ATLAS Consulting, an Austin-based enterprise consulting firm, recently contracted with independent, third-party geologist George Pumphrey for the completion of a report regarding the analysis of Torchlight Energy's (NASDAQ:TRCH) University Founders B-19 #1 Well scientific data. The University Founders B-19 #1 Well is the second drill-out operation successfully executed by Torchlight Energy and its farm-in partner, Founders Oil & Gas LLC, for the E&P's West Texas located Orogrande Project. This data, testing data initially provided by Schlumberger (NYSE:SLB) after a battery of tests were completed, has shown to be overwhelmingly positive and overwhelmingly indicative of substantial upside opportunity through the completion of initial review by Torchlight Energy consulting geologist Rich Masterson. Masterson, it should be noted, is a prospector who helped originate the now prolific Wolfbone play.
ATLAS Consulting wanted to confirm this data via an additional third-party, unbiased review and reports that it has with the completion of the George Pumphrey review; results have been confirmed as reflecting substantial upside potential. Results have also confirmed the Orogrande Project - a project in which Torchlight Energy lists assets of 172,000 largely contiguous acres (as of the filing of its last Form 10-Q with the U.S. Securities and Exchange Commission) - as being highly comparable to the Midland Basin. Finally, results have confirmed that current testing data warrants further exploration on a risk-adjusted basis.
Torchlight Energy and its farm-in partner, Founders Oil & Gas LLC, remain committed to proving out the Orogrande Project and have a committed CAPEX program to fund a drilling program covering the execution of an additional seven wells (based on ATLAS Consulting cost analysis) - essentially, fully funding concept prove-out of Torchlight Energy's contiguous acreage position in the Orogrande Project.
As previously announced by Torchlight Energy:
"Torchlight Energy has entered into a definitive agreement with Founders Oil and Gas, LLC of Midland, TX for the development of Torchlight's Orogrande Project. The terms of the agreement include a $5 million reimbursement to Torchlight for initial project costs incurred and an additional $45 million in developmental capital to be deployed by Founders over the next two years in exchange for 50% Working Interest in the Project. Upon reaching the total agreed expenditure, Torchlight and Founders plan to fund future development costs equally on a "heads up" AFE basis. Upon closing, Torchlight received a $1 million cash payment. Founders will be the operator of record beginning with the fracing and completion of the previously drilled Rich A-11 well."
It should be noted that Torchlight Energy's CAPEX, drilling, and Orogrande Project concept prove-out plans are not commodity pricing dependent; commodity pricing volatility will have no consideration in the completion of the current program. ATLAS Consulting believes Torchlight Energy to be operating at substantially cash flow breakeven (on a full-year basis) and believes that with above noted milestone payments associated with successful drill-out operations that Torchlight Energy should operate at cash flow positive on a go-forward basis - mitigating financing risk and mitigating CAPEX risk associated with the operations. Torchlight Energy is optimistic that frac results, which will soon be delivered, will be positive indicating after final analysis - substantially driving enterprise value.
ATLAS Consulting remains highly invested in Torchlight Energy and remains confident in its capital exposure associated with taking on a wildcatter, venture-level investment. ATLAS Consulting believes ultimately that the asymmetric upside of the Orogrande project, based on early scientific results, reward-weights any capital exposure to Torchlight Energy; and continues to be impressed with the return of early scientific data and with the overall ownership structure and governance of the E&P. Should the concepts of the Orogrande Project prove out, ATLAS Consulting believes Torchlight Energy equity returns could be more than justifying of the risk associated with investing in such an immature E&P.
ATLAS Consulting anticipates a 12-24 month maturation cycle prior to Torchlight Energy equity being fully valued, assuming Orogrande Project concept prove-out, and anticipates continuing to be long-term, venture-level investors.
- Dallas Salazar currently owns and operates as CEO of Austin-based enterprise consulting firm, ATLAS Consulting, that specializes in private company lifecycle management, up to and including taking companies public, and in helping consult publicly traded companies ranging in market cap from $100 million to $500 million. Dallas Salazar, the publishing author of this note, is also (for all intents and purposes) "ATLAS Consulting" when publishing notes to Seeking Alpha.
- George Pumphrey is an independent geologist. George Pumphrey has an educational background in geology from Oklahoma State University. George Pumphrey provides contract work on a case by case basis as determined by himself and/or his enterprise. George Pumphrey was not compensated by Torchlight Energy and/or any parties with a business relationship with Torchlight Energy for the completion of this report. From time to time, ATLAS Consulting contracts with George Pumphrey for project work.
Please read all additional disclosures at the conclusion of this note.
Disclosure: I am/we are long TRCH.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: DISCLOSURE: 1) Torchlight Energy was not involved in any aspect of the article preparation or in any aspect of the preparation of the “Torchlight Energy University Founders B-19 #1 Well Scientific Data Third-Party Review Investor Presentation”. 2) Dallas Salazar: I own, or my family or company owns, greater than 1% but less than 5% of the outstanding shares of the following companies mentioned in this note and in the follow-on investor presentation: Torchlight Energy Resources Inc. Comments and opinions expressed are my own comments and opinions. I am responsible for the content of the article. 3) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.
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