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viewPermex Petroleum Corporation

Permex Petroleum sitting pretty in the Permian basin

Snapshot

The oiler acquired over 6,500 acres during the downturn in the oil and gas sector between 2015 and 2018

A pumpjack at the group's San Andres unit

Quick facts: Permex Petroleum Corporation

Price: 0.05 CAD

CSE:OIL
Market: CSE
Market Cap: $2 m
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  • Has 6,500 acres of assets in the Permian basin, the US's premier oil address
  • Possesses growing reserves, with potential to boost output
  • Boasts no debt

What Permex Petroleum does:

Permex Petroleum Corp (CSE:OIL) (OTCMKTS:OILCF) has low cost, high-quality oil assets in the famous Permian basin of West Texas and Southeast New Mexico.

The company acquired more than 6,500 acres during the downturn in the oil and gas sector between 2015 and 2018, paying bargain basement prices of about US$2,000 per acre, against current land valuations as high as US$95,000 per acre in the area. Across eight properties, the junior oiler has 145 wells, which it owns and operates, 72 of which are producing wells. The current gross output across the group is 240 barrels of oil equivalent per day (boepd).

There are also 37 shut-in well opportunities to be brought back online and two water supply wells, which allow for waterflood recovery (enhanced oil recovery) projects to be carried out.

Of the eight properties, six qualify for waterflood techniques, the firm has said. 

The Permian basin is a huge oil and natural gas producing area, part of the mid-continent oil-producing area, which is home to cities like Midland and San Angelo, and so it has plenty of necessary industry infrastructure already in place. The region produces over 3.3 million barrels per day, which represents more than 30% of all output in the US.

In terms of reserves, proven reserves in the US sit at around 38 billion barrels and over 10 billion of that is in the Permian. There are 475 rigs in the Permian, which is more than 40% of US rigs.

Elsewhere, the San Andres & Taylor property in Texas allows Permex to convert vertical wells into horizontal wells to lift output. The property boasts 1,226 acres and has 35 active wells, two shut-ins and 15 water injections.

There are no depth restrictions to drilling and the company owns all basement rights on this property which includes the sought-after Wolfcamp formation. Permex says around 12 billion barrels and two trillion cubic feet have been exploited already from the reservoir and it has more to give.

How is it doing:

In Permex’s annual letter to shareholders in January, CEO Mehran Ehsan told shareholders that the company “continues on a growth trajectory” despite a deep downturn in the oil sector in 2019.

Fiscal year revenue increased 71% year-over-year in 2019 to US$1.61 million, oil and gas revenue jumped 71%; while operating cost per barrel decreased 30% and net oil revenue more than doubled.

Additionally, general and administration costs declined 51%; gross profit margin increased 36%; net loss dropped 69% and loss per share shrank by 80%.

Permex said in January that proved developed producing reserves decreased by 1.3%, from 659,000 barrels of crude oil equivalent (659 mboe) to 650 mboe, and proved developed non-producing and shut-in reserves increased 3.5% from 280 mboe to 290 mboe. 

Proved reserves grew 10% from 439 mmboe to 486 mmboe, and proved and probable reserves increased by 6.5% from 9.1 mmboe to 9.8 mmboe. 

Permex said it maintains a strong reserves life index of 7.6 years based on proved reserves and 13.4 years based on proved and probable reserves.

Inflection points:

  • Permex has confirmed interest from potential partners for a possible horizontal joint venture drilling program at San Andres amid increasing interest in the area from big cap oilers
  • Public data from nearby horizontal wells shows Texas-based Ring Energy Inc brought wells online at over 400 boepd or 80 boepd per 1,000 foot lateral, while others such as Chevron USA, Occidental Petroleum Corporation, Hess Corporation and Steward Energy continue to invest in the region
  • Looking ahead, the company is moving forward with efforts to accelerate the development of lower-risk-properties. The plan is to ramp up production, free up cash flow and expand into the Dallas market

What the boss says:

“From world price fluctuations, excess supply and pipeline constraints to restricted access to capital, 2019 brought many struggles,” Permex CEO Mehran Ehsan said in his annual letter to shareholders in January. “Nevertheless, through it all I am pleased to say that Permex rose to the challenge and continues its progress."

“As I look back over the past 12 months — a period of profound political and economic volatility, specifically extreme hardship for oil and gas companies globally — it is remarkable that we not only weathered this storm, but have grown and strengthened our operations and balance sheet in conjunction with expansion of our corporate footprint.

“With the appropriate capital to devote to horizontal drilling programs, we expect substantial production growth from our operation in the Permian basin over the next several years as we transition from a vertical well asset base to horizontal wellbores with the drilling of 1-2 San Andres wells. Although market conditions may remain volatile, our portfolio is resilient,” he added.

Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com

Follow him on Twitter @andrew_kessel

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Permex Petroleum announces non-brokered private placement financing to raise...

Permex Petroleaum (CSE:OIL) CEO Mehran Ehsan joined Steve Darling from Proactive Investors Vancouver to discuss Permex's fund raise of 1.5 million in a non-brokered private placement. The capital will be used to start new waterfloods, bringing online shut-in wells, and general working...

on 01/11/2019

4 min read