New oil and gas field discoveries in the U.S. are rare, but a tiny oil and gas exploration company, Torchlight Energy Resources Inc. (TRCH:NASDAQ), has pulled it off in the Orogrande Basin in West Texas. On July 25, the company announced that it is producing "significant hydrocarbons" from University Founders A25 #1 well.
Torchlight noted that it has drilled a 1,000-foot, proof of concept lateral and "completed with a six-stage fracture stimulation in the Pennsylvania formation." The well has produced ~1.8 million cubic feet peak daily production rate based on hourly gas measurements. While the well has produced mostly gas to date, there have been limited quantities of 41 gravity oil.
The company expects increases of oil from this lateral based on logs and oil-saturated cores. "The upper most completion stages in the heel of the well show to be predominately gas by the core analysis, whereas the lower four stages show significant oil potential," the company reported.
"ROTH Capital Partners has a Buy rating and a $1.75 12-month target price on Torchlight."
Torchlight CEO John Brda stated, "The confirmation of production in the Orogrande Basin is major milestone for the company. To produce at a peak rate of ~1.8 MMCFPD out of a 1,000-foot lateral, with evidence of high quality oil behind it, confirms our thesis that the Orogrande can be a long lateral production play supporting 10,000-foot lateral wells."
"Torchlight is now the first company to effectively produce hydrocarbons in the Orogrande Basin and is attributed with this New Field Discovery," Brda noted.
The company intends to continue to test the first well, as well as drill two more project wells this year on the property, but is not looking to develop its 133,000 acre Orogrande holding itself. Brda noted that the company is in discussion with "industry majors who would be appropriate development partners or acquisition suitors for the Orogrande Project." Torchlight holds a 72.5% working interest in the project.
Rich Masterson, geological consultant on the project noted, "We have now validated a brand-new shale play in West Texas with potential across the basin to deliver large volumes of petroleum reserves from the Pennsylvania formation alone. Going forward we plan to validate deeper and shallower conventional zones, delineate the acreage to the south and verify pay zone properties including thickness, depth and quality of rock that appear in those sections."
Torchlight's accomplishments have caught the eye of resource investment experts.
John White, an analyst with ROTH Capital Partners, in a July 27 report, stated that the firm views "the hydrocarbon flow rates and results as very positive. Sustained gas production rates have ranged from 1.0 to 1.4 MMcf per day depending on choke size. This is confirmation of a petroleum system in the Orogrande Basin with a source rock necessary to produce hydrocarbons."
ROTH has a Buy rating and a $1.75 12-month target price on Torchlight, noting, "Our valuation is based on a net asset value (NAV) analysis which produced $1.73 per share which we adjusted higher to our $1.75 per share price target." The company's shares are currently trading at around $1.20.
Bob Moriarty of 321 Energy noted that based on initial production from the well of 1.8 MMCFPD, "that would translate to about a 300 BOE when the well completes the liquid removal from the lower four stages which show significant oil potential. Currently the well is shut in pending delivery and installation of special gas lifting equipment that is expected to unload the wellbore and increase oil production recovery."
"Torchlight is perfectly positioned to reap the rewards from a commanding land position in this new field discovery." - Bob Moriarty, 321 Energy
"That rate of flow suggests that with a more normal 10,000-foot lateral in the same Pennsylvania formation will flow at a 3,000 BOEPD rate. A similar well with a 5,500 vertical and 10,000 foot horizontal will cost in the range of $8-$10 million. Using a metric of $40,000 per flowing BOEPD, a 3,000 BOEPD well would be worth $120 million in net present value. For certain that is a home run out of the park. If multiple wells are done at the same time the cost of drilling and completion will come down," Moriarty calculated.
Moriarty notes the scale of Torchlight's Orogrande project. "Considering only the Pennsylvania formation using 10,000-foot horizontal laterals Torchlight has 1,150 potential drill locations. But when you have one large zone, the odds favor more similar in nature zones that have the potential for hundreds to thousands of more drill locations," he stated.
"Rich Masterson deserves all the credit in the world for his discovery of a new exciting petroleum basin in West Texas. Torchlight is perfectly positioned to reap the rewards from a commanding land position in this new field discovery. I would be very surprised if Torchlight didn't enter into a joint venture with a much larger partner with deep pockets to monetize the field," Moriarty concluded.
Keith Kohl, managing editor of Energy & Capital, an independent research service, writes, "Nestled away in the far western reaches in Texas, there's a small Texas oil stock that is unraveling one of the hottest new tight oil plays in the United States. Over the last year, Torchlight Energy has been quietly drilling into the massive Orogrande Basin."
"We're talking about a massive oil field with billions of barrels of crude up for grabs. Based on similar EURs in the Midland Basin, the potential EUR of Orogrande wells is estimated to be between 4 to 6 million barrels per section, with roughly 12–18 wells per section," Kohl stated.
He calls out that University Founders A25#1H well production "is a major milestone for a small E&P company like Torchlight. And it's even better news for shareholders, since it proves that there is, in fact, a petroleum system in the Orogrande Basin."
"Torchlight now has several options going forward. Confirmation of this petroleum system in the Orogrande Basin means that the company can now move forward with delineating the project itself, partner with a bigger player to develop the play, or even sell its acreage outright," Kohl noted.
On the technical analysis side, John Newell, portfolio manager with Fieldhouse Capital Management, charted Torchlight, noting, "There is a theory in Technical Analysis that states 'the bigger the base the bigger the move.' Those words could hold true for Torchlight. We see a long 3.5 year base, a 50 day moving average attempting cross a 200 day moving average that appears to be now moving up. A breakout above the 'Point of Recognition' appears to be $1.45 and establishes three targets set out in the chart. Also, a home run blue sky target of >$8.50 if the first three are met and exceeded."
Chart courtesy of StockCharts.com.
Read what other experts are saying about:
1) Patrice Fusillo compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an employee. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Torchlight Energy. Streetwise Reports does not accept stock in exchange for its services. Click here for important disclosures about sponsor fees. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with Torchlight Energy. Please click here for more information. An affiliate of Streetwise Reports is conducting a digital media marketing campaign for this article on behalf of Torchlight Energy. Please click here for more information.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Torchlight Energy, a company mentioned in this article.
Disclosures from ROTH Capital Partners, Torchlight Energy Resources Inc., Flash Note, July 27, 2018
Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Within the last twelve months, ROTH has received compensation for investment banking services from Torchlight Energy Resources, Inc.
ROTH makes a market in shares of Torchlight Energy Resources, Inc., and as such, buys and sells from customers on a principal basis.
A Research Analyst and/or a member of the Analyst's household own(s) debt or equity securities of Torchlight Energy Resources, Inc. stock.
Shares of Torchlight Energy Resources, Inc. may be subject to the Securities and Exchange Commission's Penny Stock Rules, which may set forth sales practice requirements for certain low-priced securities.
Within the last twelve months, ROTH has managed or co-managed a public offering for Torchlight Energy Resources, Inc.
ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months.
Disclosures from Bob Moriarty, 321 Gold and 321 Energy, July 31, 2018
Bob Moriarty: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Torchlight Energy. Torchlight Energy is an advertiser on 321 Gold.
Disclosure from Keith Kohl, Energy and Capital, July 31, 2018:
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.
Disclosure from John Newell, Fieldhouse Capital Management, July 31, 2018:
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. I produced the Chart myself and used the Chart Service of Stockcharts.com as a paid Pro Member.
Disclosures and Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these pages will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these pages are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.
Hypothetical and historical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical and historical performance results and the actual results subsequently achieved by any trading program. One of the limitations of hypothetical and historical performance results is that they are generally presented with the benefit of hindsight. In addition, hypothetical and historical trading may not present the financial risks and returns for future trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect actual trading results.
Disclaimer : This Publication is protected by Canadian and International Copyright laws. All rights reserved. No license is granted to the user except for the user's personal use. No part of this publication or its contents may be copied, downloaded, stored in a retrieval system, further transmitted, or otherwise reproduced, stored, disseminated, transferred, or used, in any form or by any means without prior written permission. This publication is proprietary.
Neither the information, nor any opinion expressed constitutes a solicitation for the purchase of an investment program. Any further disclosure or use, distribution, dissemination or copying of this message or any attachment is strictly prohibited; such information, whether derived from Fieldhouse Capital Management or from any oral or written communication by way of opinion, advice, or otherwise with a principal of the company is not warranted in any manner whatsoever, is for the use of our customers only and may be obtained from internal and external research sources considered to be reliable.