Weeks ago, we recommended buying into Warrior Energy (OTC:WENEF) in Pure Energy Trader. But we didn't want you to miss the opportunity either. While, to date, we're up more than 25%, we do expect further upside.
This is a junior company focusing on the exploration and development of oil and natural gas in the Green River Basin.
And we don't expect these guys to drop in the short term, not after announcing major operational milestones with two successful wells in the Strike project area.
As you may know, the Strike project is in the Green River basin of Wyoming. And, according to the company, the area is a "multi-play, unconventional gas resource play with outstanding economic potential characteristics." To date, the company has identified 77 new well locations on the project area.
That announcement was about the company's first well, the Strike State #11 (in which Warrior has a 20% working interest). The well was spud on May 20, 2008 and drilled to a depth of 11,145 feet. The initial production rate includes 152 barrels of oil per day and 1578 Mcf/day. That equates to a total of approximately 2,490 Mcfe (thousand cubic feet of gas equivalent).
At the second well, the Strike State #12 (Warrior also holds a 20% working interest in this well) was also completed with initial producing sales at 515 Mcf/day.
Due to the success of these two wells, Warrior believes its current net production will double. Additionally, the company intends to drill four more wells in 2008, spending about $4.2 million. It expects to begin drilling within the next 20-30 days.
Now there's news that the company acquired more oil and natural gas leases in the Green River Basin of southwestern Wyoming. This will increase the company's total leasehold position in the Basin to more than 5,000 net acres.
If you're new to Warrior Energy...
What makes domestic oil production companies even more attractive as long-term investments are the oil and gas discoveries, and the fact that these explorations are more appealing, given geopolitical tension.
You know as well as we do that prices would come down sharply if we started producing on our own. And it'd be a strong global signal that we're not willing to be hostages of oil rich companies.
Even the President agrees.
"Our problem in America gets solved when we aggressively go for domestic exploration," Bush said.
And we need all the oil we can get.
While the International Energy Agency's oil supply forecast won't be released until November 2008, there's growing fear of a sharp downward revision in supplies. That means supply could be much tighter than previously thought, a nightmare scenario if proven true.
Any pessimistic IEA view will shock the market, spawning oil super spikes. We've already seen prices rocket to $130, doubling year over year. And it'll only get worse on a dismal IEA forecast.
For years, the IEA has said that crude supplies and other liquid fuels would keep up with rising demand, topping 116 million barrels a day by 2030. But now there's fear that the IEA, basing findings on aging oil fields, could revise sharply lower and warn of a struggle to keep up with 100 million barrel a day demand over the next 20 years.
But IEA pessimism is nothing new. Just last summer, the IEA warned that spare OPEC capacity could fall to "minimal levels by 2012."
Even the U.S. Energy Department is embarking on its own supply studies, which could be finished by summer. But they, too, may have nothing positive to say. They already suggest that daily 73 million barrel daily output will level off at 84 million barrels. To then reach 100 million barrels a day by 2030, we'll need a sizeable boost from other fuel sources.
And if you need more of a reason for a rise to $150, $170, even $200, look no further than the Middle East.
Israeli-Iranian tensions over nuclear projects aren't doing much to help. There's a growing fear that in the event of war with Iran, the Strait of Hormuz (passageway for 90% of oil exported from Gulf producers) would be jeopardized. If that happens, we'd see an immediate oil super-spike.
Iran's Revolutionary Guards has already said it would impose controls on shipping in the Persian Gulf and Strait of Hormuz, which accounts for about 40% of the world's oil, if it were attacked.
Green River Oil: Warrior Energy
This is a new natural gas company we're keeping an eye on with a focus on large undervalued assets in the Green River Basin (Wyoming).
We can tell you that the energy companies are drilling and applying for drilling permits like there's no tomorrow.
And Warrior Energy is no different. It's buying land on the cheap with expectations for considerable upside. It just paid $8 million for producing property with active development.
Warrior's current project - called Strike - consists of 3000 net acres with 11 producing wells that are already kicking off cash flow.
And the stock only trades at a scant sub-3 with long-term $10 potential upside.
Better yet, the future doesn't look too shabby.
Over the next two years it hopes to demonstrate year over year growth of proven reserves, production and cash flow through acquisitions and development to justify $500 million in asset values.
The investment firm Macquarie gave Warrior a $50 million line of credit, which is huge for an early-stage energy company... and a testament to the company's game plan to increase production within a short period of time.
Again, this is a $10 stock now masquerading at $4. It was $3 just weeks ago.
Stock position: None.