Oil and gas exploration is generally regarded as a highly speculative sector. In addition to the binary nature of exploration, companies are very susceptible to price volatility in the energy markets. But Viking Energy Group (VKIN) operates with a markedly different model, eschewing the booms and busts for stable and long-term production that generates cashflow in just about any oil price environment.
Viking, and its wholly-owned subsidiary Mid-Con Petroleum, LLC, operates primarily in the mid-continent states of Kansas and Missouri, with over 6,000 acres of property. The company’s leases include properties in the Miami and Franklin Counties in Eastern Kansas and the Cass and Bates Counties in Missouri.
Equities.com had the opportunity to speak with James Doris, CEO of Viking Energy Group to learn more about how the company’s philosophy to oil and gas exploration is positioned well to benefit from an oil upswing and protected from a potential downswing—and all the while, generating cashflow if prices don’t move at all. Doris also explains the decision behind the company’s recent name change to Viking Energy Group.
EQ: Viking recently changed its name to Viking Energy Group. Previous to the announcement, the company was known as Viking Investment Group. Can you tell us the decision behind the name change?
Doris: We wanted the company’s name to be more appropriately reflect the sector in which we’re involved in. Viking Investments was very broad, and so, we wanted to communicate to the public that our focus is the Energy sector, primarily in the acquisition and development of oil and natural gas properties. We didn’t want to confuse the marketplace with a general name. We feel Viking Energy Group is more sector specific and better reflects what we do. Nothing else is changing other than just reconfirming our focus on acquiring assets in the oil and gas space.
EQ: On that note, can you provide us more information on the company’s current strategic focus?
Doris: 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. 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.
Kansas and Missouri is our initial focus. That is where we have our extensive relationships, and our plan is to leverage those relationships and continue to aggregate assets in those areas. We’ll focus on where it’s been proven that the oil is there, and where there is a high success rate for drilling, and relative to the other drilling programs in other markets, it’s low cost.
EQ: The Energy market certainly has seen its fair share of volatility in recent years. As you mentioned, Viking’s strategy focuses on oil-producing assets that can make money at today’s prices. How does this strategy help you navigate through the changing market environment and position you for the cycle going forward?
Doris: We think we’re on the right side of the cycle. The sector is cyclical and over the last two years—with oil prices falling to below $30 a barrel at one point early last year from over a $100 a barrel—it was a huge adjustment for existing players. But for us, as a company in its infancy, and with low overhead, low infrastructure costs, it was a great opportunity to acquire assets at today’s prices. 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.
We also have programs in place to mitigate risk on the downside if there is another downturn for oil prices. We put a hedge on a portion of our production where the lowest price we could achieve on our current hedge is $47 a barrel. So if oil goes for $30, we’ll still receive $47 a barrel for at least the duration of our hedge, which is a two-year hedge.
EQ: Having that downside protection with upside potential obviously is critical, especially in this space. You mentioned your current projects. Can you give us more information on how you’re approaching those them?
Doris: Right now, we have assets in Eastern Kansas, Western Missouri and we still have an interest in the project in Alberta. Our main focus is on Kansas and Missouri for the moment where we have 6,000 acres of property under lease with some existing production and a lot of drillable potential on that acreage.
Our operator in Kansas is a subsidiary of the Kansas Resource and Development Company (KRDC), which is a premium operator in Kansas and Missouri. They specialize in the type of acquisitions and development programs that we want to implement. They’ve done it successfully for years. We’re fortunate to have a relationship with them. They want to grow with us so we’re following a proven model.
In 2013 and in 2014, which is basically the last time there was any significant drilling done in the area, they drilled more wells than any other company in that region. They’ve got a great track record and a tremendous reputation. They’ve got relationships with vendors and suppliers in the community so Viking has been able to leverage all those relationships to accomplish and execute on our strategy.
EQ: Regarding your model. Can you walk us through your process when determining whether an acquisition target makes sense for Viking and that it fits in your model?
Doris: When we assess acquisition opportunities, we go through a number of factors that we consider before determining if it’s something that we want to pursue. It’s at a high level. It has to be producing oil but also generating positive cash flow at today’s prices. It has to have development upside.
We look at the current production, the reserves, behind the pipes. We look at cashflow, the client curves, the basin, the location, how much it costs to get the oil out of the ground. We have a number of people that provide input on any acquisition target, including representatives of the operator, engineers, geologists, and other oil and gas investors. We see the input and the different perspectives, and then collectively make a decision on how we want to proceed.
EQ: Once that is completed, what are some addition milestones we should watch for from Viking over the next 12 to 18 months?
Doris: We’ve identified a number of acquisition opportunities that we want to complete. Our goal is, by the end of 2017, for just Kansas alone, we want to be producing a minimum of 1,000 barrels a day.
EQ: Can you tell us more about the team you have in place at Viking as well as your background and experience?
Doris: I’ve been in the business for over 20 years. I’m also a corporate commercial lawyer with extensive experience in commercial agreements, mergers and acquisitions, and distribution arrangements. I’ve negotiated several deals over the years all over the world and decided a few years ago to enter into the oil and gas business. I recognized that in order to be successful, it was critical to align myself with industry experts who had a similar vision and philosophy on how to run a business, specifically they had to be very conservative.
I’ve been fortunate enough to do that with the group in Kansas, who I have mentioned before have been in the business for a long time and had a lot of success on a private basis. What we’ve essentially done is take the model that’s already worked at a private level, and put it into a public vehicle for scalability and a more certain exit scenario in the future for our stakeholders.
EQ: It definitely sounds like Viking has a lot of things coming down the pipe. Is there anything that we have missed or any final takeaways that you want to leave with the readers?
Doris: We spent the last 12 to 18 months putting important building blocks in place for the company to ensure long-term success. Now this year, we’re excited that we’re actually going to be able to execute on the plan that we’ve formulated. It has taken a long time to put together, and our focus now is going to be more about the execution of that plan.
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