Torchlight Energy (ticker: TRCH) is an oil and gas exploration production company with the bulk of its properties in the Mid-Continent. It holds a minority interest in a large percentage of its wells and strategically farms out its operations to third parties, where TRCH then monitors operations and associated costs.
In an operations update call on July 16, 2014, Will McAndrew, Chief Operating Officer of Torchlight, said production is expected to reach 2,000 BOEPD by year-end 2014. By comparison, the company was producing 150 BOEPD at the end of 2013. The forecasted jump of 1233% will be aided by an expected 90 gross wells in production by the time of its 2014 release.
Click here to listen to the full operational update call.
Production Climbing
Official results for Q2’14 have not yet been released due to TRCH’s partnership with Ring Energy (ticker: REI). Ring, who works as the operator, will not be disclose results until its quarterly earnings release. However, TRCH did reveal its production for the period ended June 30, 2014, was 387 BOEPD. TRCH said a delay in securing a rig attributed to the number, which was short of its quarterly exit rate goal of 500 BOEPD. However, the problem has been amended and its stream increased to 460 BOEPD at the time of its operations call.
“While we are a couple weeks late in reaching our goal, we are indeed reaching it,” said McAndrew in the call. “And more importantly, this is merely an issue of completion schedules being moved out by a couple of weeks and the resulting production falling in early Q3 rather than late Q2.”
Production must double on a quarter-over-quarter basis to reach its 2014 exit rate goal, but management believes it is fully capable of achieving the mark. Its reserves report, which listed 1,566 MBOE at year-end 2013, is currently being updated.
“We remain on target for a third quarter exit of 1,000 BOEPD and a year end exit rate goal of 2,000 BOEPD for 2014,” said McAndrew.
Source: TRCH June 2014 Presentation
Operations Overview
Torchlight began its Smokey Hills project in Kansas in June 2014 and expects results from its 10-well test by Q4’14. The company expects initial production rates of 30 BOEPD to 50 BOEPD as part of its partnership with Husky Ventures. Another project with Husky is underway in Oklahoma and consists of TRCH partial ownership in 21 producing wells. At the time, 12 wells are either drilling or in stages of completion and a total of 77 wells are expected to be drilled through 2015. One well, the Kodiak, returned payout to TRCH in 45 days.
In Southwest Kansas, four wells have been completed in its partnership with REI and are producing 111 BOEPD (gross). A total of 10 wells are planned to be drilled and de-risk the region, while the wells will return a pay out in less than 12 months. In South Texas (where TRCH holds 75% ownership), the company’s budget allows for a horizontal Austin Chalk well in 2014 along with an Eagle Ford well in 2015, if management decides to take such a route.
The company is in the process of completing financing but did not release a specific number. John Brda, President of Torchlight, said: “This financing will be considerably larger than any of our previous raises, or frankly the aggregate of our previous raises… While the company has grown, our cost of capital has consistently been reduced, and is something we have been very conscious of. Frankly, it is why we have not announced the closing any sooner than we did at the time of this call.”
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