The Energy Report: Wolf, how did you become involved with BNK Petroleum Inc. (BKX:TSX)?
Wolf Regener: I was one of the people who got Bankers Petroleum Ltd. (BNK:TSX) into the U.S. shale business originally. I decided to do something else with that business and convinced the board and shareholders to spin BNK out of Bankers Petroleum and into our own entity.
TER: What is your background in the oil and gas sector?
WR: I've been in the oil and gas business for about 28 years, doing everything from land work to operations to dealing with finances.
TER: What do you and your management team bring to the table at BNK?
WR: We bring a team that has been doing shale gas and shale oil for nearly 10 years, and we have a lot of people in the company who bring a lot more than 10 years' oil and gas experience. We've shown that we can build up an asset and then monetize it, as we did with the Woodford shale, which we sold to Exxon Mobil Corp. (XOM:NYSE) for $147 million ($147M) in a down gas-price environment.
TER: What are BNK's principal selling points?
WR: We have a great, low-risk asset base with the Caney shale in Oklahoma, which we feel has a very large upside value potential. Last year's reserve report had 37 million barrels (37 MMbbl) of proven and probable (2P) reserves and more than 70 MMbbl proven, probable and possible (3P) reserves. The 2P number was $500M and the 3P number was $875M. In addition, these reserves were on only 63% of our acreage. But we have a lot of geological data that support those numbers, because we drilled wells through the Caney into the Woodford when we developed that.
We have a play that gets better and better every time we drill a well. We also have 3-D seismic survey across the acreage, and we have all the infrastructure in place. When we drill a well, we're able to put it on production immediately and minimize the flaring of the natural gas that's associated with the oil.
TER: The last 12 months have been pretty turbulent for oil and gas. How has the decline in oil and gas prices affected BNK's operations and results?
WR: When oil prices started plunging, we were quite proactive: We quickly stopped drilling and reduced our overhead. I—and most of my board of directors—have been through quite a few downturns in the industry, so we were quick to act. We were also quick to pick up activity again once we felt prices had bottomed and were on their way up, and that there was more optimism for upside price than downside pressure. We completed the wells we hadn't finished from late last year, and that has led to a recent increase in our production.
TER: In the first quarter of this year, BNK generated a net loss of $760,000. Is this attributable to weak oil prices?
WR: Most of it is. About a third of that was for restructuring costs—we are more streamlined now. But two-thirds resulted from lower oil prices. Because prices are higher now, and because of the new wells we've brought on, things have gotten a whole lot better.
TER: How does this factor relate to BNK's peers, and to the company's performance for the year?
WR: A lot of companies have struggled to overcome low oil prices. We think we've managed it quite well. Not all companies have the luxury of taking the right steps at the right time. But we don't have as much debt as some other companies. We're in a decent position, with a lot of room for upside growth now that we have made it through the low oil price scenario.
TER: Do you have a forecast for oil and gas prices in 2015–2016?
WR: I'm counting on prices floating between $58–65/bbl for West Texas Intermediate (WTI) through that time period. Not that we won't potentially see a downturn. But I don't think a downturn will last very long if it happens. I think the oil price is generally on the uptrend, and hopefully will stay in the low to mid-$60s/bbl.
TER: BNK has operations in both the United States and Europe. Can you give us an overview first of the U.S. operations?
WR: Absolutely. In the U.S. we have the oil-rich Caney formation, which we've proven up after we sold off the more gas-rich Woodford shale. The Caney produces about 70% oil, and the balance is about equally gas and natural gas liquids. We took a year and a half to figure out how best to drill the shale once we picked the wells. I feel like we've unlocked a very large resource here, and it has a lot more room to grow.
The reserve reports with the values of $500M for 2P, and 3P over $875M were done by Netherland, Sewell & Associates Inc., and were done at a higher price deck than we have currently. They assumed $65/bbl in 2015, $80/bbl in 2016 and $90/bbl in 2017. We're not there now, but we hopefully will be in the future. But even if we cut those numbers down to where prices are now, we believe the Caney is worth far more than our current market cap.
Our strategy going forward is to drill more wells, to convert more of the 3P reserves over to 2P and then ultimately into the proven category, and to define the resource and show the reservoir engineers, and thus the shareholders, how low risk this project is. We also have the potential to continue development on the east side of our acreage, where we have not drilled any Caney wells yet. About 6,000 acres haven't been evaluated by the reservoir engineers, but we believe these acres will lead to more reserves for the company.
Our work in the Ardmore Basin in Oklahoma is moving along well. We're currently looking at talking to lenders about increasing our line of credit. We want to accelerate some drilling there as well, especially since the cost of drilling and completing wells has dropped by 30% or more.
TER: Do you have plans to add properties in Oklahoma?
WR: We might pick up more acreage in this region, and there are other areas that our geoscientists are looking at. But we don't have anything identified that we're currently pursuing.
TER: BNK has interests in Poland and Spain. What do these countries offer to a shale E&P company?
WR: We have quite large positions in those countries, and that gives us a lot of potential to add reserves.
We have 227,000 acres in Poland, and another 330,000 acres in Spain, in areas we think have good potential for shale gas—and in Spain both shale oil and shale gas. In Poland, we have drilled a number of wells. We've high graded the areas we feel are most prospective for shale gas. We are comfortable that the acreage has a good chance of producing economic shale gas wells. We have flowed some gas from other wells we've drilled on the land and learned enough to think the next well we drill could unlock a lot of value.
We're currently looking for potential partners to come in and pay for drilling more test wells, which will hopefully prove up those resources. That's our main strategy right now. We've identified where we think the heart of the acreage is—the best looking shale. We would need to drill more wells to see if we can get economic rates of production.
TER: Tell me about your resources in Spain.
WR: We have the heart of what we think is the Jurassic shale play. We have about half, and Repsol S.A. would likely have the other half of it. We've done a lot of geological work out here.
Numerous historic well penetrations have gone through the shale and shown the presence of good oil and gas. It is a nice, thick shale, between 100–200 meters thick over various parts of the acreage block. It goes from a liquids-rich window all the way down to a dry gas window, depending on where we're drilling. We know we have good organics here. We want to drill a few exploration wells to get a modern log assessment and do some modern core analysis. That's the first step. We are going forward with our environmental impact assessments, which are progressing quite well. We hope to get permits to drill in Spain late this year. Toward the end of the year, we'll start looking for partners to share in the expense of drilling wells. Hopefully we get carried on those.
TER: Is BNK exploring other avenues in European shale?
WR: We have concession applications that have been pending for quite a while. If we get one of those concessions, we'll make an announcement.
TER: It sounds like you have plans to expand into Europe, but they are not at a stage where you can get a permit yet.
WR: Correct. We don't have additional licenses yet. We don't have the concessions from the government yet. We need to see if those will be granted. Our main focus for the company is to minimize how much we're spending in Europe and maximize the investment into our lower-risk U.S. shale oil.
TER: What is ahead for BNK? What catalysts do you see coming up?
WR: We will be working with our lenders to increase our lines of credit within the year. We want to speed up the drilling program rather than wait for cash flow to go forward. With more cash from the lenders, we should be able to drill on a more consistent basis and not have to wait for cash flow to catch up to drill the next well, because for most of these wells, we're at 100% working interest. That will hopefully kick off growth for the company and an increase in reserves and value. We're looking for partners in Poland, and later in the year we'll be looking for partners in Spain.
TER: Thank you very much for your time.
Wolf Regener brings nearly three decades of conventional and unconventional exploration and production experience to BNK Petroleum Inc. In his previous role as executive vice president of Bankers Petroleum, and president of its wholly owned subsidiary Bankers Petroleum (U.S.), Regener was instrumental in the formation of BNK Petroleum and its subsequent spinoff. His career also includes key senior executive positions with Tartan Energy, Alanmar Energy and R&R Resources. With an extensive operations and finance background, Regener has been at the forefront of BNK Petroleum's acquisition of unconventional gas projects on an international scale. He holds a bachelor's degree in business economics from the University of California, Santa Barbara, and has served on the board of directors of the California Independent Petroleum Association for more than 17 years.
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1) Tom Armistead conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the company mentioned in this interview: None.
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