Manitok Energy Inc.
President and CEO: Massimo Geremia
WSA: Good day from Wall Street. This is Juan Costello, senior analyst at the Wall Street Analyzer. Joining us today is Massimo Geremia, the President and CEO for Manitok Energy Incorporated. The company trades on the TSX Venture, ticker symbol MEI, and OTC Grey, MKRYF. Thanks for joining us today there, Mass.
Massimo Geremia: Thanks Juan for having me on.
WSA: Certainly. So starting off, please give us a history and overview there of the company for some of our listeners that are new to the story.
Massimo Geremia: Sure. The company has been around publicly since 2010, privately a few years before that. We’ve been successful moving up into different projects. What I’d like to say is we’re focused on more small “e” exploration, as opposed to just development drilling, and that can create a lot of grassroots value. We’ve been successful three times now. We initially started with a heavy oil play back when we were private, built that up from zero barrels a day to over 350 barrels a day of production, ended up selling that in 2012 and rolling our capital into our Stolberg asset. The Stolberg play, same thing, we started with zero production, took the field up to 7,000 BOE a day growth, so our net was about 5,000 BOE a day at the peak; very successful there.
And then just over the last year and a half we picked up some additional land from EnCana which now rolled into Prairie Sky, some freehold land. And we’ve taken that from zero to about 1600 BOE a day with just three wells. At Carseland, we have an additional three wells that were tested on a production test that are waiting to come on, and in the meantime, we picked up an 1,800 BOE a day acquisition in the same area. So again third area, third time, been able to grow significantly. I think with that success, that is what differentiates us from others is we start grassroots and have been successful in the past.
WSA: Great. So, yeah, can you talk about the most exciting development, which is the recent Wayne acquisition?
Massimo Geremia: Yeah, we added 1,800 BOE a day, about 1,000 barrels of oil, some additional land within the same areas are the Entice land deal we do with EnCana, so it’s all tied together. It’s a deal we wanted to do 18 months ago with land production and an oil treating facility. At the time though, this acquisition we just did was tied up in another venture, and took a little while before it could be freed up by the seller. We were patiently waiting for it to come back out and we were able to take advantage of our opportunity here in 2015 and pick it up at low valuation. Last year, that property did about 2,200 BOE, and had operating costs worth 38 million with higher commodity prices. Last year, we paid over 100 million for it and today with current pricing we paid 60 million for it. We had a $20 million oil treating facility with 25,000 barrels a day of capacity, so we’ve got plenty of room to drill for the next five to ten years and fill that facility. As well as we’ve tied up a bunch of land along a very – we believe is a prolific Lithic Glauc trend where we’ve had success at Carseland with two three-hundred-barrel-a-day oil wells. We think that trend runs right through our lands and we’ve picked up some more high quality land with this acquisition and with our updated Prairie Sky deal.
There are two separate deals. We did do a revised contract with Prairie Sky on our freehold land, where we lowered the royalty to a 17.5% flat royalty; it’s not freehold land so it’s not subject to Alberta Crown royalties. We pay Prairie Sky directly, and we’ve got a longer term with it, we extended it from December 16th to April 2018, and smoothed out our capital commitment over that period as well. So combined together now, we’ve got a great runway for growth with 300 drilling locations, a 25,000-barrel oil facility in 257,000 acres of land.
WSA: Great. And what were some of the key drivers there behind the Q1 results?
Massimo Geremia: Well Q1, the additional growth at Carseland, we had our three wells up to about 1,500 BOE a day in March, so that added some production in Q1, and more importantly proved up our thinking on the play that there was potential for some very big potential oil discoveries, and we found two pools, Lithic Glauc and the Basal Quartz. Both produced very well in Q1. And now with that behind us, and the results matching the analog pools near us, we feel very confident moving forward that we can get some significant growth out of the Wayne/Entice area. Stolberg is just carrying along, our other area where we get about 33 or 3,400 BOE a day of our current production. We didn’t do any drilling there but we’re looking to do water flood here in Q4, and we look to come back drilling Stolberg up next summer 2016 assuming a little bit of bump in oil prices, and we will view Stolberg as more of a mature, steady asset where we‘re using water flood to reduce decline, do some drilling to keep it a little bit flat over the next couple of years.
WSA: Well good. And what are some of the other key trends that you are focused on right now in the sector and how is the company positioned to capitalize?
Massimo Geremia: I think the key now is just that the price of oil is lower, and we don’t know when it’s going to get better and how soon. So one of the reasons we got into the Entice/Wayne area was because of the great economics even at current strip pricing. Got outstanding returns even at current $60 WTI pricing going forward. So it allows us to be economic today, so we can drill and be accretive with our drilling. Immediately, we’re not waiting for any price to rebound. Also our deal with Prairie Sky in the freehold land, as opposed to crown lands, we got a little bit better royalty rates, and that allows us to be more economic currently. So our focus has been on making sure we’ve got a lot of opportunity in these plays that have the better economics and low prices. We’re working on dropping our capital cost and drilling and completion to go forward. We think we’ll see a significant reduction from 14 where we’re averaging 2.8 to 3 million per well. We think we’ll be in the 2.2 to 2.4 million per well or maybe a little lower. We’re also thinking of using a monobore drilling in one of our Glauc wells as we start drilling again. That would be significant, taking another $300/400,000 capital cost per well down further. So really the focus is on driving our cost down, getting the good opportunities, and making sure that we can not only survive, but thrive in a lower oil price environment.
Juan Costello: Great. And so what are some of the other key factors that you feel make the company unique from some of the other players in the sector?
Massimo Geremia: Well, I think we just have a little bit different strategy, you see some of the other juniors typically will find or go after an area where you’ve got proven production, and they’re coming in doing some development drilling, some secondary recovery. What we have delivered differently is, and again I always refer to small “e” exploration, we’re not doing any rank exploration in areas where oil has not been found. In the case of Entice/Wayne, there’s 200 million barrels of oil production surrounding us, Cenovus has drilled 44 horizontal basal quartz wells from 2010-2013 with success. They drilled 28 Lithic Glauc wells a little bit East of us, same thing was a success. So we’re taking what they have found with horizontal drilling, multi-stage fracturing, using that completion technology and how much it’s improved, and then applying it in our area where we see in the basal quartz and Lithic Glauc to be tighter sand. It’s not a shale where some of these techniques are being utilized. It’s very much more like a tighter sand like the Saskatchewan block or something along those lines. So the multi-stage fracturing works much better in that than it does in the shale, and we’re seeing the evidence of it in our well results.
WSA: And perhaps you can walk us through your background experience, Mass, and talk a little bit about the key management there?
Massimo Geremia: Sure. I’ve been involved with public companies for over 25 years, I spent most of 1990s with Boardwalk Equities, which was a real estate company, but we grew from about 3,000 apartment suites to about 27,000 apartment suites when I left in year 2000. 2001, I went to work with Equatorial Energy under Marshall Abbott; had success there for a couple years. Went over to Case Resources, which was the Jeff Tonken company at the time. Then when they sold that and formed up with Birchcliff Energy I was there, at the initial stages there. And that’s where we felt, we also formed Manitok at that time privately. Since then I’ve been focused on Manitok and driving that home, both as a private company and now as a public company and taking it from a couple hundred barrels a day to where we are now at 5,800 BOE a day currently producing, with some wells behind the play.
Our key guys from an operational point of view, engineering point of view, we’ve got Cam Vouri our COO, Tim Jerhoff, our VP of production engineering. Both have been involved with companies that have large-scale operations. Cam was involved with Provident where they went from 3,000 to 30,000 BOE so he is very capable of handling production increases of that magnitude in capital programs. Tim Jerhoff worked with Cam at Provident a few years back, the last four years he spent at EnCana, in the area with these actual lands and facilities that we just picked up. So he’s very familiar with it, very familiar with this area, and again has handled large scale drilling programs and production in the area. Don Martin our VP exploration has also been involved in larger scale drilling operations, Anderson Exploration in the past and Pan Canadian, to name a few. We’ve got a very experienced team. Each person has 25 to 35 years of experience, it’s a team that can handle large scale drilling programs, large scale production operations, and will help us to achieve our goals of getting to 20,000 BOE here in the next three-to-five years.
WSA: And what are some of the other key goals and milestones that you’re hoping to accomplish throughout the course of the next 12 months?
Massimo Geremia: Well now that we’ve locked up the land position, the facilities in the area and I believe have a more dominant position here. We’re the second largest oil producing area next to Cenovus, so it does give us a very strategic positioning in the Entice/Wayne area. With that land now we’re looking to add a financial or JV partner in the area, so we’ve been having discussions and talking to several groups that have shown a lot of interest since we announced the acquisition closing. In partnering up with us, right now we have a 100% interest, working interest, in all the lands and the facilities, so we’re looking to bring in a financial partner to maybe take 25/30% of the opportunity, and help us to accelerate the drilling program in the area. That’s going to be a key milestone here this year. Also with the success we had last year discovering two significant oil pools, one the Lithic Glauc, one the Basel Quartz, we continue to drill and prove that up, and we’re looking with our drilling in 2015 to at least prove up two additional new pools, likely both Lithic Glauc trends in and around the Wayne oil battery that we just picked up. Those are some of the predominant milestones or goals that we’re looking at this year.
WSA: Well good. And as far as investors and the financial community, what do you wish they better understood about the company?
Massimo Geremia: Well, I think it’s just in the last 18 months we made some very transformational changes with our assets. I think there’s been very much a sort of wait and see. The acquisition we just put together, that was the plan from day one. We were trying to do this all 18 months ago but had to step into it over the last 18 months. Now that we’ve put it all together, I think people can understand what we’ve been trying to do. We’ll spend a lot of time out there marketing in the upcoming months, the rest of 2015, to make sure the financial community understand what we’ve done and why we’ve done it. As well, we’ll begin drilling again in August and start to back up some of the stuff we’ve been saying with some proof in our drilling results. So I think the two together, providing drilling results, proving out more of what we talked about in these pools, and at the same time educating the street as to why we did it and what are the benefits of it, I think that will go hand in hand the next six months to get a better valuation in our stocks. Surely wouldn’t hurt if oil prices would have bounced up a little bit. That’s probably a big part of investor interest – if oil prices recover a bit we’ll see increased interest. But either way, I don’t think we’re fully understood. I think we’re very under-institutionally owned, and part of my goal in the next six to 12 months is to change that, get more institutions involved, and make sure the market is aware of what our opportunity actually is.
WSA: Great. And once again joining us today is Massimo Geremia, president and CEO of Manitok Energy Incorporated. The company trades on the TSX Venture, ticker symbol MEI and OTC Grey MKRYF, currently trading at $0.77 a share, and market cap is about $65 million Canadian. And before we conclude here Mass to recap some of your key points, why do you believe investors should consider the company as a good investment opportunity today?
Massimo Geremia: Well, I think what we talked about previously, the fact that it’s under owned institutionally, that we haven’t seen a large interest shown and that we are probably low in terms of our share price. When you look at the metrics relative to our peers we’re very cheap in comparison, both in our cash flow multiple and also in our net asset value being over $2 a share, very discounted to that. And our debt to cash flow is two times or a little under two times, so given the current environment that’s again a better place than some of our peers that might be at four or five times given the current oil price. So again, being cheap relative to our peers, given the opportunities that we now have with over 300 horizontal drilling locations that are not booked on our reserve report, all of that will improve value over the next year as well. The amount of reserves we have booked at Entice this year were limited just due to the new production and limited data, as these wells have produced in last three months and continue to produce we will get better data and more reserves. Our current production is ahead of the production predicted in our Sproule Reserve report; so all of that is going to add value as we go to the end of 2015. I think this is a great opportunity for investors to begin to establish a position over the summer here, prior to our drilling program beginning in August.
WSA: Well, we certainly look forward to continue to track the company’s growth and report on your upcoming progress. We’d like to thank you for taking the time to join us today Mass and update our investor audience on Manitok, it was great to have you on.
Massimo Geremia: Great. Thanks, Juan. I appreciate the opportunity to do so.