Canadian Overseas Petroleum and its joint venture Shorecan have projects in Converse County, Wyoming and sub-Saharan Africa.
The company’s Wyoming operations are environmentally friendly due to its low gas flaring and methane emissions along with the production facilities being powered by electricity generated by a neighbouring wind farm.
Canadian Overseas Petroleum
Canadian Overseas have flirted with investors throughout the last year by announcing optimistic updates including encouraging production figures and significant oil discoveries. However, a series of set backs and disappointing results has led to the company today having to clarify a storm of what the company calls ‘disinformation posted on social media and internet chat forums’.
Increased Oil Production
Around late November 2021, COPL announced increased oil production at its operated Barron Flats Shannon Unit rebounding the company’s shares.
The company reported a 35% increase in crude oil production from the Shannon Unit as a result of completing the infrastructure to reduce the surface working pressures on the field’s most efficient producing well.
The completion of infrastructure to reduce the surface working pressures on the fields most capable of producing well has increased oil output. This horizontal well, which was previously produced at a restricted rate of 150 barrels per day, has responded very well to the miscible flood scheme and was responsible for the field’s peak oil production in August.
The company also announced delays in the completion of the Barron Flats Federal (Deep) Unit due to problems with isolating the perforated Frontier Sands from the wellbore, which provoked investor sentiment once again.
Significant Oil Discovery
In Wyoming’s Converse and Natrona Counties, the company made a large oil discovery on its leasehold during the start of 2022 resulting in COPL shares gaining traction again with investors hoping the outlook for 2022 follows the trend.
Canadian Overseas estimated that the overall oil reserve would hold 1.5b to 1.9b barrels, with its lease covering 1.3b to 1.6b barrels.
COPL had already applied for licences for four horizontal wells and the company expected to exploit the discovery.
Each well was projected to produce 1,000 to 3,000 barrels of oil per day at first. One discovery well had already started producing at a rate of 100 to 120 barrels per day.
Meanwhile, output at the company’s Barron Flats Shannon field, also in Wyoming, was producing 2,000 barrels per day, exceeding expectations following a gas injection programme that began in April 2021.
$8m Accelerated Bookbuild
At the end of 2021 Canadian Overseas Petroleum announced the need for an accelerated bookbuild amounting to $8m.
By way of a placing and subscription, COPL planned to perform an accelerated bookbuild to raise net proceeds of roughly $7.5m, which would be used towards making a bid for Cuda Energy.
Tennyson Securities placed a total of 30,250,000 Common Shares with institutional investors for 20p per placing share.
The net proceeds of the offering, along with COPL’s other financial resources, were to be used to fund a bid for Cuda Energy or its assets, as well as general working capital.
Director Purchase
Chief Executive Officer Arthur Millholland purchased COPL shares as he said, “This share purchase shows my confidence in the company’s recently announced deep discovery and the performance of our miscible flood at our Barron Flats project in Wyoming.”
Millholland purchased 665,000 shares at an average price of CAD0.58, worth CAD385,700 which was approximately £225,315. At the time, this was welcomed by investor and shares rose on the news.
2021 Results
COPL announced its year-end and Q4 results in which they said it was “a year of major positive change for COPL.”
The company discussed the impact of the acquisition of Atomic Oil & Gas which led COPL to operate 3 assets in the Powder River Basin in Wyoming.
At the start of the financial year, COPL completed the acquisition of Atomic Oil & Gas which has been transformative for the Company. COPL now operates three assets – Barron Flats Unit, Cole Creek and Barron Flats Federal (Deep) Unit in the Powder River Basin in Wyoming with a working interest of 58%, 67% and 56% respectively.
From the start of the acquisition, COPL stated the assets produced “1,100 barrels of light oil” which grew to 1,900 barrels a day after COPL implemented a ‘works programme’. However, facility constraints restricted production which raised alarms for investors.
Although COPL acquired significant acreage in the Wyoming asset, only a portion of it was in production, again instilling concern in investors.
Regarding the oil discovery made in January 2022, the company has permits and will begin initial delineation later in 2022 through horizontal wells from 16 drilling locations.
Southwestern Production, COPL’s operational affiliate, was obtaining a drilling rig for the delineation drilling programme as well as the planned drilling of 8 additional production wells and 1 injection well at the producing Barron Flats Shannon Field.
Crude Sales
In terms of COPL’s financials, the company noted average net crude oil sales before royalties were 1,094 barrels per day in Q4 2021 which was higher than Q3 producing 1,071 barrels. The fourth quarter averages were limited due to facility constraints.
For the full year of 2021, net crude oil sales before royalties averaged 972 barrels per day.
Petroleum sales, net of royalties, were $5.8m in Q4 2021, offset by a $1.4m realised loss on crude oil hedge contracts, compared to $5.2m in Q3, offset by a $0.6 million realised loss on crude oil hedge contracts.
For FY22, petroleum sales were $15.0 million net of royalties, along with a $2.3 million realised loss on crude oil hedge contracts.
In the fourth quarter, COPL realised a gain of $1.6m on butane hedging contracts, compared to a gain of $1.1m in the third quarter of 2021.
In terms of the full year, COPL realised a gain of $2.8 million on butane hedge contracts concerning the miscible flood injection programme.
In the third quarter of 2021, the operational netback was $43.97 per barrel, which included a $2.76 per barrel net realised gain on crude oil and butane commodities contracts, compared to $26.85 per barrel in the third quarter of 2021, which included a $4.31 per barrel realised loss on crude oil and butane commodities contracts.
The operating netback was $33.10 per barrel, including a net realised gain of $1.92 per barrel on crude oil and butane commodity contracts for FY22.
Facility constraints and decreases in net realised gains seemed enough for investors to start moving their money from COPL.
2022 Outlook
Millholland looks forward “to the future with renewed confidence.” However, are investors patient enough to wait with him to see if they finally deliver?
In 2022, COPL is aiming to refinance the COPL America credit facility to reduce the company’s cost of capital. The company is also planning to optimize and increase oil production at the operated Barron Flats Shannon Unit miscible flood, and commence Phase 1 of the delineation of the Barron Flats Deep Oil discovery.
COPL Valuation
Canadian Overseas Petroleum has a market cap of £40m after shares gained 20% to 25p following the company’s move to clarify market speculation.
Canadian Overseas shares peaked at 42p in August 2021. The company has since lost 37.4%, however, YTD COPL shares have gained 53%.
It is evident from today’s release that Canadian Overseas Petroleum is aware of investor discontent which will need to be met with solid updates in the near future to avoid further downside in the stock.