Right now in the oil and gas game it is all about location, location, location; and resources to take advantage of location, location, location. The past story of Buccaneer Energy (BCC) is one of location and lack of resources. BCC is a small E&P company (market cap of 17 million and earnings of around 4 million) that really doesn’t do much on the ground exploration. They prefer to let others buried deep in the past do the exploring and they do the exploitation of what was found before. They swoop in, buy in cheap, prudently spend their capital and bring old fields to life.
Take Pompano as an example, originally the field was produced in the early 90s. As the price of natural gas fell and very little oil was found there the field was shut in and forgotten. Along came a well funded (at the time) BCC and the story of Pompano was retold. However, after early success the end of 2008 and majority of 2009 represented a time of very little resource for the small company.
As the capital market began to recover toward the end of 2009 the little company once again began its exploitation of projects long forgotten. Unlike other companies that carry a market cap as low as 17 million, Buccaneer operates its fields and carries a majority position in those projects, giving it very big shoes to fill. Currently it ranks 51st among the other Australian Oil and Gas companies in earnings and is one of the only ones brave enough to boldly go and work offshore in North American waters. (Being shallow and located in state waters BCC has avoided any consequences of the Obama Ban on deepwater) Offshore projects tend to cost more up front, but move quickly and bring big rewards (see Pompano)
Sitting today with a share price of 4.5 cents the company is a bargain. Recently the company has moved into position to exploit the long neglected Cook Inlet of Alaska. Several reasons for this move have been presented. First, the Inlet needs natural gas and they are paying a premium for it. The discoveries in the inlet date back 20 years. The State of Alaska has done many things to try and attract mini giants like BCC adding tax incentives and rebates of significant amounts to help offset exploration. The operators in the region are typically the majors, and they have pre-built the infrastructure required to get the resources to market fast. Again, location, location, location rules the day; but so does price. The price of entry into the Cook Inlet, since it was forgotten, is very low.
BCC has taken a large position, over 150,000 acres under lease. The potential upside is huge, that part is obvious, but how do you quantify that today? The President of Buccaneer Alaska makes bold claims about the impact in his recent interview and the company made an announcement about its status in the Cook Inlet. The release held all of the usual stuff collected, more leases purchased, permits applied for, suggestions that costs can be kept down. Then this statement:
At the time of acquisition the assessed P10 reserves are 630 BCF of gas and 80 MMBO. The P50 reserves are 386 BCF and 35 MMBO. These reserves are expected to increase due to the expanded lease position and the Company has appointed Netherland Sewell to complete a third party engineering report on the reserves for NWCI.
NWCI is very close to existing infrastructure this would significantly reduce capital expenditure and time to first production.
Netherland Sewell has been hired to complete a third party reserves report for NWCI, this is a unique statement buried within the release, and begs the question of why? A company the size of BCC sitting in the commanding position of owning the dominant position in several such opportunities is unique. However, since they have all ready bought the property they really don’t need more evidence of its value, or do they? Netherland Sewell ranks behind Ryder Scott in reserves reporting for the SEC. They typically work with large public companies to verify their reserves and don't usually work with small operators. So why does BCC feel they need to bring in a big gun like Netherland Sewell?
A reserves report from Netherland Sewell in the hands of a cagey operator like BCC might be leveraged into getting one of BCC’s preferred providers to bring a rig into the inlet as a partner. Remember the Gulf of Mexico drilling ban, operators like Hercules and Sea Hawk might find it advantageous to move a rig today into a market that is unrestricted. A report from Netherland Sewell could be used to attract a major partner, to jointly bring a rig into the inlet. A report from Netherland Sewell might be the precursor to arranging for a large line of credit or to attract an investor to buy a large, non operated position, in the project providing the cash needed to bring a rig into the inlet and operate the project. Bottom line, a report from Netherland Sewell could be a game changer for BCC.
Now, back to the 4.5 cent share price of BCC, this represents a value placed on the Pompano field. The Lee County project has one well producing oil, at what rate is still a mystery, and one well that may produce oil. The value of this field has not been figured into the price of BCC, properly valued and the share price should react. The value of the Alaskan properties has not been figured into this price, and certainly the value of the Netherland Sewell report has been figured into this price.
Meaning an investor in BCC is gaining access to the projects at no cost today and will play the waiting game to see when the market wakes up to the fact that the mini giant is about to grow very quickly. Flow rates on Lee County will reveal part of the picture, but the report from Netherland Sewell may represent the last time we see the sub five cent price on this mini giant.
Quarterly report is due at the end of July, and right now it is the end of July.