Torchlight Energy Resources (ticker: TRCH)is a high growth oil and gas exploration and production (E&P) company with a primary focus on acquisition and development of domestic oil fields.
Since going public in 2010, Torchlight has established itself in four separate regions across the mid-continent, focusing on liquids production from proven areas. Rather than explore, the company uses its geologic knowledge to exploit plays such as the Eagle Ford, Hunton, Mississippian and Maquoketa Dolomite/Viola formations. In 2013, the company transferred from the over-the-counter (OTC) exchange to the NASDAQ.
OAG360 notes that shares of TRCH have increased approximately 100% over the past twelve months.
Strategy
The company’s strategy has been to farm-out operations to third parties and then monitor both the operations and its associated costs. Joint ventures have been reached with established operators like Husky Ventures and Ring Energy (ticker: REI). Its work primarily as a non-operator provides exponential growth opportunities and more than 1,000 potential drilling locations identified by the company. Emphasis is placed on exploiting infill wells, a process TRCH management says is repeatable and reliable.
Mid-Continent Focus
Source: TRCH
Oklahoma. TRCH is producing from the Hunton formation in Oklahoma through its partnership with HSE and currently has two wells online. The company currently holds 13,400 gross acres but has the potential to reach more than 142,000 acres through its minority working interest in the play. Husky has experienced success in the area and has drilled more than 33 wells with initial production rates between 400 BOEPD and 1,400 BOEPD. As many as 30 new wells will be drilled in 2014. Success from the region is reflected in TRCH’s estimated ultimate recovery numbers, which are now approaching 700 MBOE – double its initial midpoint estimate. Four rigs will be running in 2014 to exploit the growing reserves.
Kansas. Two joint ventures in Kansas cover roughly 35,000 gross acres. The project with REI (50% working interest, 17,000 acres) has 450 identified locations targeting the shallow Woodford and Mississippian plays. TRCH’s low working interest allows for low authorization expenditures ($450,000 to $650,000 per well) and quick payouts (seven to 12 months). The remaining 18,000 acres are under lease with Husky and will target the Maquoketa Dolomite formation beginning in Q2’14. Due to the low completion costs, a well can be paid out with as little as 8 MBO to 10 MBO.
Texas. Torchlight’s interest in Texas (950 net acres) includes three producing wells exploiting the Austin Chalk and Buda. A reserve report by Netherland, Sewell and Associates had identified 1.3 million in net reserves with a PV-10 value of $18.9 million. Additional testing is being considered by TRCH, but current studies have the company well-positioned in a liquids-rich part of the play surrounded by companies like Exxon Mobil (ticker: XOM) and Clayton Williams (ticker: CWEI).
Drilling Program Primed for Exponential Jump
Torchlight’s 2014 drilling program includes 101 gross wells, an increase of more than 11 times its 2013 program of nine. The ambitious program is expected to carry over into 2015, with the expected drilling of 173 wells. In turn, production for 2015 is expected to reach 1,302 MBOE, which is nearly double 2014’s projection of 741 MBOE.
Most importantly, capital expenditures for 2015 are projected to drop to $31.2 million from 2014’s total of $35.8 million. If expectations are met, the growth will have Torchlight drilling out of cash flow by Q3’14.
Upcoming Conferences
Torchlight Energy is scheduled to present at EnerCom’s The Oil & Services Conference™ 12 in San Francisco on February 19, 2014.
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