TICKERS: JCO; JROOF

Update on Oklahoma STACK Play
Contributed Opinion

Source:

Technical analyst Clive Maund discusses the latest moves by a company that just acquired a large position in Oklahoma's STACK play.

I last looked at Jericho Oil Corp. (JCO:TSX.V; JROOF:OTC) a month ago, when the positive fundamentals of the company were highlighted. Since then it has broken out into a new intermediate uptrend and advanced, without any help from the oil price, which has been falling, and despite announcing another significant funding – this funding, which is for an Oklahoma STACK acquisition, was enthusiastically taken up and had virtually no impact on the share price.

Jericho Oil is a growth-oriented junior oil and gas company based in Tulsa, Oklahoma. The company announced recently that it is acquiring an interest in 9,400 net surface acres in the Anadarko Basin Oklahoma STACK, and has paid a fraction of what its neighboring majors are paying. STACK, a major area of energy-development interest in Oklahoma, stands for Sooner Trend Anadarko basin Canadian and Kingfisher counties.

The company has the option to invest up to $9 million in acquisition and development capital to acquire just under one-third of the joint venture that owns the assets.

Jericho Oil highlighted the following features of the joint venture:

  • 8,600 net Mississippian acres in the normally pressured oil-window of the play
  • Significant high quality resource potential with unrisked inventory at more than 160 locations
  • Implied acreage value of US$$2,300/net Mississippian acre adjusting for proved developed producing (PDP) reserves
  • Acreage position surrounded by substantial drilling and pooling activity targeting the Meramec and Osage formations from Alta Mesa, Chesapeake, Sandridge and Gastar as well as multiple private equity backed operators
  • Aligns with strategy to generate attractive returns at sub-$50/bbl
The joint venture was able to acquire the rights at a much lower cost than many of its neighbors; its implied acreage acquisition cost of $2,300/net Mississippian acre adjusted for PDP compares to as much as $15,000 - $20,000 per acre that major players have paid in this area of the STACK.

Jericho CEO Brian Williamson told Streetwise Reports that its acreage is "sandwiched between several best in case sizable independents including the likes of Alta Mesa Holdings (AMR: NASDAQ), Marathon Oil Corp. (MRO:NYSE), Sandridge Energy Inc. (SD:NYSE), Newfield Exploration Company (NXF:NYSE), Continental Resources (CLR:NYSE), Gastar Exploration (GST: NYSE) and Chesapeake Energy Corp. (CHK:NYSE), which trade at much higher multiples for their STACK acreage values."

Most analysts believe that the price of oil will remain well under $100/barrel for the foreseeable future. Williamson commented, "The things we are seeing suggest that the STACK and in particular our acreage can be developed profitably with oil in the $30-35bbl price range."

The land was drilled with conventional vertical wells in the 1950s and 1960s, but the continuing evolution of development technology has made it possible to access much more oil. The company believes that historical wells may have extracted as little as 10% of the oil.

On the latest 1-year chart we can see how the stock price has succeeded in breaking out into a new intermediate uptrend and advancing, despite the oil price receding during August, and despite two recent financings, which is a sign of the company’s intrinsic merits. It is now well placed to advance further, especially if the oil price picks up, in which case the advance is likely to accelerate.

The long-term 5-year chart also looks good, with Jericho now starting to advance away from a Head-and-Shoulders base pattern. It broke sharply out of this base pattern early in the year, a development we had expected, but then rather surprisingly reacted back well into the base before turning higher again in recent weeks. Volume indicators have picked up well on this latest advance, a positive sign, with the On-balance Volume line looking particularly strong as it is already at new highs.

Conclusion: this is considered to be one of the best oil investments around, so holders should stay long and new purchases are in order at this juncture. The stock trades in light but generally adequate volumes on the U.S. OTC market, where liquidity is expected to improve as the price advances.

Note that some additional fundamental insights may be added to this article later, whereupon you will be notified of any changes.

Jericho Oil website

Jericho Oil Corp, JCO.V, JROOF on OTC, closed at C$0.60, $0.456 on 1st September 17.

Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years' experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.

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Disclosure:
1) Clive Maund: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company currently has a financial relationship with the following companies mentioned in this article: None. I determined which companies would be included in this article based on my research and understanding of the sector.
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Charts provided by Clive Maund.

Read the latest Jericho Oil Press Release Here >




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