Last week I caught up with Keith Watts, VP business development at PetroViking Energy, an emerging junior focused on the Viking oil play in Saskatchewan. I wanted to find out how they planned on navigating this period of market volatility and economic uncertainty. There?s no doubt volatile commodity prices can be stressful to a junior producer seeking growth. After all, oil and gas production is a business built around commodity prices.
PetroViking VIK.V 0.055 [0.00] began trading on the venture exchange in March of 2011. The company holds 6,600 net acres of land inSaskatchewan?s Brock and Plato areas and a small portfolio of producing assets inAlberta. At Brock they are a JV partner with WestFire Energy for a 20% WI on 42 sections of land. PetroViking is currently producing around 90 boe/d (50% oil and NGLweighted).
Our discussion took off with the recent volatility in oil prices where Keith believes that just as oil prices in 2008 were unsustainable at $135 a barrel, they are as much unsustainable at $50 a barrel. This totally makes sense because if oil settles at or below $50 for an extended period, investment projects requiring high oil prices like oil sands will be canned disrupting the fragile supply and demand balance once demand picks up again with the economy. In his opinion, a plunge in oil prices would turn out to be temporary while in the near term the direction for oil prices remains anybody?s guess.
How will PetroViking get through this uncertainty? Since the company has ~$3M in the bank, Keith is confident they will be able to wither these rough times and potentially profit from it. After all, PetroViking is still on the hunt for acquisitions and companies with a heavy debt load might get squeezed into monetizing assets at attractive valuations in times of distress.? In that regard, the company?s ace is their experienced VP of Operations, Giovanni DeFrancesco, who was the man behind one of WestFire Energy?s ?key land packages inSaskatchewan.
In the mean time how does the company plan to grow its production? According to Keith, PetroViking is taking a conservative approach by focusing on a recompletion program for 2011. ?This is no time to roll the dice? he says. The company has an inventory of vertical wells it can reenter for new perforations or fracking. Recompletions are considered a ?low hanging fruit? as new production is added at a cheap $10,000/boe in some instances. The company?s production guidance for the year is expected to be in the range of 200 boe/d and PetroViking is currently working on its soon to be released capex program for 2012.? Petro?s commitment to shareholders is to be fiscally responsible and should commodity prices trend lower the company could respond quickly with adjustments to their capital plan.
On to the company?s stock which has been trading consistently in the .26c range. According to Keith, the price is roughly in line with the company?s NAV (net asset value). He estimates that based on current production excluding land the NAV is around $0.20 per share. I find it positive that the company is still trading close to NAV contrary to many of their peers which are trading at a substantial discount to theirs.? This means their main shareholders are still holding tight and in no hurry to sell.
In my opinion, PetroViking will be among those companies that will get through the turbulence even if things get worse in the short term. That is simply because they?re cashed up and conservative with their spending until some clarity appears. Thank you Keith for giving us an inside look at PetroViking?s journey in these turbulent times.
What do you think of PetroVikings strategy in this market? I think surviving is the easy part but kicking into high growth is the challenge for 2012.
Disclaimer: I currently do NOT own shares in VIK. This is NOT an invitation to buy or sell PetroViking shares, please do your own due diligence before taking an investment decision.