EW.V / EWPMF - East West Petroleum

[moustachio]

East West is a tiny Candian E&P microcap who has, as they say in their investor presentation: "Portfolio of assets has access to approximately 1.3 million propsective exploration acres in five countries" . The current share price is .10(CAD), and I believe after the grant of recent stock options the fully diluted count is about 105 million shares for updated fully diluted market cap of 10.5 million. As of September 2014 they had 9.3 million in cash(10.2 million current assets) and no long term debt. The company has been buying back shares on the open market, but the volume on the Canadian exchange is pathetic. Their most recent quarter had 2 million in revenue from oil production.

 

They have two assets that really matter. They have 30%, 40%, and 50% working interests in New Zealand with TAG Oil (TAO.TO) as the Operator. They have current production of 250 boepd (net to EW) from three currently producing wells(out of 9 wells drilled). Another of the nine wells is being recompleted and another is shut in for a feasibility study (it tested an average 127 boepd over 5 days).  The other asset is four blocks comprising a million gross acres in Romania. EW completed a farm out agreement with Naftna Industrija Srbije(majority owned by Gazprom) as the operator. EW is fully carried for a 12 well phase 1 exploration(3 per block), and for another 3 optional per block for a potential phase 2. They have a 15% working interest in Romania.

 

Corporate presentation:

http://www.eastwestpetroleum.ca/assets/downloads/EWP_CORPORATE_PRESENTATION.pdf

 

Most recent operational update from EW:

http://finance.yahoo.com/news/east-west-petroleum-provides-operational-191500031.html

The Nova-1 rig has arrived in the Taranaki Basin and has now spudded the Cheal-E6 well. The Cheal-E6 well will be targeting the Mt. Messenger sandstones in proximity to the Cheal-E1 and Cheal-E4 wells and is expected to take approximately 21 days to drill. The Company's share of drilling costs for the Cheal-E6 well amount to approximately $1 million and will be funded out of the Company's existing cash balance.

 

http://blog.tagoil.com/ Quote from Tag oil blog on the E-6 well they are drilling with EW as a partner:

Cheal-E6 well perforated and production testing starts

Posted on Tue, Dec 09, 2014

 

Here are some shots of our capable contractors dropping the bar to perforate the Cheal-E-JV-6 well, as we initiated production testing.

 

The Cheal-E6 step-out well was successfully drilled to 1,939 meters (6,360 feet), and it fulfilled its main objective: to intersect oil- and gas-bearing sands in the Mt. Messenger Formation. It’s interpreted to have intersected more than nine meters (29.5 feet) of net oil- and gas-bearing sands, and the well is being completed as a potential oil well with production testing underway.

 

http://seekingalpha.com/article/2689915-tag-oils-taoif-ceo-garth-johnson-on-q2-2014-results-earnings-call-transcript

A quote from Tag Oil's earnings call  transcript on the producing E-1 and just drilled E-6 wells:

In the meantime, we're happy to have the Nova-1 rig back in Taranaki and drilling the kind of wells we're experts in. As Garth mentioned, we're presently drilling Cheal-E6, a 70% TAG follow-up well to the profuse Cheal-E1 Discovery we drilled last September. I predict Cheal-E1 will become the best Mt. Messenger producer we have ever drilled.

 

No other Miocene wells we produce in Taranaki have ever kept flowing naturally for more than three or four months without needing artificial lift. Cheal-E1 has been producing naturally for over a year now, and doesn't show any signs of slowing down. That single well is still producing about 550 BOEs a day, over 80% oil. Nearly $20 million worth of oil already out of a well that cost us 3 million to drill and complete. Not too bad. Cheal-E6 is targeting that same pool, clearly a pool with lots of oil in place.

 

This company has made some decisions that might be pretty questionable. They obtained an interest in Morocco, but then did not complete the obligations and are going to lose the interest, for a loss of almost 4 million. Perhaps that is to be expected for an early stage exploration company taking multiple shots around the world though:

 

From interim statement ended June 30, 2014:

Effective November 28, 2011 the Company and the Office National des Hydrocarbures et des Mines

(“ONHYM”), an agency of the Moroccan government, entered into agreements whereby the Company was

granted an exploration permit (the “Exploration Permit”) for a 75% participation interest in a prospective

exploration block(the “Doukkala Block”) situated along the Atlantic coast southwest from Casablanca, Morocco.

 

The Company has provided a US $3,500,000 guarantee (the “Guarantee”) in favour ofONHYM as security for

performance ofthe Phase 1 program. The amount is deposited in a savings account with a major Canadian bank.

The Company requested an extension from ONHYM for the time required to complete the Phase 1 work

program. To date ONHYM has not consented to an extension and as a result it is unlikely that the Company will

incur the full amount of the Phase 1 work program by the current deadline. The Company has determined that

with no extension to complete Phase 1 work program that its Guarantee in favour ofONHYM is at risk ofbeing

called and that the amounts posted as security to complete Phase 1 work will be lost.  Accordingly, during the

fifteen months ended March 31 , 2014 the Company has recorded a provision of $3,868,550 against the

Guarantee. See also Note 1 6(b)

 

This company looked very cheap to me. It seemed to probably be undervalued just taking into consideration the NZ assets and production along with the cash on hand. The Romanian assets looked like a multibagger call option that wasn't being priced in, likely due to Russia's recent actions in the Ukraine as the Romanian working operator is majority owned by Gazprom. Unfortunately, with the oil price going down it looks like their future ability to fund drilling is going to be dependent upon success of a limited number of wells and the price of oil. The Romanian interest remains exciting, success there could mean a lot of upside still. I think it is a very interesting company at this price though.

 

Disclosure: long

 

[moustachio]

Good news, the E-6 well looks like it will be a decent producer.

http://finance.yahoo.com/news/tag-oil-updates-cheal-e6-161900528.html

Over a period of eleven days the Cheal-E-JV-6 well (Cheal-E6) continues to naturally free flow under a 16/64 choke at stable rates. During the test period Cheal-E6 (TAG: 70%) produced an average of 325 boe/d (81% oil) for a total of 3,178 barrels of oil and 4,456 mscf of gas. The well will be shut-in for a planned pressure build-up test up for a period of three days and then will resume ongoing production into TAG's production facilities.

 

I guess a big question is what is the interest in the Romanian assets worth, when a decent sized partner has already committed to funding the initial exploration work? I would think that asset is worth 1 or 2x the current market cap of this stock... which would mean IMO that this stock should be worth at least twice what it is currently trading for. If they hit commercial deposits there should be a lot of upside. If they don't, well, this stock isn't exactly priced for extreme success anyways at this point.

 

Any thoughts, anyone?

[moustachio]

http://finance.yahoo.com/news/east-west-petroleum-announces-successful-123000979.html

 

East West Petroleum Announces Successful Recompletion of the Cheal-E2 Well

PEP 54877: Cheal North East Permit (70% TAG Oil / 30% East West)

 

Following recompletion in the Mt. Messenger formation, a 15 day flow test of the Cheal-E2 well was completed where the well flowed naturally at an average rate of over 100 boepd (73% oil) for a total of approximately 1,465 boe during the test. The well will now undergo pressure and temperature analysis and be placed on permanent production to the Cheal E-site production facilities.

 

The Cheal-E1, E5 and E6 wells continue to produce at steady rates of approximately 330 boepd (76% oil) net to East West with little decline to date. The Cheal-E4 well is temporarily shut in awaiting completion of the gas pipeline from the Cheal E-site. This pipeline is expected to be completed and commence operations in mid-2015 and will immediately increase East West's revenue with gas sales to the New Zealand market.

 

They have also been buying back stock intermittently and canceled some stock options:

http://finance.yahoo.com/news/east-west-petroleum-renew-normal-133000071.html

http://finance.yahoo.com/news/east-west-petroleum-cancels-stock-214000244.html

[bizaro86]

Interesting. Does anyone know anything about the management? The Vancouver address and Yorkton securities background (where the CEO was a top producer!) don't seem like obvious places to look for oil and gas expertise to me, but this is pretty undeniably cheap.

[ItsAValueTrap]

Interesting. Does anyone know anything about the management? The Vancouver address and Yorkton securities background (where the CEO was a top producer!) don't seem like obvious places to look for oil and gas expertise to me, but this is pretty undeniably cheap.

 

He's also an ex-pro football player and quasi-restauranteur.

http://www.bcbusiness.ca/people/david-sidoo-the-player

 

I think their business plan is kinda dopey.  First of all, with these small caps it's hard for shareholders to make money because the frictional costs are rather high.  In YE2011, it seems that David Sidoo was paid around $805,608 (depending on how you value the options) as a director according to the management information circular filed on SEDAR.  For a company that did not raise a lot of money, all the compensation going to insiders is a big drag on performance.

 

I also don't get why it makes sense for a small E&P company to go around the world looking for oil.  It doesn't make a lot of sense given the company's size.

 

If you read all the circulars (I didn't) you'll get a better idea about what management is up to.

[moustachio]

Interesting. Does anyone know anything about the management? The Vancouver address and Yorkton securities background (where the CEO was a top producer!) don't seem like obvious places to look for oil and gas expertise to me, but this is pretty undeniably cheap.

 

http://www.eastwestpetroleum.ca/about/board_of_directors/

Mr. David Sidoo is a successful businessman based in Vancouver where he oversees a successful private investment banking and financial management firm. Upon graduating from the University of British Columbia in 1982 where he held a four-year football scholarship with the UBC Thunderbirds, he was drafted to play professional football with the Canadian Football League. David retired from football in 1988 and was introduced to the brokerage business. From there he became a broker with Yorkton Securities where he quickly became one of the company's top revenue generators. He went on to become Partner and Advisory Board Member at Yorkton Securities, consistently generating commissions that ranked in the Top Five nationally. In 1999, he left Yorkton to pursue private investment banking. He was founding shareholder of American Oil & Gas Inc. (NYSE -AEZ) which was sold to Hess Corporation in Dec 2010 for over US$630 million in an all-stock transaction. In 2008, The Vancouver Sun voted Mr. Sidoo one of the top 100 South Asians making a difference in British Columbia. In 2014, Mr. Sidoo was appointed by the British Columbia Government to the Board of Governors for the University of British Columbia.

 

That quote says he is a "founding shareholder" of AEZ. That doesn't really tell you much, but he at least has some investment experience in O&G. He also has a webpage, which I find kind of funny:

http://davidsidoo.com/

 

I honestly don't know a ton about management, or the history of the company. I ran into this one some years ago and filed it in a dead money watch list. Once it got down to really low prices I revisited it. It just looks dirty cheap when you look at the cash on hand, producing assets, and non-producing assets. I don't have a ton of faith in management, but then again they aren't the working operators for either of their two main assets, so the working operator company's management teams are in many ways as relevant as East West's management. At least they are willing to buy back shares.

 

 

 

[bizaro86]

 

I honestly don't know a ton about management, or the history of the company. I ran into this one some years ago and filed it in a dead money watch list. Once it got down to really low prices I revisited it. It just looks dirty cheap when you look at the cash on hand, producing assets, and non-producing assets. I don't have a ton of faith in management, but then again they aren't the working operators for either of their two main assets, so the working operator company's management teams are in many ways as relevant as East West's management. At least they are willing to buy back shares.

 

Thanks for replying. I'm conflicted on this. If I trusted management to return capital, this would be a back up the truck position, since its really, really cheap. I really like the New Zealand asset. On the other hand, if they spend the cash/cashflow from New Zealand on empire building and executive comp then shareholders are no better off...

[moustachio]

 

I honestly don't know a ton about management, or the history of the company. I ran into this one some years ago and filed it in a dead money watch list. Once it got down to really low prices I revisited it. It just looks dirty cheap when you look at the cash on hand, producing assets, and non-producing assets. I don't have a ton of faith in management, but then again they aren't the working operators for either of their two main assets, so the working operator company's management teams are in many ways as relevant as East West's management. At least they are willing to buy back shares.

 

Thanks for replying. I'm conflicted on this. If I trusted management to return capital, this would be a back up the truck position, since its really, really cheap. I really like the New Zealand asset. On the other hand, if they spend the cash/cashflow from New Zealand on empire building and executive comp then shareholders are no better off...

 

No, thank you for replying. This has been a lonely thread...

 

I agree that it looks really, really cheap. What would be your rough valuation for the main assets (NZ and Romania), or the company as a whole? As for returning capital, this is still a young junior explorer. In a sense its remarkable it is doing buybacks at all at this early stage, even though the valuation is so low.

 

 

[moustachio]

March 26 interview with CEO David Sidoo:

http://www.theenergyreport.com/pub/na/with-expertise-and-a-little-luck-east-west-petroleum-reels-in-profits-despite-oil-price-plunge

 

DISCLOSURE:

1) Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.

2) East West Petroleum Corp. paid Streetwise Reports to conduct, produce and distribute the interview.

3) David Sidoo had final approval of the content and is wholly responsible for the validity of the statements. Opinions expressed are the opinions of David Sidoo and not of Streetwise Reports or its officers.

 

So, its a pump piece "interview", but still worth reading. It provides some information and updates.

 

TER: What was your experience in oil before East West?

 

DS: More than a decade ago, I became involved in a company in the Pannonian Basin called Gasco Energy Inc. We secured acreage and raised over $150M. Gasco has some very good reserves and is doing well.

 

We then formed a company called American Oil & Gas Inc. in 2013. We worked in the prolific Bakken fields in North and South Dakota, and sold the company to Hess Corp. for $630 million ($630M) in 2010.

 

Well, American Oil & Gas obviously looked successful, but what about Gasco Energy?

http://www.bizjournals.com/denver/blog/earth_to_power/2013/10/gasco-energy-restructures-shakes-up.html?page=all

Doing well?  Lol?

 

 

[moustachio]

http://seekingalpha.com/article/3696146-nis-a-gazprom-division-carries-east-west-petroleum-for-a-12-well-program-and-more

[moustachio]

Drilling in Romania is finally underway,  but the volume and market cap(13.5 million) are still unbelievably low.

 

http://investingnews.com/daily/resource-investing/energy-investing/oil-and-gas-investing/east-west-petroleum-drilling-underway-romania/

East West Petroleum Corp. (TSX VENTURE:EW) (“East West” or the “Company”) is pleased to announce that we have been informed by our JV Partner NIS that drilling operations have commenced. Drilling of the first well in EX-7 Periam block, in the Pannonian Basin of Western Romania, commenced on January 21, 2017. The well will be targeting conventional oil and gas-bearing zones and will be drilled to a total depth of approximately 2,500 m, consisting of two primary and three secondary geological targets. Coring will be completed on hydrocarbon bearing zones encountered during drilling, followed by wireline logging. Drilling and testing of the well is forecasted to take 50 – 60 days in the accordance with the highest ecological standards. NIS will be funding 100% and fully carrying East West through the Phase 1 and Phase 2 exploration periods in return for earning an 85% interest in the blocks”.

[moustachio]

Their assets in NZ probably won't be developed in the following year except for maybe working over existing wells. However, I still think those producing assets and their cash( almost 7 million with no LT debt in most recent filing I believe) pretty much cover the existing market cap, and the Romanian drilling that is underway is a mostly free option that could have multibagger potential.

[moustachio]

I find it hard to believe no one is interested in this. It is undeniably cheap, isn't it?

EW is fully carried for a 12 well phase 1 exploration(3 per block), and for another 3 optional per block for a potential phase 2.

 

Are people not interested because it is so small, or is it because of the lack of volume that makes it difficult to build a position? Or are people quietly building positions? Comments, anyone?

[moustachio]

The three most recent seeking alpha articles on EW. The first is an update since NIS started drilling in Romania:

http://seekingalpha.com/article/4048048-everyone-get-lottery-tickets-nis-drilling-first-well-east-west-petroleum-leases?auth_param=1dih3a:1capm2r:be2df07f8ff7ad1136c053dabe0bf040&dr=1

 

The current share price has more than C$.07 per share backing the price. With the latest closing price of $.12 in the United States, about half the price of the stock is cash when figuring in the conversion factor. That cash provides considerable downside protection in the event that the news from the first well is unfavorable. The current ratio is more than 4:1 and the company has no long-term debt.

 

At the end of the September 2017 quarter, the cash balance was nearing C$7,000,000. So, the company has plenty of cash for any possible contingency. Up until last year, the company had regularly repurchased shares. But all the activity surrounding the drilling news has increased the price of the stock to the point where the company is not repurchasing stock. The company also has an investment in Advantage Lithium (OTCQB:AVLIF) which is worth C$2.4 million more than the investment cost at the end of the September quarter. In the past, East West has sold some shares for cash. It appears to be a readily marketable investment.

 

Current cash flow comes from a joint venture with TAG Oil (OTCQX:TAOIF). East West Petroleum usually receives a share that is at least 100 BOED and sometimes exceeds 350 BOED. Some cash may be needed to fund a potential water flood project and maybe a well or two, but the company has far more cash than required. With very little expenses, the cash keeps building. Success in Romania with NIS could provide a use for some of that cash. But the carry provision of the joint venture agreement ensures enough evidence that the company should be able to obtain a bank loan for any future necessary funds under the agreement. The NIS agreement is far more significant at the current time than the joint venture with TAG Oil and could be a company maker.

 

Two other articles:

http://seekingalpha.com/article/4005576-thought-tag-oil-bargain-wait-see-partner

 

http://seekingalpha.com/article/4026329-east-west-petroleum-incredible-discount-right-now

[mttddd]

I find it hard to believe no one is interested in this. It is undeniably cheap, isn't it?

EW is fully carried for a 12 well phase 1 exploration(3 per block), and for another 3 optional per block for a potential phase 2.

 

Are people not interested because it is so small, or is it because of the lack of volume that makes it difficult to build a position? Or are people quietly building positions? Comments, anyone?

 

i will probably open a position in this, i like the risk reward on it. That said i think the fact that it is technically a penny stock scares people off. I also suspect it would be hard to build any sort of sizeable position so might not be worth it folks with a larger bankroll