying him as our Williston Basin Group. It’s the company that we have announced that we are doing our -- its an acquisition situation of 15 fields. I will share little more about that.

This group in North Dakota is uniquely qualified -- overly qualified in the Williston Basin. Many, many years’ experience, they build their own rigs, have their own operating company, tremendously talented group. We could build a company around any of our partners there. We are just glad to have as many as we do right now. We are always looking for more.

Our prospect portfolio is geologically diversified, more than 200,000 acres. We are in more than five states in the Gulf of Mexico. It’s a good mix of low-risk prospects with higher developmental potential. And assuming that any of these areas work out, we could be drilling for some years in a number of them.

A quick look where we are across the country. The Williston Basin is the acquisition we’re working on right now. We should have that closed later this week. And we are anticipating 20,000 acres in the Uinta Basin. We have that 100% right now. We will find an operating partner. Nine years left on the leases, it’s between the St. Royal fields and Cisco field. Cisco has produced about 350.

Question-and-Answer-Session

Unidentified Audience Member

[Question Inaudible]

Don Kirkendall

Yeah that you need to talk. It’s right on the Colorado Utah line, just north of I-70.

Palo Duro Basin, some people have likened that to the Barnett Shale. Of course, every Shale play is likened to the Barnett. But PetroGlobe has recently made some discoveries up there using new drilling technique, drilling with air as opposed to water-base mud.

Illinois Basin, 72,000 acres there with Approach Resources. And the Permian Basin, bottom left, we are drilling there with Approach Resources. That’s a Canyon Sand prospect with four out of four there.

James Lime prospect with Silver Oak operating at a Longview, Texas, one of the Texas -- Southern Texas. Along the Gulf Coast, we have a number of small wells, got a 50% success rate there in the Gulf of Mexico as well as drilling with Gary Hall, seven of nine.

So that gives a quick look at where our activity is right now. In the New Albany Shale, two out of two wells, drilling the third right now, currently drilling one in the Gulf of Mexico, you know, should have that finished up we think in the next two weeks or so. And that prospect was pretty good.

A closer look at the New Albany Shale, this is 72,000 acres. The New Albany is relatively shallow shale. The first two wells are down, close intervals, 250 to 300 feet of shale. They are undergoing disruption testing at the cores right now to determine how much gas in place and how much might be recoverable.

Unidentified Audience Member

[Question Inaudible]

Don Kirkendall

That's right. And actually this is -- that the coal mining is actually how we were able to get into this play. The Company that was holding this acreage was holding it was coal. And they determined that may not be a good coal play. It was a -- the company was funded by Yorktown. Yorktown also funds Approach Resources.

So he said why don’t you look at it for the New Albany. So we’ve drilled two wells, drilling the third now. And here is closer look at it. We are drilling right along Texas Gas Transmission ANR pipelines. These -- we did have flare on the first well we are drilling. It looks pretty promising right now.

Unidentified Audience Member

Is that a conventional gas or CBM?

Don Kirkendall

It’s not being tested for CBM. There -- when you have coal, I guess there is always a chance. But you know, you could have coalbed methane. We’re only drilling to about 3,000 feet and we’re not testing this for CBM.

Our Ozona Field, closer look, this is 18,000 acres I was referring to early with Approach Resources. We have production flow at the Canyon Sand and the Ellenberger. We have 8 to 10 wells to drill there this year. The -- these wells come on, fall off a little bit, but they produce both natural gas and oil.

A closer look at Gulf of Mexico, you can see the listing of our discoveries there. These are all shallow, very shallow water drilling opportunities that we are looking at, nothing in deep water. We see a fairly large representation there of Louisiana. That’s only so you could see where we were.

We’re drilling now multiple wells off the East Cameron 359, showing that one leg in yellow there. And that’s the one we are drilling right now. Typically, these wells come on showing reserves somewhere between 5 and 20 bcf each. We have 5.3% of Hall-Houston’s interest across their prospect base.

The Uinta Basin, the 20,000 acres, as I mentioned earlier between the South San Arroyo and Cisco fileds, multiple horizons there. Both natural gas and oil have been found in the area. This is kind of a long-term acreage play for us, 9 years left on federal leases, 80% mix. Sometime, we will go out and find an operator to operate this, but it’s relatively long-risk exploration situation.

Palo Duro mentioned earlier, we have got 33,000 gross acres. Our interest varies across the acreage base somewhere between an 8% and 25%. This is the Atokan Bend Shale down between 9,500 and 11,000 feet. PetroGlobe is a company that has just recently drilled the MacIntosh number one.

They drilled there. They drilled it conventionally with water-base mud down to 8,500 feet, went to air. And the whole idea here is not to hydrate the clays. When you hydrate the clays, it causes them to swell and basically it shuts off your production. Drill with air and there is nothing blocking the gas from coming through. We think that PetroGlobe development up here is really quite exciting.

We may have figured out what it takes to produce from the Atokan Bend. A lot of people of think the Barnett Shale as an overnight sensation. Just in the past couple of years or so, the Barnett has come on strong. Crew says that in the Barnett, it took 15 years of drilling before they had a good completion up there.

So we are pretty pleased. In relatively short order, PetroGlobe seems to have figured out what’s going on there.

Unidentified Audience Member

[Question Inaudible]

Don Kirkendall

There is a little shale up there. This is mostly conventional. I have to go back. Entrada Cedar Mountain, both oil and gas, I have to go back. And it’s probably been a year since I have looked at it --.

Unidentified Audience Member

[Question Inaudible]

Don Kirkendall

In the Piceance Basin, it’s probably 60 miles to the west. I can’t classify that as a shale play. Hill number one is a James Lime discovery discovery that we just made with Silver Oak of Longview -- I am sorry -- yeah, Longview, Texas. We cut about 18 fractures drilled three horizontal wells, a three horizontal laterals and cut about 18 fractures.

Typically, well might cut between six and seven. We brought well along at about 3760 mcf a day. We are looking to use some other stuff with the same company and Shelby County which is in the East Texas. This is the biggest deal that we’ve got working right now, and it’s just huge for us.

We are talking to our Private lime Company in North Dakota that acquiring 50% of their working interest in 15 fields so to produced about 25 million barrels of oil. The whole idea here is that we come in, we water flood these fields. We pressurizing the gas that is in the reservoir. Now, original bottom hole pressure 22,200 pounds. So these fields have produced for past 40 years or so and the energy is gone from the fields.

As the gas solution drives, what happens in a water flood is that you start to inject recompresses the gas that is in place. And as the gas recompresses it lose the oil to your producing wellbores. It’s not your typical water sweep situation for you, washing rocks this is actually recompression of the gas insulation. Cawley Gillespie is in engineering firm that study this for us. They gave us an in ground value, based on the much higher oil price $60, you know some months ago, but net to Petro Resources interest to $171 million.

We’ll invest about $30 million to fully develop these 15 fields. So this is just a tremendous opportunity for us to work with a highly qualified operator in North Dakota. We’ve got two excellent water flood fields that have worked very, very well. One field is three miles away from our first field. The secondary production or the production from water flooding in that field is a 178% of the primary production.

So they have recovered almost twice as much so far, on the water flood as they did in primary production.

Unidentified Audience Member

[Question Inaudible].

Don Kirkendall

5500 feet, it’s in Madison. No, it’ not bad at all. Here, is the schedule a kind of shows where we are. There are 15 fields, those timeline across the top and there is number of step that have to take to place, unitize the field which is just a legal proceeding to get all everyone in the field on board to develop it for water flood, then you start to pressurize your reservoir over two or three years.

You convert some of your producing well to injection wells. So we are actually reversing flow, you are sending salt water back down to bring your pressure up. When you finally, you finally got a bottom whole pressure down, you know up to 2000 pounds or so, you come in with fresh horizontal wells and lead the benefits.

Well, this operator started on the first fields some years ago and we are drilling the first horizontal wells right now, should have that down in the next 10 days or so. It should be producing fresh oil from now. We’ve got four other fields there we just have number 2, 3, 4 and 5 until we close the transaction they have been injecting on this already fields 6315 have got some drilling and work to do or we need to drill some injector wells in sets of injector pumps.

The scale at the bottom is based on Cawley Gillespie production estimates and you can see right now, that from these 15 fields there is only about $550 barrels a day these are stripper wells. Two or three barrels a day for a well. Based on the development plan that we have in placed by 2010-2011 Cawley Gillespie is showing that we could be at about 2500 barrels a day natural Petro resources interest that’s not, I am sorry that is -- that the [A8] its not just our interest. The 2500 barrels coming from these fields, so you can see that the production ramps-up relatively quickly when you start to re-pressurize.

This production curve looks almost exactly like the two analog fields that are nearby when the pressure finally gets up, starts fuel [board] on the wells, oils just comes at you so you really cover a lot of oil relatively quickly.

There, again, kind of a schedule showing how you how you reserve classification changes as you start to re-pressurize the fields. On the left there you can see that most of the production is classified as probable as we start to increase the pressure the probable decreases and the price increase as you started drill new wells.

PDP increases, PUD decreases as does the probable when you are finally developed you have it all as PDP. Now one thing that I hadn’t mentioned before these fields in Canada brought very well for water flooding but they have also worked very well for a tertiary recovery through Co2 injection.

So we think the rule of thumb is you get your primary production and then about the one-to-one ratio for your secondary production and based on what's going on in Canada, you could recover again as much as you produce primarily and secondarily through Co2 injection. But that's some years down the road. We're looking two or three years down the road production coming from water flooding.

Here is the schedule on just our un-risk potential. Are we are going to hit all this? No, we certainly are not but some of the people who have ask us to put together some sort of schedules to work that the company possibly do and if just look at the bottomline total natural gas showing about 1.2 -- 1,235 Bcf or 1.2 Tcf in natural gas net to Petro Resources of 121 B's, are we going to hit all that? Certainly not.

Oil 375,000 barrels for one we add the Williston Basin water flooding, we're adding 10.6 million barrels are net to our interest and that is fairly high probability Cawley Gillespie is well respected engineering firm. They do all the GE capital's energy works.

So this -- the report that we have were fairly confident that we can achieve these kinds of numbers. So we are certainly lot more confident in the 10.6 million barrels that we are in the drilling that you see above.

Unidentified Audience Member

[Question Inaudible].

Don Kirkendall

Yes, get to that 10.6 million barrels.

Unidentified Audience Member

[Question Inaudible].

Don Kirkendall

Valuation of those un-risk reserves, again, applying $6 per Mcf and $50 of barrels you are looking at -- we have $1.278 million unrisk, are we are going to hit all that? Certainly not. We do feel fairly confident in the numbers in the Williston Basin now $500 million in revenue from the Williston Basin is as maybe achievable. That was done at $50 price even at a $40 price we are looking at considerable revenue coming from there.

CapEx forecast 07, this may be a little aggressive somewhere between $11 and $15 million in drilling for the company, someone was asking about it last night, I think my number share maybe a little bit high. In Kentucky, we maybe only looking at $6 or $7 million in that area. Now, we will be out probably in this secondary offering to help cover some of our exploration cost for '07.

This contact information and our website address and again another fine photograph. That guy he can't make it more than gas, he can make it as photographer. But I urge you to take a look at our website and see other presentations and you can take a look at our boards volumes there couple of gentlemen I might point out [Steve Fifer] you know, a bunch people in New York may know him.

He is former head of Merrill Lynch's Energy Group, he was Chief Analyst. He is also prudential base. We mention name Steve Fifer in New York circles, some people do know him, but…

Unidentified Audience Member

[Question Inaudible].

Don Kirkendall

Yesterday, we closed at 3:22, I don’t what we doing this morning, I will take a few questions here and then the break up session we have about four, five minutes.

Unidentified Audience Member

[Question Inaudible].

Don Kirkendall

The pipes were done through energy capital solution out of Dallas plus Wynberg, Wynhall and he go way back some years, very helpful in the pipes. Anything else?

Unidentified Audience Member

[Question Inaudible].

Don Kirkendall

Because the expertise the Wayne Hall and Gary Hall, the Wayne Hall is our CEO, Gary Hall on board that is where they did phenomenally well when they have Eastern oil. About an 80% success rate they grow just shallow wells. They have a formula that works, I don't think you were here when I show that slide that but don’t worry, we drilled nine wells so far.

We missed on two so we are seven out of nine wells in the Gulf of Mexico. We are a limited partners through the Hall-Huston fund, so we don’t have a direct working interest per se we have 5.3% of their funds. So we have limited exposure there, but tremendous outside that so the Gulf of Mexico because we can make money in the Gulf of Mexico. Anything else?

Thanks so much.

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