Emerald Oil, Inc. (ticker: EOX) is a new Oil & Gas 360® profiled company. For readers not familiar with EOX, this oil weighted producer is an exploration and production company focused primarily on the development of its 51,000 net acre position in the Williston Basin of North Dakota and Montana.
They are currently transitioning from a non-operated model to an operated model most recently evidenced by the recent merger between Voyager Oil & Gas and Emerald Oil, Inc. The company believes its footprint in the basin is prospective for the oil prone Bakken and Three Forks formations. The majority of its capital during 2013 will be spent to grow its existing production in the Williston through its operated and non-operated drilling program which we will outline below.
In addition to the Williston Basin, we believe Emerald holds two additional longer term catalysts for growth: the Sand Wash Basin, and the Heath Shale. EOX is currently in the process of high grading its Sand Wash Basin assets by selling its 31,000 net acres in Southwest Wyoming for $10 million ($325 per acre) to a private operator in order to focus on the prospective Niobrara across its remaining 14,000 net acre position in Northwest Colorado. Other players exploring the Sand Wash Basin include Quicksilver (ticker: KWK), WPX Energy (ticker: WPX), and Shell (ticker: RDS.B). In the Heath Shale of Montana, EOX holds approximately 33,500 net acres.
Secured $50MM in Additional Financing
EOX continues its transformation from a non-operated business model to a company focused on drilling wells on its operated positions and expanding their operated working interests. On February 4, 2013, Emerald issued $50 million of 10% perpetual preferred stock to spend primarily on its operated drilling program.
White Deer Energy, the private equity investor based in Houston, was granted 5.115 million in detachable warrants exercisable at $5.77 per share that are attached to voting rights for approximately 19.9% (approximately 16.6% pro forma following the Preferred Investment) of Emerald’s outstanding common stock. Our records show as of January 14, 2013, O-Cap Management was EOX’s largest shareholder of common stock holding 8.56%.
White Deer Management LLC is an investment advisory firm that was founded in 2008 to manage energy private equity funds. The firm manages three funds that are middle market buy-and-build private equity funds focusing on investing in oil and gas exploration and production, oilfield service and equipment and the midstream sectors. According to their website, at December 31, 2011, White Deer’s committed capital totaled $822.4 million. You can view a full list of White Deer’s portfolio companies here.
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Emerald’s Use of Proceeds
Emerald will use the finances to purchase $10 million worth of additional working interests on its operated units of McKenzie County, North Dakota and to increase its CAPEX budget. Emerald expects to increase its average working interests on its operated units to 75% from 50%. From October 1, 2012 to December 31, 2013, EXO anticipates spending $110 million, up from its previous guidance of $72.5 million. Approximately $82.5 million of the $110 million will be spent on drilling and completing 10 gross (7.5 net) operated wells, and $17.5 million will be spent to participate in 1.9 net non-operated wells.
Capital to Drive Production
Due to the increase in CAPEX, EOX increased its previously announced production guidance by 600 BOEPD to 2,600 BOEPD by year-end 2013. EOX averaged 1,100 BOEPD during Q4’12. EOX’s first three operated wells are scheduled to be completed by the end of Q1’13.
View the Februrary 2013 EOX corporate presentation
Final Thoughts on EOX
We are closely watching the transition from the non-operated model to the operated model. Funding and capital requirements are a large hurdle to jump early in the process. Emerald has shown its ability to raise capital, increase its working interest and consolidate positions, all the while increasing production. We believe Emerald is off to a good start alleviating capital constraints and has ample running room in exciting plays to move them forward in the near-term. Perhaps the largest near-term catalyst is production results from its first three operated wells in McKenzie County, North Dakota: Mongoose, Arsenal and Pirate. Emerlad Oil is scheduled to present at EnerCom’s The Oil & Services Conference™ 11 in San Francisco on Tuesday, February 19, 2013 at 4:00 p.m. Eastern Time. The presenter schedule can be found here.
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