Maurice Jackson: Today we will discuss a company that presents a unique value proposition in oil and gas. I'm speaking of Molori Energy Inc. (MOL:TSX.V; MOLOF:OTCQB), which trades on the TSX-V under MOL and on the OTCQB under MOLOF. Joining us for a conversation is Joel Dumaresq, the CEO of Molori Energy.
Joel, we had quite a bit of delay in getting news out of Molori on this first Red Cave Appraisal well—can you talk a bit about these delays?
Joel Dumaresq: Admittedly it did take us longer than we anticipated to get a handle on the well. As I recall, we completed and logged the 23-1R well in mid-January. However, shortly after that, we got hit with historically low temperatures up in the Texas Panhandle, which ended up delaying our efforts to frac the well.
You'll recall Maurice, that the frac is really the silver bullet when it comes to getting a Red Cave well to flow oil, or for that matter gas. Credit goes to our neighbors in Moore County—"Adams Affiliates"—who were first to demonstrate that by employing fracs the size of which you see in the Permian Basin, they could get their Red Cave wells to flow at 40–50 barrels of oil a day.
So, getting back to our well, when we came to frac, the air temperature was simply too low and the ground too hard for the almost 300,000 gallons of water we were to inject. As a matter of fact, our workaround ended up being that we heated the water before injecting it into the formation. By the time we completed the frac, we were well into February.
Once the well went into production, it was evident we had oil along with some gas. However, what we didn't expect was the volume of water that flowed back from the frac. These Red Cave wells typically have a low water to oil ratio, so we weren't expecting to have watering issues. However, when you pump that much water downhole, you are going to get a lot of it back, and that's exactly what happened.
The next challenge we encountered was with the amount of sand in the well. We pumped approximately 300,000 lb of sand into the well during the frac. What we've found is that the sand is falling back into the well and being picked up by the oil, which has presented a challenge for the pump. We've been experimenting with different pumps to get around the sanding issue, and we believe we will get that challenge licked as well.
So that's all a long way of telling you that indeed it did take longer than what we expected. However, this was our first well of this type into this zone of the Red Cave and just like Adams, we are learning as we go. With what we've learned on this first well, we will surely streamline and refine our completion strategy going forward.
Maurice: Let's talk about the production we are seeing from this first well. From Molori's announcement on Wednesday, that number looks to be 28 boepd? Are you happy with that number, Joel? More specifically, in previous interviews, you stated production numbers that Adams Affiliates were getting out of their Red Cave program. Is Thompson 23-1R behaving like a ''typical Adams Affiliates'' well?
Joel: Maurice, what's most important from our perspective is that we found oil, and, yes, some gas. When we talk of proof of concept, that's what we were after.
If you'll recall from our prior discussions, the Red Cave is a complex formation and Adams Affiliates were the first to demonstrate that they could economically build production from the Red Cave.
For Molori's part, no one has spent more time or money studying the Red Cave to get a sense of where the ribbon of oil sits. But that said, we are learning about the characteristics of producing oil from the Red Cave, and just as Adams has, our results will get better and better with the more wells we drill.
Adams has drilled over 50 wells into the Red Cave. At the outset, they also had issues with sand collapsing into the well and they learned to overcome them. As they improved upon their completion techniques, their IPs consistently improved to where the average Adams well into the Red Cave now initially produces about 40–50 barrels of oil.
Let's also not forget that the oil is there in the 23-1R well. All we are talking about is how fast we initially recover that oil. It may impact the short-term economics of the well, however, the long-term economics remain unchanged. These are very inexpensive wells to drill in comparison to the wells in the Permian: only about $250k–$300k per well, so the payback, even at 25 boepd, is still only a little over a year.
With the land position we've assembled and are continuing to assemble, we
expect to have access to several hundred well locations. More importantly, the first 50–100 locations we are focused upon are simply "offset" locations relative to Adam's best wells—that's about the lowest hanging fruit you can get in the oil development business.
We can all do the math on what even just 100 locations look like with 25 barrels a location, and when you think we are almost at $70 a barrel oil, the economics really begin to shine.
At the end of the day, we have to remember why we are in the Red Cave in the first place: This is 'virgin' pressure and the formation has not been depleted the way the brown dolomite formation has in North Texas. You just don't find opportunities like this "onshore" in your own backyard with land acquisition costs of 1/100th of what it would cost you to get into the Permian. This play is an exceptional opportunity.
Maurice: Continuing on with the matter of production, in Molori's announcement on Wednesday you discussed that Molori's technical team will be revising completion techniques. Can you talk about what this all means and ultimately do you and your team believe that revising the completion techniques will significantly affect the production numbers from future wells?
Joel: Simply put, yes. When you compare the logs from the 23-1R well to some of Adams recent wells, you would anticipate that our well should be flowing at between 30 and 40 barrels a day. Now, the logs aren't a perfect barometer and sometimes you can get false readings. However, we believe that by reducing slightly the amount of sand and water we applied to the frac, by dropping balls and diverting the water and sand to specific perforations during the frac process, and by running resin sand so that it holds better within the formation, we will almost certainly improve results.
Statistically, there's just no reason why our production numbers shouldn't reflect Adam's performance as we drill more and more wells.
Maurice: Now that Molori's further demonstrated ''proof of concept'' per Molori's announcement on Wednesday, can you discuss the future wells planned and provide some sort of road-map as to what we can expect from Molori in the next 90 days?
Joel: I've been promising for some time announcements with regards to our land position. I know I need to do a better job of setting expectations, however, acquiring land always takes longer than expected.
Much of the land in this part of Texas, like other parts of Texas, is held by ranchers in some cases, by investors in some cases and by oil companies in some cases. To put together a land package takes a great deal of effort and patience. That said, we are now where we want to be and we will be sharing that with the markets in the next several days.
When we began following Adams, we only had data and locations on a small handful of their wells. Now, over a year later, we have data and IP rates on almost 50 wells, and we've employed this intel in our land acquisition strategy. Some of these sections are—in the minds of our technical team—much closer to the sweet spot of the Red Cave than the lease upon which we just drilled the 23-1R. Better yet, they are direct offsets of some of Adam's best wells.
So, we plan to focus the next phase of our development on those sections, which means more new wells for Molori.
Maurice: Tell us why Molori is a ''Buy'' at $0.28 cents today? Why should new investors get excited about Molori and why should current shareholders remain excited and committed to Molori?
Joel: I was a buyer at $0.45, so it's not difficult for me to argue that there is better value at $0.28. When we were at $0.40–$0.50 a share, we had only just come to learn about the Red Cave. We had a small land holding that frankly we "acccidented" into, as a result of another transaction, and we were just beginning the study that we completed a few months back that I understand to be the definitive analysis of where the ribbon of Red Cave oil is concentrated.
As a result of that work, as well as the data we've collected from the Texas Railway Commission on Adam's successes, we've developed and orchestrated upon a successful land acquisition strategy. We've had to keep quiet about those efforts in order to ensure we didn't simply drive up the cost of that land as we progressed. But now we are ready and positioned to talk about it.
Getting back to a point I made earlier, there just aren't many oil focused, untapped onshore development opportunities in North America with the low costs of the Red Cave, in-place oil and virgin pressures. In fact, I can't think of another one off the top of my head.
Shallow, inexpensive wells; an extremely high re-cycle rate with paybacks inside a year as we improve upon completion; several hundred potential drill locations with dozens of infill drilling sites adjacent to Adams best production. We've admittedly had a few missteps with our communications strategy and I've heard from shareholder about that. We are committed to improving upon that, and as we share the full extent of the opportunity with investors, I believe we will be rewarded with a much improved valuation.
Maurice: Joel, before we close, what keeps you up at night that we don't know about?
Joel: I think the last time you asked me that question, I said it was something I couldn't control, something like the world energy prices, and really, that still remains the number one consideration. You'd think that higher oil prices play into our favor. However, they are a bit of a double-edged sword. Good for overall economics of the project, yes, but counterproductive when it comes to securing the land and opportunities.
So, when you're out there, and landholders whom you're trying to buy land from see higher prices, it makes it challenging to secure the opportunities or at times, make it more expensive. We've dealt with that to the best of our abilities. That said, we're now in a position where we have largely put our land package in place, and I think now, I can sleep much more comfortably.
Maurice: Last question here for you. Talk to us about the share structure for Molori Energy.
Joel: The current share structure is what I think people in the markets would say extremely tight. We have about 38,500,000 shares issued and outstanding, which means we've got a $10 to $12 million market cap, which is extraordinarily modest in this marketplace and I don't think really reflects what's happened with energy prices.
When we started looking at the Red Cave many, many months ago, oil was in a range of $40 to $45 a barrel. Here, it's now touching on $70 a barrel, so there's been a huge improvement in the potential economics of the project and the economics of, quite frankly, virtually all oil and gas development projects.
I think, from our shareholders' perspective, they stand in good position to benefit from that as we start to fully develop the opportunity, and people start to recognize that with hundreds of well locations and the potential, whether it's 20 barrels a day per well, 40 barrels a day per well, 50 barrels a day per well like Adams, or potentially even higher, there are tremendous economics in this project.
And if we're able to execute the way we should execute over the next 12 to 36 months on this play, you could see very good returns for shareholders over that period of time, given how inexpensive our company is at this juncture.
Maurice: Would you share contact details for Molori?
Joel: What I'd recommend for investors, Maurice, is that they visit the company's website, www.molorienergy.com, and the information is there for getting in contact with our investor relations specialist or myself.
Maurice: Investors can get more information regarding Molori Energy from Judy-Ann Pottinger. Her phone number is 604 617-5290, and her email is [email protected]
Joel Dumaresq of Molori Energy, thank you for joining us today on Proven and Probable.
Maurice Jackson is the founder of Proven and Probable, a site that aims to enrich its subscribers through education in precious metals and junior mining companies that will enrich the world.
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