The past few years have been brutal for the junior oil sector. The sustained oil price downturn of 2014-2017 obliterated the small-cap oil and gas landscape, and those that remain are still battling high costs and low returns.
With oil prices having rebounded to a recent range of $55-$75 per barrel, it is time for savvy investors to scour the oil and gas marketplace for those surviving junior companies that will provide superior returns. The winning attributes come down to this:
1. Low-cost, high-return exploration and production
2. Experienced management team with proven success
3. Well capitalized with access to growth financing
One of the lowest-cost oil and gas plays in North America is the Oklahoma STACK.
STACK is an acronym describing both its location and formation – Sooner Trend Anadarko Basin Canadian and Kingfisher (County), with multiple, stacked productive formations present in the area. The STACK is a prolific hydrocarbon system with high oil content, multiple horizontal target horizons (about 900 feet thick), extensive production history and historically high drilling success rates.
The STACK fields were originally developed by the majors (Exxon, Texaco and Shell) and were drilled vertically. The recent introduction of horizontal drilling and hydraulic fracturing has reinvigorated the play, and billions of dollars of investment have been directed into the STACK basin because of the repeatable stacked, multi-zone successful drilling and development across the play. While the larger U.S. E&Ps continue to have significant assets and investments in the STACK, during the recent oil price downturn a number of smaller companies were forced to divest their investment.
Enter Jericho Oil (TSX-V: JCO), a well-capitalized junior company with a strategy of buying low in proven plays. Having recognized the value of low-cost production in Oklahoma and the STACK basin, management set out with systematic precision to acquire a significant land base in this region.
Today, Jericho, with its private jointventure partner, owns and operates three high-quality oil and gas plays across Oklahoma, including ~16,000 acres in the prized STACK play, through its STACK Joint Venture (STACK JV).
Large E&Ps such as Continental Resources, Devon Energy, Marathon Oil, Newfield Exploration, Chesapeake Energy, XTO (Exxon) and Alta Mesa Resources, collectively hold over 1 million acres in the STACK play. Why? Because of the superior well results from stacked-pay formations. The STACK boasts top-tier well economics similar to the Permian, which translate to very low breakeven prices near $25-$30 per barrel, which help insulate Jericho to the downside.
Jericho has assembled its low-cost STACK acreage through the backing of its long-term shareholder base. Of note are three of the largest investors in Jericho: the Breen Family (Ed Breen, CEO of the chemical and agriculture giant DowDuPont), Gibralt Capital (Vancouver’s Belzberg family) and a prominent Oklahoma oil family. While the equity and credit markets were virtually closed to E&Ps during the oil price downturn, Jericho was the exception, raising $45 million in equity with its key shareholders, enabling it to aggregate a sizable, high-quality land position at the bottom of the market.
So far in 2018, Jericho’s STACK JV has drilled and reported on two successful horizontal STACK wells. The first, targeting the Meramec formation, achieved a peak 24-hour rate of 957 oil-equivalent barrels (BOE), while the second well, targeting the Osage formation, hit a peak 24-hour rate of +500 BOE.
There are several catalysts ahead for shareholders as the coming months look to be filled with positive activity. Jericho recently announced two new horizontal STACK wells (drilling underway) and expects additional “tuck-in” acquisitions contiguous to its current acreage increasing Jericho’s already, envious position.
“We believe Jericho will have significant growth opportunities ahead of it and be well positioned as a leader in the STACK,” said Brian Williamson, CEO of Jericho Oil.