Sometimes the sum of the parts is much greater than the whole. In the case of Viking Energy Group (OTCQB:VKIN), if you’re calculating the assets as the parts and the market capitalization as the whole, the company will need to see a jump in market cap for the math to add up.
The exploration and production company has recently updated all its information with the SEC and met all the met all the requirements of OTC Markets Group to uplist from the pink sheets to the OTCQB marketplace. The important move creates greater transparency for investors and exposes the company to a larger base of institutional investors.
“Uplisting to the OTCQB is another important milestone for our company,” James Doris, CEO of Viking, stated in the announcement. “The listing demonstrates our commitment to executing our growth plan and providing existing and prospective stakeholders a greater degree of transparency and liquidity. It also exposes the company to a broader range of institutional investors.”
At 17 cents per share, Viking has a market capitalization of roughly $10.5 million, according to information on OTC Markets.
The microcap is maturing into what generally would be seen in a much larger company. Through its wholly owned subsidiary, Mid-Con Petroleum, Viking owns a working interest in seven producing oil leases with access to the oil and gas rights on about 800 acres of land in Eastern Kansas, including all the assets on the property used in connection with oil and gas operations. Also in the portfolio is a 100% working interest in multiple leases with access to oil and gas rights on significant acreage in a prolific energy field in Western Missouri.
North of the U.S. border, Viking owns a 50% working interest in the Joffre D-3 Oil Project consisting of four oil wells and a water injection well in Alberta, Canada through a joint venture with Tanager Energy.
Less than two weeks ago, Viking disclosed negotiating a $25 million deal to buy a private oil and gas company, an announcement that Wall Street seems to have overlooked for the significant value it would add to Viking. The acquisition fits perfectly with Viking’s model to acquire long-life, low-cost producing properties and assets. The target company has a working interest in 12 oil and gas fields and leases 11,629 acres with current production of approximately 1,200 barrels of oil equivalent per day (25% oil). The estimated value of total proved reserves under control of the company on a PV9 basis (an acronym for present value at 9%) with NYMEX commodity pricing of $49.1 million as of June 1, 2017.
“Our focus is on acquiring interest in long-life, low-cost producing oil properties, generating positive cash flow at today’s oil prices for development potential,” Doris told Equities.com in May. “We have aligned ourselves with industry experts that have been involved in the oil and gas space for decades, and that have followed a very conservative approach and philosophy on how we invest in the oil and gas space. We’re not into wildcatting or highly speculative drilling ventures. Our strategy is about buying assets that are making money at today’s prices, and that have development potential for the future where the results are essentially predictable.”
Considering that Viking is already producing oil and drilling more wells at ABC lease in Eastern Kansas as part of a goal to achieve 1,000 BOEPD production over the next six months, the addition of another 1,200 BOEPD puts the company in a strong position. 2,220 barrels per day is 803,000 annually. Even at $40 oil, that $32.12 million in production annually.
Furthermore, the unnamed acquisition target has 3D seismic data for most of its assets, with numerous drilling locations identified as part of a planned three-year drilling program. The buyout will also bring decades of invaluable experience to Viking with the management team and other personnel of the target joining the team.
In a move almost unheard of in the microcap world, Viking isn’t diluting shareholders to fund the acquisition; they’re using a conventional bank. The initial $10 million payment has been approved to come from CrossFirst Bank, a commercial bank with deep experience in the energy sector.
After a couple years of going unloved, the energy sector is starting to slowly come back into favor with investors. For this methodically growing E&P play, the rotation back into energy couldn’t come at a better time as it builds its portfolio and a strong case for being undervalued.
“We think we’re on the right side of the cycle,” Doris said in May. “Although we’re bullish on the commodity price and we expect it to increase over time, when we’re analyzing our acquisition opportunities, we’re basing it on today’s price and making sure that it’s profitable at the current price per barrel.”
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