Jericho Oil continues roll-up of undervalued producing Mid-Con assets

Mergers and takeovers - concept
Source: DollarPhotoClub

The current low oil and gas price environment has forced American E&P companies to adjust their strategies to a tough market. The strategy adopted by Jericho Oil Corporation, a growth-oriented oil and gas company engaged in the acquisition, exploration, development and production of overlooked and undervalued oil properties in the Mid-Continent, involves rolling-up undervalued high-quality producing oil assets within the Mid-Con that are or can be operated below $20 per barrel.

In line with this very strategy, the company announced that it has signed a Letter of Intent to acquire a 50% working interest in six horizontally producing wells and drillable leaseholds in Central Oklahoma for a total cash consideration of USD$1.55 million.

The acquisition totals just over 10,000 acres with current gross production of approximately 119 barrels of oil equivalent per day (87% Oil, 13% Gas at an economic equivalent 20mcf:1 BOE) including four saltwater disposal wells. The asset package is in an area complementary to Jericho Oil’s existing operations in Oklahoma and represents the Company’s third acquisition within Central and Northeast Oklahoma in 2015.

The planned acquisition is located east of the Nemaha Ridge, a structural uplift which gives way to higher oil and liquids content on the eastern flank within the Mississippi Lime formation. The Mississippi Lime region, more broadly, has seen the steepest year-over-year decline in rig count to-date, which serves as a function of capital flight and has resulted in advantageous market dislocations relative to other basins across North America.

Accordingly, many small to large cap producers have vacated the region, allowing Jericho the opportunity to capitalize on the large sunk costs, exploration efforts and experiences of previous development. In an environment of generally low prices, favorable operating economics and unfavorable drilling economics are mutually exclusive. While the Mississippi Lime region has struggled to maintain its place as the “next horizontally drilled shale play,” the operating economics on producing horizontal wells remain extremely compelling.

The planned acquisition was previously drilled horizontally. However, Jericho maintains its strategic focus on targeting the Mississippi Lime vertically, allowing for stronger risk-adjusted returns. In addition to the Mississippi Lime formation, the acquired geology and drilling data suggests the existence of potentially viable stacked zones up-hole throughout the acreage.

Allen Wilson, CEO of Jericho, said, “This Letter of Intent shows that our ‘patiently-aggressive’ acquisition strategy is starting to pay dividends. After nearly ten months in which WTI has averaged around $50 / bbl, we are beginning to see seller capitulation and accordingly, narrower bid-ask spreads. The acquisition will add high-quality production, positive cash flow and future drilling potential to Jericho’s portfolio. We will continue to seek opportunities with positive operating cash flow and stacked pay acreage for future drilling in a higher price environment.”

The acquisition is slated to close on or before December 15, 2015.

Further, Jericho has granted an aggregate of 100,000 incentive stock options to an officer and an employee of the Company. All of the stock options are exercisable at a price of $0.40 per share for a period of 5 years. The stock options have been granted under and are governed by the terms of the Company’s incentive stock option plan.

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