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Mainly interested in oil and mining juniors, looking for future growth. Just got out-sourced, then retired, but now working as IT project manager. Finance education but computer geek for a living. Long-time investor, Interested mainly in finding long-term opportunites in emerging oil and miners.... More
  • Is the sun rising on Daybreak Oil and Gas? 18 comments
    Jun 27, 2011 12:47 PM | about stocks: DBRM
    No one disputes the fact that there is a need for increased emphasis on alternative energy sources for transportation. Much has been written about plug-in hybrids, CNG-powered cars and electric cars such as the Chevy Volt and Nissan Leaf.

    Most also agree the U.S. needs a comprehensive energy policy that addresses the long-term energy requirements of the nation.However, you will find very few who believe that these changes will have a substantial impact on our need for oil for many years to come. Given that our crude oil demand will at best remain relatively stable in the near-term, and also given that the geo-political uncertainly we have seen will probably continue, I decided to investigate opportunities in domestic Junior oil producers. As we know from the Bakken oil plays and renewed interest in areas such as Texas and Kansas, there are large reserves of oil within our borders that do not require environmentally risky deep-sea drilling. While I am all for deep-sea exploration, it should be supplemented with increased on-shore exploration and drilling. With the recent increase in the price of crude, it also becomes economically feasible to re-open closed wells and drill additional wells in fields that were abandoned years ago during our period of relatively cheap oil.I believe there is significant potential for small producers to benefit from these factors.

    One such company is Daybreak Oil and Gas - DBRM. Daybreak owns several large leases in the historically-productive areas in Kern County, California. I have been following the company’s growth for over two years and feel they are well positioned for both immediate and long-term growth.

    Daybreak has;

    A well thought out business plan that has allowed them to increase production and revenues while reducing production costs.

    Production and revenue has increased every quarter since production began in 2009.

    Revenue for Q4 of FY2011 exceeded operating expenses.

    Excellent track record of drilling successful development wells after evaluating seismic data.

    Over 20,000 acres currently under lease with a seismic option on an additional 14,000 acres.

    Experience in maximizing production in the low-API fields found in Kern County.

    Nine producing wells with FY 2011 4Q production of 3800 Bbls.

    Very low cost of production of approximately $10/Bbl.

    Current total proved reserves of 237K Bbls.

    Estimated reserves of 9M Bbls with a 41% revenue interest in these fields.

    Refurbished production facilities that allow them to be a low-cost producer.

    Estimated net reserves in Bull Run development area of 750,000 barrels.

    They are the operating partner of all leases they have a working interest in.

    Company is fully reporting in compliance with all SEC reporting requirements.

    While they do have a large amount debt on the books of approximately $25M, their estimated reserves just in the Bull Run area amount to revenue of $56M even using a low crude price estimate of $75 per barrel. Their low production costs should allow repayment of this debt within a reasonable timeframe.

    Last week the company announced a loan agreement for $3.5M which will allow them to aggressively drill their identified targets with a goal of becoming cash-flow positive before end of FY12. Drilling will begin in July with the first well to be drilled in the Bull Run prospect. This will be an exploration well to determine the size of the reserves. There are currently no production facilities at Bull Run. Additional development wells will then be drilled at current prospects including Dyer Creek and Ball.

    As with any junior oil producer, you must do your own DD and there are certainly plenty of risks and no guarantees. But as I stated in my opening, we will be using oil for many years to come and there should be plenty of upside potential for junior producers like Daybreak.

    For more company information visit their website daybreakoilandgas.com.For a video presentation given by the CEO at last summer’s Southern California Investor Association “Hot Summer Nights” conference. www.sciaconference.com/PublicCo/Aug2010/...

    – Author has a substantial long position in DBRM.

    Disclosure: I am long OTCQB:DBRM.
    Stocks: DBRM
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Comments (18)
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  • Author’s reply » While this has not played out exactly as I hoped, there is some light at the end of the tunnel. I spoke with the CEO early in September, and the drilling rig they are moving from Texas to CA was on its way. The rig is owned by one of Daybreak's partners and it is better suited for drilling the shallow heavy-oil wells in CA than the one they have used in the past.

     

    Jim W said it would be at least a couple weeks to get the rig unpcked and out to the fields ready to drill. There are 6 sites all built and the plan is to drill one right after the other.

     

    Perhaps there will be a PR in the coming weeks with news of some successful wells. After that the company should be cash-flow positive and then the plan is to go after more financing in order to completely drill out the currrent leases.
    6 Oct 2012, 10:53 AM Reply Like
  • Greetings ABM,

     

    I remember seeing your post about this a while ago.

     

    Oil and gas really needs its own running instablog conversation (like the Axion Power Concentrators).

     

    This was a previous attempt that didn't stick: http://seekingalpha.co...

     

    Just a thought. Thanks for following up on your post.
    6 Oct 2012, 11:03 AM Reply Like
  • Author’s reply » Daybreak announced a round of financing yesterday. While I'm not a fan of the interest rate they agreed to, the amount gives them the flexibility to follow through on the drilling plan that has been waiting for over two years. There should be no reason to not drill now, and perhaps we'll hear some good news to go along with the 10Q that should be out within a week or so.

     

    Link to PR; http://bit.ly/TvdGy5
    6 Nov 2012, 07:52 PM Reply Like
  • Author’s reply » Yes, the company did receive financing and yes, they did release a PR in early December saying the rig would be on site by mid-December. As of a conversation with the CEO in early January things were delayed yet again. Weather permitting, drilling was supposed to start in mid-January. I have not tried following up yet. Based upon prior history this company rarely releases PR's until a new well has been drilled and all the bugs worked out so that true production numbers are know. So we wait.
    9 Feb 2013, 10:37 AM Reply Like
  • Author’s reply » Finally some progress. Company announced completion of Bear #5 and the start of drilling on Bear #6. The best part is that all of these development wells have the infrastructure in place to get the oil to market. It also appears that they will be releasing PR's after each well rather than waiting for a couple to complete as has been their MO in the past. If they are going to release news after every well we should hear something else within a few days. The CEO has told me that it takes on average 3 days to drill a well and about a week to get it on-line. The PR today stated that Bear #6 was started yesterday which means we should hear something by middle of next week at the latest. As soon as they release production figures for these I'll put together some revenue figures. Would be nice to get to a cash-flow positive point some time this year.

     

    Also good to see a new 52-wk high today.
    7 May 2013, 10:18 PM Reply Like
  • Author’s reply » So far, so good. Seven successful development wells added to the mix. Production numbers for the first 2 of them were 25 barrels each, which equates to about 18 per day for Daybreak. Figures for the other 5 should be out any day. I'm expecting the total share for Daybreak will be in the 60-70 barrels per day range.

     

    Share trading volume has been increasing lately and spiked yesterday with Rob Goldman article. I'm not impressed with him, but any exposure can only help in the long run.

     

    Next up, permitting and site buildup for 5-7 more wells this fall. CEO assured me that the recent successes puts them in the black and there is no concern about payment on the outstanding debt.
    17 Jul 2013, 06:29 PM Reply Like
  • Author’s reply » The future keeps looking brighter for my favorite little oil company. With the 7 new wells drilled in the spring production has doubled. This week they announced a deal with a small producer in Kentucky to drill some shallow wells with a 25% working interest. The best part of the deal is the reduction in the interest rate on their credit line from 18% to 12, along with an increase in the line from $20M to $50M. The CEO told me they would be looking for other opportunities once those new wells were on line. The next 10Q will be out mid-October and should show much-improved cash flow.
    7 Sep 2013, 03:07 PM Reply Like
  • Author’s reply » Lots of news in the last 5 months. I spoke with the CEO, Jim Westmoreland, on Friday and things are progressing quite nicely in Kentucky. Today they just announced a successful 5th well there, which is on top of another 2 wells in California announced 2 weeks ago.

     

    I'm expecting production figures from the KY wells within a couple weeks and believe the numbers will be at least 200 bpod for each well, which would mean a total of over 1000 and 250 net for us. Jim said each well is producing enough gas (100 MCF/day) to pay for operating costs of that well. I also expect reserve figures to be significantly higher than the originally estimated 50K barrels per well. With a total of 50+ wells planned for this KY lease that's a lot of oil.

     

    More California drilling will be starting around April, including an exploration well in the Sherman prospect. While not huge, the Sherman prospect is estimated to contain 300K barrels. When you are a low cost producer like Daybreak you can make a lot of money on 300K barrels.

     

    Put Daybreak on your alert list. I think there will be a lot of good news in the near future.
    23 Dec 2013, 11:52 AM Reply Like
  • Thanks for keeping us updated about DBRM!!
    14 Jan, 04:55 PM Reply Like
  • Author’s reply » My pleasure, Patrick.

     

    I'm very excited about this year for my favorite little oil company. 10Q out last night showed another quarter of solid growth.
    15 Jan, 08:56 AM Reply Like
  • Author’s reply » News keeps getting better for my favorite little oil company. With today's PR, we get news of production from two of the KY wells. Last fall the CEO told me they were expecting 200 BOPD initially, but the H-3 well is producing over 300. The weather and inadequate production facilities have prevented them from taking advantage of this, but they have been able to sell an average of about 100 barrels daily from this well. The H-1 well has produced over 6,000 barrels since October and that was also with decreased production due to equipment issues and weather.

     

    The PR says they plan on another 20 wells in KY during 2104. Even using the conservative 50 BOPD production after the normal drop-off, that will still provide 50 * 25 * .25 = 312 BOPD net to us. That's a very conservative number since it does not include any of the initial high production rate.

     

    Add in a few more wells this spring in Kern County and we could easily have total production of 500+ BOPD net to us. That will easily make this a $1 stock.

     

    In addition, they hope to add additional leases in KY. My hope is the new leases will have Daybreak as the operator. I will find out next time I speak with the CEO.

     

    Stay tuned. Things look to get very interesting as the year progresses.

     

    Link to PR;

     

    http://bit.ly/1d18MRu
    24 Jan, 04:33 PM Reply Like
  • Any reason why DBRM was off so much today when most oil stocks rallied?
    5 Feb, 03:18 AM Reply Like
  • Author’s reply » Small O and G juniors don't always follow general market trends. My guess is someone needed some money and decided to sell. The recent sales have been low-volume. Until another solid PR we could see some further price decline, although I think it will be minimal. There's just too much going for this company now and I can't imagine too many shareholders wanting to exit at this stage of the game.

     

    What I'm looking forward to is the 10K in May. It will include revenue figures from the last couple months which should include both the H-1 and H-3 wells, and possibly the other three KY wells. Revenues for the 4th quarter should be many multiples of the same period in the prior fiscal year.

     

    Also, as stated in a recent PR, the company is actively seeking out additional leases and opportunities. The big increase in their LOC gives them the flexibility to go after some bigger fish. Wouldn't surprise me to see some news regarding these fish in the 10K. The SEC requires companies to report any material information in the 10K that was known at the date on the filing, so if anything is finalized before the end of this month we'll know it in May.

     

    As the CEO has told me, "stay tuned".
    5 Feb, 08:57 AM Reply Like
  • DBRM down 47% today. Someone needed an awfully large amount of money today then as I don't see any news release. I guess a major investor must have bailed. This doesn't look good.
    6 Feb, 11:34 AM Reply Like
  • Author’s reply » Have no fear, Patrick. When I saw the price action yesterday I was puzzled, but not alarmed. I have no clue if it was a mistake by someone entering an order, or MM games, or ?? I wish it had been me that picked up those cheap shares. And, the total dollar volume traded yesterday was what, $20K? Not a large amount of money.

     

    When I last spoke with thte CEO in late December he was also puzzled about the slow decline in price up to that point. I also heard from him yesterday regarding the day's action. He said all he can do is keep taking care of the company and let the stock price take care of itself.

     

    It is important to remember that this is a very small, thinly traded company at this point. If someone decides they need money for some other purpose and needs it quick, it can have a large impact on the pps. Companies this small do not trade on fundamentals.

     

    We'll be fine here.
    7 Feb, 08:13 AM Reply Like
  • Author’s reply » News today of the production at H-4 and H-5 wells. Over 250 BOPD from each, which means another 60+ for us from each. Plus, it appears that the gas coming from the wells is more than initially thought. That's an added bonus. Four of the first 5 wells are producing over 250 BOPD. The only one we don't know about yet is the H-2. Drilling will start on the first 4 of 20 planned wells for this coming year. Just these first 5 KY wells give us over 500% increase in production over last year. It's looking to be a very good year for Daybreak.

     

    Press release here;

     

    http://bit.ly/1hZdlnT
    28 Feb, 11:18 AM Reply Like
  • Do you have any info about the change in Board members that occurred in early March? I notice that the Levignes left the Board and that Westmoreland was elected Chairman. Was there a falling out here over strategy?
    18 Mar, 02:52 PM Reply Like
  • Author’s reply » My guess is that the Levignes were in a hurry to develop the CA and KY fields and did not want to wait to drill them as revenues allowed. Perhaps they wanted to issue shares in order to increase the pace of drilling. Jim has repeatedly told me that his plan is to fund drilling with revenues, and he has also told me he will never do anything to hurt existing shareholders.

     

    I'm not a fan of debt financing either, so I'm all on board with a slow and steady approach for now. Last week they started drilling the 6th well in KY and have announced that they will be drilling four wells before giving the rig to another operator for them to drill four. They'll continue rotating the rig in that matter until 20 more wells are drilled in KY this fiscal year. Since the wells drilled so far are producing over 250 BOPD, that means we are getting roughly 60 net to us from each well. That will go a long way to funding drilling.

     

    Since these wells are also producing enough gas to cover pumping costs, it won't take long for revenues to cover drilling costs for each well and then the ongoing revenue will fund more drilling. Seems like a sound plan to me.

     

    Check the company website for a link to last week's PR. Each well there takes 4-5 days to drill, then a week to frack and get on production. They started #6 last Wednesday so should be finishing that one up sometime next week.
    25 Mar, 12:34 PM Reply Like
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