I had the pleasure of talking with Rick McHardy yesterday president & CEO of Spartan Oil STO.TO 0.00 [N/A]; a Cardium focused junior currently producing 620 boe/d (72% liquids). We started off our discussion on oil prices given the current production weighting and the volatility prices have been going through. Rick is a strong believer in the long term fundamentals for oil supporting robust prices in the $70-$90 range. However, he does not rule out more wild swings in the short term until we get through this rough patch.
The oil patch is as busy as ever with companies still executing on their business plans in order to meet their targets. Spartan is not slowing down either; the company is half way through its drilling program of 14 gross (9.1 net) wells and on track to meet its exit rate guidance of 1,050 boe/d (75% liquids). The company used $85 oil for budgeting purposes and has no hedges in place; it is interesting to note that Spartan’s Cardium breakeven price is $50 per barrel.
Spartan has 42.6 net sections of Cardium rights in Pembina, Alberta and 71 net sections SE Saskatchewan but in the near term the Cardium will remain the focus of the company as the risk profile is different between the 2 assets. In Pembina, the geological risk is very low as the oil is known to be there, it is a development play contrary to Saskatchewan’s undeveloped land being more of an exploration play. Nevertheless, Saskatchewan will grow in importance as the lands get de-risked either by the competition drilling nearby or the company’s exploration wells. The 71 net sections are prospective for Bakken and Mississippian oil targets and currently account for 40 net drilling locations only compared to the 158 net drilling locations the company assembled in the Cardium. It is obvious that the company has a lot of room to grow thanks to a multi-year drilling inventory that is largely unbooked.
Spartan Oil’s 2 core light oil plays: the Cardium and the Bakken
Under Rick’s Leadership, I expect Spartan Oil to go through the same aggressive growth we witnessed with Spartan Exploration (TSX:SPE) based on a proven track record. Spartan Exploration built production from 0 to 2,600 boe/d in less than 3 years increasing the share price by almost 300%. Furthermore, management is aligned with shareholders yet again as they are deeply invested holding 35% of the company’s shares (management held 41% in SPE). In the short term, the stock might be whipped by volatility like its peers which in my opinion could present an excellent buying opportunity. Rick believes the market will reward the stock on the back of positive drilling results. The next operational update is expected to be released with mid-November’s Q3 report at the latest but possibly sooner. Hopefully, the European debt drama would be behind us by then. The company’s high quality assets and management’s proven ability to execute make the story worth following as I believe we are in the early days of another success story in the making.
Are you a shareholder of STO? Do you agree that it is another SPE in the making (providing the world doesn’t come to an end)?
