Torchlight Energy Resources (ticker: TRCH) is a high growth oil and gas exploration and production (E&P) company with a primary focus on acquisition and development of domestic oil fields. Since going public in 2010, Torchlight has established itself in four separate regions across the mid-continent, focusing on liquids production from proven areas. Rather than explore, the company uses its geologic knowledge to exploit plays such as the Eagle Ford, Hunton, Mississippian and Maquoketa Dolomite/Viola formations. In 2013, the company transferred from the over-the-counter (OTC) exchange to the NASDAQ.
Click here for an introduction to Torchlight Energy and its Mid-Continent operations.
Torchlight’s shares have increased by roughly 150% in the past year and the company’s asset base continues to increase in value. TRCH reported $16.7 million in assets and $9.2 million in shareholder equity at the time of its 2013 earnings release on March 31, 2014. These totals represent increases of 271% and 207% respectively compared to results from 2012. Revenues also reached $1.2 million – a 20% increase year over year. Torchlight received $6.15 million in net proceeds through the completion of two private placements on January 31, 2014.
TRCH reported a net loss of $10.4 million for 2013; however, significant growth investments were made on the exploration side of the business. Roughly $9.7 million was spent on developing partnerships and joint ventures through its new properties, and cash flow increased to $1.8 million compared to roughly $63,000 at year-end 2012.
TRCH reported an ambitious program for 2014 that could allow the company to be drilling out of cash flow as soon as Q3’14 and believes it will amass nearly $120 million in cash flow by the end of 2015. Will McAndrews, Chief Operating Officer of Torchlight Energy, says the company looks for a quick return on capital in the form of less than 12 months on investment.
TRCH’s 2013 drilling investments, which are purely developmental in nature, increased TRCH’s yearly net proved reserves to 1,566 MBOE from 417 MBOE (276% higher) year over year.
Torchlight expects to announce results from its five-well program in Southwest Kansas by April 2014. Drilling began in February 2014 as part of a joint venture with Ring Energy (ticker: REI) and is focused on exploiting the Mississippian formation through vertical drilling.
The company plans on drilling more than 90 gross wells in 2014 with 17 already in early stages. An estimated $20 to $25 million of additional cash is needed to proceed with short-term operations and TRCH is evaluating its options. Operations in the longer term, however, are expected to be financed through its credit facility or existing operations. The company anticipates 173 gross wells will be online by the end of 2015, including 101 by the end of 2014. In turn, the ramped up drilling activity is expected to increase net production to 770 MBOE in 2014 and 1,634 MBOE in 2015. These forecasts were increased by 4% and 25% respectively, compared to estimates made in February 2014.
TRCH’s operations in Oklahoma involve a joint partnership (15% to 25% working interest) with Husky Ventures, a producer who has drilled 33 wells in the region. The JV’s first Hunton well is averaging 295 BOEPD (59% oil) through 90 days. Four rigs are currently running with a fifth expected to be added shortly. The program expects to drill 45 to 50 wells in 2014 at its current rate, which is roughly half of its expected 2014 production. Initial estimates by Husky placed reserves at 225 MBOE per well, but has since increased to 450 to 700 MBOE.
The company’s other focus area in Texas aims at the Austin Chalk and Buda. A reserve report by Netherland, Sewell and Associates had identified 1.3 million in net reserves with a PV-10 value of $25.9 million – revised from an initial estimate of $18.9 million. At a conference on March 10, 2014, McAndrews said three consecutive successful wells have been drilled and the company is surrounded by stalwarts like Exxon Mobil (ticker: XOM) and Clayton Williams (ticker: CWEI).
Its third focus area, targeting the Woodford and Mississippian formations in Kansas, is progressing development through its JV with Ring Energy. Roughly 450 drilling locations have been identified and TRCH holds a 50% working interest.
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