OIL FLOW, CASH FLOW AND DEAL FLOW:
PRIMATE BECOMES COMPANY BUILDER FOR GREENCASTLE
From SolomonSmallCaps August 31, 2008
Primate Oil Field - Increased Production On The Way
The Primate oil field, operated by Enterra Energy Trust (ENT-NYSE, ENT.UN-TSX), is far more significant to Greencastle Resources than many Greencastle shareholders even appreciate.
Enterra is very much focused on this oil field in west central Saskatchewan where Greencastle made the initial discovery five years ago and is now collecting monthly royalty checks of nearly $400,000. In April, 2007, Enterra acquired Trigger Resources Ltd. whose main producing fields were Primate and Liebenthal (southwestern Saskatchewan). Saskatchewan represents 18% of Enterra’s entire North American oil and gas production. Their other Canadian interests are in Alberta and British Columbia, but Primate certainly figures prominently in their overall Canadian production and future plans.
“The main producing asset in the Primate field is a large McLaren oil pool,” states Enterra on its web site. “While it produces heavy oil, solution gas drive allows higher than average production rates and lower initial operating. Lower than average sand and water cuts characterize production from this pool.”
Following its acquisition of Trigger Resources last year, Enterra stated it had “21 oil and gas drilling opportunities identified in the Viking, Colony, Sparky and McLaren zones in the Primate area and is presently planning a strategic farm-in of offsetting lands to add more opportunities to the area. Enterra plans to focus capital development in this area.”
Indeed, that’s exactly what’s happening. Enterra, which just recently brought another new well on stream at Primate (impacting Greencastle’s financials beginning in Q-3), has increased its Canadian capital expenditures by $8 million and will be conducting a “heavy program” over the next several months that is expected to result in the addition of eight to 10 new Canadian wells. What that means is more wells will be coming on stream at Primate in the near future, and increased production there means even larger royalty checks for Greencastle as long as heavy oil prices remain at current levels. “We’re building momentum here,” stated Jim Tyndall, Enterra’s Senior Vice-President and Chief Operating Officer in a second quarter conference call. Enterra drilled four new wells at Primate in 2007, following its acquisition of Trigger, and has added one new well so far this year. More, clearly, are on the way, as Enterra focuses on organic growth.
(Enterra Energy Trust units have enjoyed a terrific year on the TSX (up 215%). They closed August 29 at $3.62 after beginning 2008 at just $1.15).
Greencastle Reports Record Revenue/Earnings
Following the market close on Friday, August 29, Greencastle’s second quarter results were announced and they were stellar. For the first time in its history the company hit the $1 million mark in quarterly revenue and recorded a pre-tax profit of three cents per share for the first six months of 2008 (cautiously, the company took a $370,000 tax provision for the second quarter).
Our Q-2 estimates were very much in line with the actual numbers (in fact, we were a little on the conservative side). Our Q-3 revenue estimate for Greencastle is $1,100,000 and our pre-tax profit estimate is $850,000. That would give Greencastle a pre-tax profit of five cents per share for the first nine months of the year. Working capital should be approximately $6 million by the end of Q-3.
Greencastle’s pre-tax profit for the first six months of this year increased by a staggering 636 per cent over the same period last year.
Greencastle currently has 44,602,671 shares outstanding, giving it a market capitalization of only $15.4 million (for comparative purposes, Strategic Oil & Gas (SOG, TSX-V), for example, also reported its second quarter financials Friday. This company has a market cap of $19 million and recorded gross revenue of $2 million and net earnings of .01 per share for the first six months. SOG has a working capital deficit and will fund its capital expenditures through the remainder of 2008 “out of cash, operating cash flows, bank debt and additional equity financing as needed).”
Greencastle CEO Tony Roodenburg made a very important and revealing point in an interview made available on the company web site following Friday’s market close: “If we play our cards right, we may never have to go back to the market for capital…which sets us apart from hundreds of a thousand other junior resource companies.”
Roodenburg also confirmed the company is reviewing a lot of “deal flow” at the moment. As we explained in last Sunday’s report, given what we’ve seen so far this year out of Greencastle and the public statements Roodenburg has made, we wouldn’t be at all surprised if he pulls another “rabbit” out of the hat very soon and lands a deal that puts a big smile on the face of every Greencastle shareholder.
With a strong and diversified portfolio of projects (royalties from Primate, coal in Manitoba, shale gas in Quebec, gold in Nevada and Africa and uranium in Wyoming), there are many factors that could lead to an explosion in the Greencastle share price (including of course the announcement of another major deal). A strong foundation is firmly in place here upon which Greencastle can significantly build shareholder value.
Tomorrow (Monday, September 1) SolomonSmallCaps will be releasing its 30-stock model portfolio. Greencastle is in “Category 1” of that portfolio, along with nine other stocks, for companies that we believe will substantially outperform the market over the immediate to short term (one to three months). A major rally, in our view, is already underway with the Venture Exchange which could jump 10 to 20% over the next couple of months. In that kind of environment, some of the best stocks will double or triple in value (or better).
As with all investments, we recommend you do your own due diligence, invest only with money you can afford to lose, and never put all your “eggs” in one basket. Invest wisely, and we suggest taking at least half your profits off the table on a “double”. Also, please read our disclaimer near the top of our web site.
