The resurgence of the energy sector is underway. The Trump administration continues to rollback regulations that once inhibited oil drilling along numerous coastlines, and in November of last year, U.S. field production numbers crossed over 10,000 barrel per day, an output which surpasses highs not seen since 1970. This turning point highlights the US’s rise as an exporter in the sector, altering the power dynamics of the market.
In fact, last year, this tectonic shift produced a geopolitical first. OPEC and Russia together put aside years of distrust to agree on cutting production supplies, sending the price of Brent Crude above $65 a barrel. This unlikely partnership is centered around OPEC’s intention to shrink bloated global inventories as the nations within the cartel have been burned by low prices in the past and appear poised to support prices throughout the remainder of the year.
In this favorable environment, investors are returning to the energy sector looking to take advantage of companies still undervalued by the broader market. One company that appears to fit this mold is Viking Energy Group, Inc. (VKIN).
Embedding Downside Protection and Upside Potential in Every Deal
Through aggressive acquisitions of long-life, low-cost properties, Viking has demonstrated that its robust portfolio is built to capitalize on a bullish market, but also well hedged against the uncertainties that might befall an unpredictable commodity cycle. The company is helmed by CEO James A. Doris and backed by an advisory board of industry experts that include a CEO of a premier oil and gas operator with 16 years of experience and multiple advisors who have been boots on the ground for thousands of drilling operations. Viking’s industry acumen and storehouse of knowledge about the heartland of American oil have ushered in a reputation for reliability and sound decision-making as can be seen by its recent contracts with two commercial banks, three FINRA-member broker dealers and an energy-focused hedge fund.
The latter move is with an energy-focused hedge fund, who Viking negotiated with to acquire Petrodome Energy, LLC, a Houston-based oil and gas company with 12 oil and gas fields spread out across Texas, Louisiana and Mississippi. The net production from those fields total at 350 barrels of oil per day (75% oil) further increasing the company’s reserves by 1.5 million barrels of oil.
This game-changing deal has been in the works since June 2017 and adds an estimated annual revenue of $7.67 million to their bottom line, but, and here is the key, all for the low price of $3.7 million.
Yet, those numbers really don’t scratch the surface of the entire return. The acquisition also included conventional oil and gas prospects underpinned by data showing oil and gas reserves with field locations pinpointed and ready for drilling and completion. The PV9 value of those reserves is estimated by Viking at $16.3 million. Furthermore, Doris and his team brought aboard more experienced veterans from Petrodome that consist of over a century of wisdom in petroleum engineering, geophysics and experience ascertaining the lucrative Gulf Coast oil market. In total, this deal was a milestone and transformed the company from a microcap into something much bigger.
The details of the above deal are proof of the textbook execution that Doris and his team are capable. However, the Petrodome deal is just a drop in the bucket. Viking has already strung together three acquisitions in 30 days on two separate occasions in recent history.
While Viking seems to have a natural cadence to their business deals, the cascade of properties that have all coming under the company umbrella share similar characteristics: proven production with immediate appreciation and developmental potential. As Doris confirmed in an interview with Equities last year, each prospective property is carefully speculated and analyzed to make sure that the company can capitalize on under-appreciated wells that might simply need some enhancement providing Viking and their investors downside protection and upside opportunity.
To further clarify, here is a rundown of those acquisitions by date beginning with the most current:
January 23rd, 2018 – Through Mid-Con, Doris and his team purchased a majority working interest of 40 oil leases again in the heart of the Sunflower State. The large purchase covers 3,300 acres in Ellis and Rooks Counties. Cumulatively, over 6.4 million barrels of oil have been produced from the area. During the first nine months of 2017, oil production averaged 172 barrels of oil per day, or about 46,000 barrels from January through September. At $60/barrel, that’s about $2.8 million gross. Producing from multiple pay zones, the wells average between 2,700 and 3,300 feet in depth. Formations being targeted are well known for their reserves, including the Arbuckle, Kansas City, Kinderhook and Topeka Limestone. In addition, the property offers serious upside with moderate improvement of existing wells, which will be handled by Haas Petroleum LLC, a fourth generation oil and gas company.
- January 16th, 2018 – Through their subsidiary Mid-Con Drilling, Viking bought five oil and gas leases from Piqua Petro in Allen and Woodson Counties inside their wheelhouse location of Kansas. The deal adds 1,000 acres for $480,000 and all associated equipment. All the leases produce oil from the Cherokee formation at a depth of approximately 850 feet, and offer the potential for several future drilling locations, which will be managed by a unit of the Kansas Resource Development Co. (KRDC), an operator that specializes in reviving and increasing production from existing wells.
- December 22nd, 2017 – The Petrodome deal, already referenced above, is finalized totaling 11,629 gross acres / 9,360 net acres.
- October 5th, 2017 – The company acquired an 80% interest in six new oil and gas leases spread across Kansas counties: Riley, Geary and Wabaunsee. The leases produce oil from various zones, including the Conglomerate (at depths of 1,650 to 1,800 feet), Viola and Simpson Sandstone (at depths of 2,917 to 3,063 feet) and offer the potential for several future drilling locations. Historical records for these leases (e.g. drilling logs for one well showed initial production at 3,000 bopd; and another well produced for an extended period at 100 bopd), suggest new drilling on these properties could significantly enhance existing production.
- October 3rd, 2017 – the company acquired a 100% interest in six additional leases in Miami and Franklin counties.
- September 12th, 2017 – , Viking added 980 acres of oil and gas leases (4 in number) in Anderson County, Kansas. Those leases produce oil from the Cherokee Formation – an important group of sandstones, limestones, shales and coal bed outcroppings in Eastern Kansas – at 850 feet, with the prospect for more drilling in the future.
Carrying Their Momentum into 2018
To reflect on this active sequence, in a little more than 140 days, Viking has amassed 61 working leases and an entire oil company. But beyond these seminal achievements, Doris and his team have been employing this strategy before September of last year and long before the energy sector reversed course meaning that Viking has a deep collection of assets had at a bargain that can now grow at top cycle prices.
In short, this New York-based company has mastered the conservative approach to the oil sector and constructed a template that has been forged in fire circa the tumultuous years of recent sector memory.
All that said, during this relatively stable season of positive growth, Viking’s market cap remains a third of its estimated reserves. Although, even if a market valuation adjustment occurs, Doris and his team will stand tall on their proven ability to stay profitable in any season, rely on their well articulated business model and leverage their low overhead and infrastructure to stay well positioned until they receive the acclaim they deserve.
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