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Point Loma Resources: DEEP DIVE
OVERVIEW

Point Loma eyes a potential game-changer as the oiler advances large asset base in Alberta

The company controls 150,000 net acres, with over 230 (net to Point Loma) drilling opportunities in multi-zones.
Oil infrastructure
OVERVIEW: PLX The Big Picture
Point Loma operates in west central Alberta
  • Multi-zone potential across a large footprint in Alberta

  • Two further wells planned at Wizard Lake at no cost to Point Loma

  • Quality managemnt and technical team with experience of Central Alberta

Point Loma Resources Ltd (CVE:PLX) is a small oil firm with a large amount of ground in west-central Alberta, Canada.

It controls 150,000 net acres, with over 230 (net to Point Loma) drilling opportunities in multi-zones. It has support from strategic partners in its bid to develop a sizeable Canadian E&P (exploration and production) business.

The current focus is on the high impact Banff and Rex oil opportunities and exploiting the large inventory of Mannville locations targeting conventional light oil. The company also has around 11,520 net acres within the Duvernay West oil shales.

The Wizard Lake Rex oil discovery offers 300-500 barrels/per day (boe/d) potential, while the Paddle River asset, where there is production infrastructure, is currently generating 230 boe/d (barrels of oil equivalent per day) and offers 200-400 boe/d potential. The Leaman and Wildwood Mannville opportunities are new pool opportunities, which each offer 200 boe/d potential.

How is it doing?

The firm's 2018 end-of-year reserves update showed total proved plus probable oil reserves had increased 92% year-over-year, while during the fourth quarter, the oiler produced 201 barrels of crude oil per day, up from 146 barrels a day in the same period a year ago. Revenue was C$1.17 million, up from $1.11 million in the same period a year ago.

The operational focus of late has been the discovery at its Rex (Upper Mannville) oil play at Wizard Lake. The 16-17-48-27W4 Rex oil well started generating oil on June 5 and current output is estimated at 275 barrels of oil per day (gross), 192 (net). Point Loma is now eying higher production and cashflow.

Moreover, the firm's partner at Wizard Lake, Salt Bush Energy has agreed a further two-well farm-in to fund drilling and setup costs, with the first delineation well to be spudded before August 15 this year. In all, around C$5 million could be spent on the two well farm-out at no cost to Point Loma. The two wells could pe producing in the fourth quarter.

If successful, this would mean three producing wells. Point Loma would be the operator with a 50% working interest. In addition, the oiler would have a 25% before payout and 50% after payout working interest in both the test well and earning well. It will also have a 50% working interest in the remaining lands.

Together with Salt Bush, the acreage accumulated totals 3,385 acres and provides 18 potential drilling opportunities. Notably, the two companies have also secured the opportunity to drill and earn an additional 720 acres in the area.

What the broker said:

Last month, broker Mackie repeated a 'buy' on the shares and a C$1 target price (current price: C$0.16). It highlighted that internal mapping has shown the Rex pool has potential to hold 60 million barrels of original oil in place (OOIP) on PLX lands.

Assuming a 10% recovery factor, Mackie says there could be a net recoverable resource of around 3 million barrels. At $5 a barrel, that means an unrisked value of $15 million or $0.21 per share, says the broker.

Analyst Bill Newman also notes that the company has identified two, well defined 'Banff' oil pools on its West Cove lands, which are on trend with other significant Banff oil pools.

"Assuming estimated OOIP ranging from 25 mmbbls to 75 mmbbls, and a recovery factor ranging from 10 to 30%, the estimated potential recoverable resource, per pool, could be in the range of 2.5 mmbbls to 22.5 mmbbl," says the analyst. "PLX plans to drill a horizontal well at an estimated cost of only $1.5 million. Success could be a game changer."

Elsewhere, at Paddle River, Point Loma holds an 80% interest in the oil pool that produces from the Lower Mannville.  The company sees up to 14 horizontal drilling locations, providing potential for further growth over the next few years.

Summing up, Mackie says PLX has big potential for a  small company (market cap of around C$10 million)

"Based upon primary recovery alone, any single prospect has the potential to add move reserves value than the current stock price," the broker says. "Success on just one play would unlock significant value and be a game changer for the stock. The total unrisked potential for the near term drilling inventory is $1.24 per share on primary and $3.73 per share assuming secondary recovery.  This valuation excludes any value for PLX’s other Mannville locations across its 160,000 net acres (250 net sections) of for Duvernay shale oil resource play."

What the CEO said

Speaking about the Wizard Lake project in May, the group's CEO Terry Meek said: "If we see a couple more wells come on production here through to the end of the year that will give us a very good read on what the full development potential is of this pool and then we've still got development opportunities on our existing legacy oil at Paddle River and we feel we have a number of opportunities very similar  to Wizard lake here that we can develop in the future.

"So once we get the ball rolling and show the opportunity of this Rex, Upper Mannville oil play, and that we can adapt it to different areas in  the province, I think you can start to do the math’s in your head that this could be  a very big deal for a small company like ourselves."

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