Joel Dumaresq the CEO of Molori Energy sits down with Maurice Jackson of Proven and Probable to discuss a very, very unique value proposition in Oil and Gas. In this episode Mr. Dumaresq conveys how Molori Energy has had the courage and conviction the past 18 months to deliver their existing shareholders a 10 fold increase in less than 12 months! Joel, shares the laborious efforts that Molori Energy has put into production by increasing from 40 barrels to 400 barrels a day and how that has contributed to increasing their Reserves from $5 Million to $30 Million. This has been accomplished on 120 PDP’s with an additional 350 NPDP’s in inventory that are in the recompletion process that will significantly add to the their production! But that is only half the story. Molori Energy is also exploring and they may have stumbled upon what maybe one of the BIGGEST new exploration plays onshore in the US, known as the Red Cave Formation! Should Molori Energy answer the unanswered questions with a yes then we are on to something special from a valuation standpoint. This is a must listen for value investors!
Welcome to Proven & Probable where we focus on metals, mining and more. I’m your host, Maurice Jackson.
Today we will discuss a company that presents a very unique value proposition in oil and gas.
I’m speaking of Molori Energy:
Trading on the TSX-V: MOL and on the OTCQB: MOLOF
Joining us for a conversation is Joel Dumaresq he is the CEO of Molori Energy
Mr. Dumaresq, welcome to the show.
Maurice: Joel, for first time listeners please share who is Molori Energy? (Where are you domiciled and where are your assets located)
Joel: Maurice, it’s a pleasure to speak with you and to share what we believe is a very positive story of our success in the oil industry.
Molori is a publicly traded company based in Borger, Texas…and our assets are based in the north of Texas in an area known as the Texas Panhandle. We are listed on the Canadian TSX Venture Market under the stock symbol MOL as well as here in the US on the OTCQB and under the symbol MOLOF.
Maurice: Joel, please share with us how Molori got its start and what the business is that you’ve been focused upon in the Texas Panhandle:
Joel: Let me start by telling you that when we began our business in Texas about 18 months ago, oil was at a cyclical low of about $26 per barrel and the industry was in turmoil. I look back on it now and question what we must have been thinking at the time….however in hindsight, it was the perfect time to act as assets were historically cheap and we were able to purchase a 25% working interest in some very compelling acreage for very modest money.
At the time, that production was small – about 40 barrels of oil a day, and the reserves were worth about $5M. We and our Texas-based partners then set about ‘re-completing’ or ‘repairing’ some of the old wells we inherited that had been broken down and had been non-producing for many years. Over the next 9 months, we re-completed over 100 wells during which we built our production from 40 barrels to over 400 barrels of oil – a ten-fold increase – and we further built our reserve value from $5M to over $30M – an increase of more than 600%!
During this period, and as a result of the success we’ve been enjoying, our share price also increased ten-fold, and yet in our opinion it’s still a great bargain at these levels.
Let’s now discuss in greater detail Molori’s accomplishments!
Maurice: You mentioned previously that Molori owns 25% of its assets, is that the case for all of its assets?
Joel: Initially we started with 25%. It was sufficient to let us get our foot in the door in the Panhandle, and yet also test our partner out to see how effective they would be at operating our well re-completion program. Once we’d established that this could be a good business for us, we approached our partner to increase our interest. Of course they initially resisted as they naturally wanted to retain their 75% as well as control. However, over time we demonstrated to them that Molori – with its access to the public markets – could raise money for further development. I also believe they quickly saw the value in owning our shares, and just last week – we reached an agreement to buy another 25% – bringing our interest to 50% in exchange for making them the largest shareholder in our company. So through that transaction, we double our interest in the production as well as the reserves, and we also have the strong endorsement of our partners who I think it’s fair to say are extremely pleased to own shares in our Company.
Maurice: Joel lets break down some terms for us in PDP and NPDP?
Joel: Sure. As I mentioned earlier, we have worked over more than 120 wells now and we’ve found that the typical well – following a work-over – produces between two and three barrels a day of oil equivalent. So effectively that’s how we get to our production figure of about 425 barrels of oil equivalent per day.
As far as the non-producing wells, we still have over 350 non-producing wells on our initial acreage.
Maurice: What is Molori’s strategy with its re-completion program and timeline to take the 350 Non-Producing Wells and return them to production?
Joel: Presently we have two work-over rigs conducting work overs which should enable us to continue to continue to build production. Our present focus has shifted to our exploration and development program which we believe has the potential to much more quickly grow our production and reserves, however we will continue to devote resources to the recompletions.
Maurice: What can you share with us about the decline rate on these wells?
Joel: Many of these wells have produced for 30 years or longer. The good news about that is that the decline rates are very modest – what we’ve found is consistent with other operators in the area – about a 4% decline per year, so very manageable in terms of replacing that production with the ongoing re-completions.
Maurice: You just mentioned exploration, so now let’s jump to the Red Cave and your recently announced exploration program What is the thesis you are trying to prove?
Joel: Through our re-completion campaign Maurice, we established that we could operate effectively in North Texas and build reserves and production. Then, earlier this year, we stumbled upon what we and others believe could be one of the BIGGEST new exploration plays onshore in the US – our Red Cave play.
When I say we “stumbled” upon it, what I’m referring to is the fact that we were not the first to identify the potential in the Red Cave formation.
The Red Cave is very shallow – about 2100-2400 feet below the surface.. However, the oil and gas is very tight, so previously explorers largely drilled through the Red Cave down to deeper formations where they achieved better production and ignored the Red Cave. 30 years ago, they just didn’t have the technology to allow them to produce from tight formation.
Then, two years ago, a small private company – Adams Affiliates – begn quietly drilling into the Red Cave and using modern technology and having tremendous success with their drill program… So Adams gets the credit for identifying the play!
We just happened to have adjoining acreage to Adams, and when we researched their efforts, we found that what Adams had been doing was bringing large scale frac’ing technology (basically underground explosions) – similar to the massive frac’s that have transformed the Permian Basin – to the Red Cave, and effectively getting the tight oil and gas to flow…something that prior explorers had not thought possible. Over the past year and a half, Adams has brought more than 50 new, producing wells online. They’ve increased their production ten-fold and they now sit on $100 million or more in reserves. A Very impressive result…
Well it just turned out that we ourselves, along with our Texas-based partner, had a couple thousand acres with access to the Red Cave.
On our existing acreage, we have several hundred potential drill locations and with that in mind, last month we tested the hypothesis with our own M1 well, which we successfully flowed at between 20 and 25 barrels a day – and that’s prior to frac’ing the well, or measuring the gas content.
So bottom line, our hypothesis is that we can duplicate the success Adams has had in the Red Cave….albeit with one twist…
Maurice: What’s the twist
The parcel of land that Adams has been drilling upon is less than a thousand acres in size, however our land with access to this compelling Red Cave is collectively almost 15,000 acres of 15 times the size of what Adams has been focused upon.
Maurice: What are your plans to drill or test this large tract of acreage
Joel: Maurice we’ve already completed our first well – which we refer to as our M1 well on some of our initial acreage. We’ve yet to frac the well nor have we tested the gas content of the well. However, the oil content alone has been flowing since completion at a rate of about 25-30 barrels a day which is consistent with the results that Adams has posted.
We’ve just announced that we are planning a $3 million drill campaign for about 8 appraisal wells to be drilled into the Red Cave and other formations on our newest and most prospective acreage. Of course we also plan to conduct large scale fracs on these wells to maximize production.
Maurice: So to confirm for our listeners, Molori already has production and you are currently drilling?
Joel: That’s indeed correct. We are producing not only from our re-completed wells, but also from the M1 well and as the next phase of our program to begin appraising our broader acreage, we are planning to drill 8 or more wells in order to frac and test the Red Cave formation.
Maurice: Joel who makes the decisions with respect to both your recompletion program as well as your recently announced drilling and developments programs?
Joel: That’s an excellent question. I told your listeners a few moments ago that our Texas-based partner operates our well re-completion business. That’s a very specialized and hands-on business and therefore its highly appropriate that people who have the expertise and experience in that business operate it for us and make the operational decisions.
However, with Molori’s recently announced acquisition of a 75% interest in 11,000 acres of prospective Red Cave acreage, we have chosen not only to have the lion’s share of the opportunity, but also to act as “operator”. Our Molori team, which we are adding to as we speak, has strong operational experience in drilling and development.
So with respect to the drilling and exploration program, I along with my team will be making the key operational decisions and providing the direction to our people on the ground in Texas.
Maurice: So that would seem like a good time to ask about the Molori team and its capabilities. What can you tell me about your management and operations team?
Joel: I’ll start by saying how proud I am of the team we’ve assembled. A more thorough breakdown of their backgrounds can be found on our website, however I’ll highlight just a few starting with myself. I come from the capital markets world having worked in the investment banking industry in Canada for many years. Prior to becoming involved in Molori, I was in senior management with an exploration company that was drilling oil wells in eastern Africa. My CFO, Theo Van Der Linde has 20 years experience in the resource industry and is intimately familiar with the capital markets and with capital raising. As far as our key operational staff, our Borger, Texas – based general manager is Randy Dixon. Randy has over 50 years of experience in the Panhandle re-completing and drilling wells and has also built and successfully sold a number of oil production companies and assets. Randy keeps reminding us that he’s doing this work for us..not because he needs to be working, but rather because he enjoys the challenge. On the Geological and technical side, we have as an advisor Murray Grigg. Murray is based in Houston and is widely considered one of Texas’ leading experts on the Red Cave formation as well as other key formations in the north of Texas. So I think it’s fair to say we’ve got the expertise and horsepower to be very successful with what we are doing.
Maurice: How many potential well locations does Molori have under lease contracts?
Joel: Now Maurice, you are getting to the meat and potatos of our story – and our value proposition. In our estimation and following our most recent acquisition, we have several hundred potential well locations with access to the Red Cave.
You’ll recall I told the story of Adams Affiliates. Now our technical department recently built a model where they took the data from the first 40 Adams wells, and built on typical or average well from Adam’s results. That average well, flowed at approximately 50 barrels of oil equivalent a day. Of course, not every well will be a success as have Adams, and not every well will flow at 50 barrels a day, but you can begin to see what the potential is here if we have just half the success that Adams has had to date…it could be several thousands of barrels of oil and gas equivalent production a day.
Maurice: Now let’s get to the fun stuff!!! Talk to us about costs and the value proposition on the drilling
Joel: The good news is that the wells we are drilling are not deep expensive wells like what we were faced with on my previous project in Africa. These are relatively shallow and straightforward wells. Effectively standard vertical wells going down 3,000 to 3,500 feet. Better yet, Texas is loaded with drilling operators and idle equipment right now, so drilling expense is very reasonable. A typical well to that depth costs about $250,000. Adding on a large frac of 200,000 to 250,000 pounds of sand, that makes the all in cost about $325,000. On a 50 barrel a day well, that’s about a 6 month pay back – very, very attractive risk-return.
Maurice: How about the geological risk?
Joel: Going back once again to my experience in Africa, we were admittedly chasing very large targets. However, we typically were working with about a 15% geological chance of success. High, high risk, high reward.
Comparatively, here with the Red Cave our risk is much lower, and our geological chance of success much higher – about 85% chance of success.
The reason for this, is that this part of Texas is a proven hydrocarbon producing system, so although you will get varied pay levels on different wells, and thus varied pay backs and rates of returns, your chance of having a dry well is very, very low. It’s really more about being having a good technical picture of how to best attack your acreage and then being well funded to execute on your plan.
Maurice: Joel, that would seem like a good time to touch upon some numbers and your Company Metrics. Can you tell us about your cash levels as well as the amount of debt on your balance sheet?
Joel: Maurice, I’m pleased to say we have a very clean balance sheet. We presently have about $1 million in cash and no debt. Through our Texas-based partner, we further have access to a “Reserve-based loan” facility upon which we can draw funding at an attractive 4% to assist with our workover activities.
Maurice: Tell us about your share structure
Joel: At this time we have approximately 33 million shares outstanding as well as 7 million warrants and 3 million incentive options. There are no change of control provisions or fees restricting a buyer from acquiring the company. Management and Insiders have a sizable stake with with about 25% ownership in the Company.
Maurice: Joel, what keeps you up at night that forgot to ask?
Joel: Maurice, I think we’ve done a pretty effective job to date of demonstrating that we can execute and deliver for our shareholders, so generally I sleep very well. However, if anything were to keep me up, it would probably have to do with global energy prices and the fact that we cannot control those.
Now as you will recall, when we began this effort just over 18 months ago, energy prices were just over half what they are today, so that’s been a positive. And moreover, if oil prices soften, it presents me again with the opportunity to go out and secure more assets at attractive valuations. However, like most people in Texas…I’m hopeful we will see energy prices continue to strengthen…I don’t expect to see them back to $100 soon..but $60 or $65 would be very welcome news and would do tremendous things for our reserve valuation!
Maurice: Joel for someone listening that wants to get more information please share the website and contact details.
Joel Dumaresq of Molori Energy thank you for joining us today on Proven and Probable.
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