Aroway Energy CEO Chris Cooper Talks about Oil and Gas Production Ramp-up in Alberta’s Peace Arch Basin

Aroway Energy (TSX.V:ARW) (OTCQX:ARWJF) (Frankfurt: A7X1) CEO Chris Cooper is the guest on Midas Letter Money in this segment shot in Vancouver, BC. Cooper describes how Aroway’s goal of achieving production of 2,000 barrels of oil per day is right on track. The company has met or exceeded its stated milestones virtually every step of the way.

Aroway is focused on the Peace Arch basin of north central Alberta, and is surrounded on all sides by much larger intermediate and major producers such as Birchcliff Energy Ltd. (TSX:BIR), Canadian Natural Resources (TSX:CNQ), Crescent Point Energy (TSX:CPG) and Shell Canada (NYSE:RDSA). Aroway expects to exit 2012 with production of at least 1,200 BOE/d.

Transcript of Interview:

James West: Hi I’m James West this is my Midas Letter Money. Today, we’re going to look at oil and gas company that’s producing oil in the piece arch region of Alberta. My guest today is Chris Cooper and he’s the CEO of Aroway Energy Inc Trades on the TSX Venture Exchange under the symbol ARW. Chris, thank you for coming today.

Chris Cooper: Thank you.

James West: Chris, you’ve finished 2011 with 650 barrels per day exit production. Tell us a bit about 2011 and what we’re going to see in 2012.

Chris Cooper: In 2011, we communicated to the market. We wanted to exit at 600 BOE a day. We exited at 670 BOE a day, so we really pride ourselves on making targets that we can meet and then actually we surpassed these one, so we’re very proud of that. For 2012, our 2012 guidance is to exit 1200 barrels a day. We are on target for that right now. It’s still very early in the year, so we’re pretty confident that we will meet and hopefully we’ll be able to exceed that target again.

James West: Okay, you are 50-50 joint ventured with another partner and if I read correctly your partner actually controls all of the distribution on the land where you’re drilling as well as is the underlying owner of all of the oil and gas concessions upon what you’re drilling, correct?

Chris Cooper: Partially correct, yes. So, we are the non-operating partner in the joint venture. Our partner when we’ve first got involved in the joint venture partnership, they had access to 40 sections of land which they owned. Since then, together as the two of us have acquired — and we built that land position up to 101 sections, so more than 50% of the lands that we have accessed to, we’re 50-50 partners. So, we’ve really grown from September 2010, we had a four-section farm and now we have accessed to over 101 sections.

James West: So, a 101 sections that’s like 68,000 acres?

Chris Cooper: It’s around 64,000 acres, yes.

James West: Twenty nine thousand hectares. Now, how much of that are you going to drill in 2012?

Chris Cooper: For 2012 program, we anticipate drilling nine wells, mostly targeting the Leduc Formation which is a pinnacle reef that we’ve been targeting in the past. Lot of those reefs have a lot of oil in them or oil focus company. So, our 3D seismic and the new 3D seismic that we’re currently shooting right now should identify a number more locations and prospects for us to continue to drill.

James West: Okay so let’s touch on the fact that you’re oil-focused right now, because that’s interesting. We’ve got gas prices that are falling, oil prices are rising. What percentage of your exit production was oil?

Chris Cooper: Seventy five percent of our 2011 exit production was oil.

James West: Okay and the rest was gas?

Chris Cooper: The rest was gas, yes.

James West: Interesting. Now, you’re in a prolific region, as I recall your neighbor is Birchcliff Energy directly to the west?

Chris Cooper: Yes.

James West: And they were the recipient of two unsolicited offers for a takeout. They haven’t reached any conclusion of that. We don’t how much the offers were for, but how much oil and gas were those guys producing?

Chris Cooper: So, Birchcliff is — I believed they’re producing a little over 17,000 barrels a day. I think they want to exit 2012 at 19,000. I’m not sure. But yeah, they were approached several months ago. They had two unsolicited offers and therefore put themselves up for sale. The market has yet to hear what’s going on there, but Birchcliff is just one of the majors that surround us. We’re surrounded by Canadian Natural Resources, Crescent Point Energy, Shell Canada, so we’re in a very, very hot area right now and surrounded by several major companies.

James West: So, in fact all of the companies that you’ve just mentioned there are well in access of a billion dollar market cap?

Chris Cooper: Yes.

James West: And that they are all contiguous with the border of the ground that you’re working right now.

Chris Cooper: That’s correct, yes.

James West: So, theoretically we could see a lot of interest should you developed a lot of 3D seismic targets as well as some producing wells?

Chris Cooper: Yes, so we’ve had some good production. We’re drilling a number of bigger wells. We’ve undertaken a big seismic program of 55 square kilometers. We expect to generate about another 30 to 40 Leduc prospects through that seismic and it’s just part of our strategy for the end of the day in one of these bigger companies to hopefully buy us out.

James West: Sure. Now, you closed the year out. You made two cents per share?

Chris Cooper: Yes.

James West: So, that indicates you’re cash flow positive?

Chris Cooper: Yes. We are Q1. Numbers came out in December and we did just around 3.4 million in revenue. We had a net income of just under 700,000 and earned 2 cents a share.

James West: Okay, so you don’t need to raise anymore money at this point?

Chris Cooper: We don’t need to raise anymore money.

00:05:00

Our last financing was in December 2010. We raised $5 million and we had a number of share purchase warrants associated with that financing which all we’re exercised in December 2011. So the cash that we generated from our warrants along with our monthly cash flow and our bank line with 4.5 million, we have enough money to proceed and drill right through our 2012 drilling campaigns.

James West: In 2012, what are the investors got to look forward to that might involved themselves with their way at this point?

Chris Cooper: Well in 2012, we have — again, we have nine wells that we planned on drilling. We’re going to be processing our 3D seismic that we’re shooting right now. I think there’s still a lot of growth for the company, a lot of growth in the stock right now. We’re trading around 72,000 of flowing barrel. I think there’s been seven transactions in 2012 thus far, at an average of over $82,000 of flowing barrels, so I think there’s still lots of growth for us. Again, we’re oil-focused so I think we have — there’s a lot of opportunity for us to continue to grow.

James West: Okay. So Chris let me ask you, Is this your strategy to continue as a producer, or are you looking for the big takeout?

Chris Cooper: We’re looking for a takeout. Along with our joint venture partner, we control a 101 sections of land. We’re surrounded by major companies. Our joint venture partner owns all the infrastructure in the area. If you’ve taken into account our production, 670 BOE a day, you have to double that because we’re only 50% of the production as joint venture partners, the other 50%. We’re at level right now were companies are starting to take a peak at us, so I think maybe after our summer drill program hopefully there’ll a lot more people looking.

James West: So, what’s the kind of production exit wise in total from your land position that would trigger the kind of a takeout offer?

Chris Cooper: That’s tough. It’s hard to predict what companies are looking for. I just look at our situation is very unique because we have very strong production. We’re oil-focused and we have all the infrastructure there. For lack of a better turn, we’re a turn key acquisition. Somebody can walk right in and take over and everything is there. They don’t have to build their own infrastructure where everything’s built for them.

James West: Interesting. So, you’ve got nine wells being drilled. You don’t need to raise any money, grow in production, oil-focused, huge land positions, surrounded by majors. Chris, I want to leave it there and that sounds really interesting. We’re going to be watching with interest. I’d like to thank you for joining us today.

Chris Cooper: Thank you.

James West: If you’d like to learn more about Aroway Energy, feel free to visit them on the web at arowayenergy.com. That’s A-R-O-W-A-Y energy.com. And if you’d like to learn more about companies like Aroway at the earliest part of the value creation curve, visit Midasletter.com. I’m James West and this is Midas Letter Money.

00:07:43

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