Aroway Energy Inks New Partnership, Production Growing: CEO Interview
I sat down with Chris Cooper of Aroway Energy Inc. (TSX.V:ARW) recently to find out why the stock had suddenly increased by 50%. It has since come off a bit, but the developments within the company suggest that 2014 may be the breakout year for Aroway.
Listen to the audio interview:
James West: My guest today is Chris Cooper. Chris is the CEO and President of Aroway Energy, Inc. Trades on the TSX Venture under the symbol ARW. Chris, thank you for joining us once again!
Chris Cooper: Thank you James..
James West: Yeah. So your stock has gone up by 50% since I was here in December 2013. What’s driving the stock and what’s going to drive it in the future? Is it going to continue with this trend?
Chris Cooper: I think in December we were a victim, like many of the other venture stocks, of tax-loss selling. We kind of were in that — I think we got as low as $0.17, and as soon as the tax-loss selling kind of stopped, we jumped right back up to $0.30 and above $0.30, and we have had a lot of positive news since then as well. So I think that’s been kind of some of the things that have initially helped the company.
We have had some good news in that we began drilling some new wells. We have been very successful in cleaning up our balance sheet, which to me has been one of the most important things for the company, especially going forward.
James West: Right! Okay. So then is it the success that you have had in drilling your wells that is attracting fresh investment?
Chris Cooper: Well, I think the success that we have had has been very good. We just brought on a new well in our Kirkpatrick Lake property, 100% owned by us, nice oil well. We are keeping it — we are just waiting for it to stabilize. It’s doing a little over 100 barrels a day today, and once it gets to a nice stable rate we will start to turn it up. We are hoping it will be equally as successful as our existing Kirkpatrick Lake well, as far as production goes that is.
We signed a very big agreement with a New York Stock Exchange listed major company on a farm-in, in Saskatchewan, and it actually fills in all the spaces that we don’t already own in this Kerrobert area of Saskatchewan, which is a very big deal for us. We are looking at this to be a new core area for the company. Currently we are shooting a 21 square kilometer 3D seismic program.
And I have been under some current negotiations with a couple of private companies to install a disposal facility at our producing West Hazel property in Saskatchewan, and that is a very big deal as well.
We haven’t closed on it yet, but what that would mean is we would have a water disposal facility in place, we would drill a disposal well, and we would reduce our operating cost significantly. Right now we are paying over $130,000 a month in just trucking water, so we would eliminate those costs entirely.
And we could turn on some existing shut-in wells that are shut-in just because they do produce water and oil, but it’s not economic when you are trucking the water. So we can bring our new production there.
We can drill some new infill wells. We can basically optimize the property as far as increase production significantly and reduce our operating cost significantly.
So I am hoping to close something on that soon and I think that will have a positive impact on the stock as well going forward.
James West: Okay. So at this point what is your exit guidance for 2014?
Chris Cooper: Oh, I hate doing the exit guidance thing, but —
James West: Especially in February.
Chris Cooper: In February, right. Yeah, you know what, the Kerrobert property that we have; the farm-in with the major that is a pretty pure exploration play. There is a company just to the south of us producing from the same zone that we are targeting. They are doing about 2,500 barrels a day and we are going to be targeting that same formation.
So after we have done the seismic, we will drill a couple of wells, and if those wells work out as we think they will, we could drill over 400 wells on that property and get that property alone over 2,500 barrels a day.
Now, would that happen all in 2014? Probably not, but that can carry us on into 2015. But just on our existing production and with the upgrade on our West Hazel facility, if we can sign that agreement, and I have got a few other properties that I am working on right now, I think we could probably get to, I don’t know, 1,200, 1,300 barrel a day mark possibly, and again, that would be a 100% oil.
James West: 1,300 barrels net to Aroway?
Chris Cooper: Net to Aroway, yeah.
James West: Okay.
Chris Cooper: And that’s not something that I have published; that’s just doing some quick math on what I think we could possibly do.
James West: So what are the earning terms with this major in Saskatchewan?
Chris Cooper: Well, the major — so they — it’s actually the last land deal that they have done in Canada, this company, so it was a big deal for us to get it done right at the — kind of right before the year-end.
James West: You haven’t announced the name of the company.
Chris Cooper: No, it’s part of our confidentiality. Yeah, you have got to listen to the majors when they say you are not allowed to mention their name, but they are a very big, well-known, again, New York Stock Exchange listed company.
What we did is we signed a Seismic Option Agreement on, I believe it was 18 sections of land, or 16 sections of land, so we had to commit to drill — to shoot 21 square kilometers of seismic. And upon our initial review, if we want to proceed, we have to drill one well within two years.
So we are 85% complete on the seismic right now; that should be done in the next week-and-a-half, two weeks. We already know where we want to drill the well based on the information that we have, so we will — two years to drill a well is a very long time.
Once we process the seismic I expect we will be drilling in April or May, so we know that — we are pretty confident of the property.
And then we just have to maintain the regular costs of the land. And this is all freehold land, so as opposed to crown land, where you are paying big royalties to the government; we are just paying a royalty to the major. So it’s a really nice property and we look at it as a big opportunity, so we are eager to get the seismic down and drill our first well.
James West: Okay. So are you going to have to go to the market to raise money to participate in this or will you be able to finance your obligations at a cash flow?
Chris Cooper: No, right now we are financing our obligations at a cash flow and we want to continue to do that.
James West: Okay. So then, do you have an idea what your capital expenditure budget is for 2014 at this point?
Chris Cooper: 2014, right now we will probably going to be spending anywhere from $8-12 million so far, and that could increase as some of the properties that we are looking at, and also based on the success of our initial well into this farm-in, if that is successful, I think that will increase significantly.
James West: Okay. And quickly, what are roughly the rough strokes around your finances right now, outstanding debt, revenue coming in?
Chris Cooper: Revenue coming in right now is a little over a million dollars a month. At the beginning of 2013 we had about $4.4, $4.5 million of bank debt; today we have 1.7. We are scheduled to be debt free in July of this year. So we have really cleaned up the balance sheet.
We are very conscious of the current markets and the banking industry and the oil and gas business has really tightened up. Banks are no longer lending based on reserve values; they are lending based on cash flow, and they are really focused on a company’s ability to handle the debt that they have taken on.
So a lot of companies are being hurt because they have taken on way too much debt, because they were lent on reserve. Companies with only a little bit of production and they have bank lines of like $12, $15 million, and they can’t afford that, but they have big reserve numbers for some reason and those companies are going under.
So we are really conscious of the fact that it’s good to have a nice, clean balance sheet, good production, and like to grow out of our cash flow.
James West: Sure! So accessing debt is not something that you envision pursuing?
Chris Cooper: No, not that we don’t envision pursuing it, we want to manage it. It’s always nice to have a bank line for development type work, but we did a big acquisition on debt and so once we did it, we focused on paying that down.
James West: And it was worthwhile?
Chris Cooper: It was very worthwhile and we are going to expand on that, on our West Hazel acquisition and a few others, so yeah, it’s — when you take on the debt, it’s very tempting just to keep spending on other people’s money, but we are conscious of paying that off and using our cash flow to grow the company.
James West: Okay. Great! Well, thanks for joining us today Chris!
Chris Cooper: Thank you!
James West: My guest was Chris Cooper, CEO and President of Aroway Energy, Inc. Trades on the TSX Venture under the symbol ARW.
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