Oilexco Chart & fundamentals

Interview transcript...

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Host: Calgary based Oilexco has come up dry with a key drilling prospect in the North Sea and for the reaction we go to Art Millholland who is president and CEO of Oilexco, joining us from Calgary. Mr. Millholland, thanks for being with us today.
Art: Well, thank you for having me.
Host: All right, we got the news that you’d come up with a dry hole in the North Sea.
How critical is this, how important for your operations?
Art: Not very important at all. We have quite a large drilling program in the North Sea. For instance we have a semi submersible drilling rig under contract right through March , the end of March of 2008. This is just one of many, many things and this is probably the highest risk prospect that we had in our portfolio. We have 45% of it. The other interest is split between Maersk which a group of AP Mollar, out of,.. Danish concern, as well as RWE which is a German utility. The cost of this well to date, this morning was 3.4 million Pounds Sterling, you know, you know it’s not large thing at all. I think the market is, is really, doesn’t really understand what we are doing. Oilexco has really turned into a production story in the North Sea.
Host: When you say that the market doesn’t understand. The market understands that something has gone wrong here, your stock is down.
Art: Well,
Host: Maybe you can put in into context. You drilled two dry holes in the last couple of years, right?
Art: In the last two years, right. In 2004 we were the most active operator of appraisal wells in the UK sector. Now, that being said for the company that as of 2003 never drilled a well offshore ever. Today, in the North Sea, we drilled upwards of 22 holes and this is only the 2nd well that we drilled what we call unintentional dry hole. And these are what we call predominantly a combination of exploration and appraisal wells. You know that being said, you know, September of next year we have one field plus a satellite coming onto production at 35,000 barrels a day. You know if we look at our forward projections for pre-tax cashflow, the stock is trading at less than one times multiple right here.
Host: Well, let’s take a look at the stock. It’s off by 14 cents today but when you at the longer picture, year to date you are up almost 14%, up 17% over the last 12 months. What do you say to investors?
Art: Well, you know, I, I believe our disclosure is very good and I suggest investors take an opportunity to go to our website and SEDAR and read our disclosure and understand what Oilexco is doing. Unfortunately, there are hedge funds in the market that look at us as a speculative stock on a well by well basis, which we think is unfair and furthest from the truth.
Host: Now you got your North Sea exploration. You also have operations in North America, and..
Art: No. Not. No, we have devolved ourselves of North American interest.
Host: What..
Art: Two wells in Alabama. That’s it. Our 100% focus is UK, North Sea.
Host: All right, so you mentioned production in 2006. That’s beginning in September?
Art: End of September of 2006 is what have targeted, you know forward. It’s subsea development. It’s quite a large project. We have secured financing from the Royal Bank of Scotland in order of 150 million Sterling, a credit facility which we finalize in the next month to pay for the development and for significant contingency, we are looking at 94 million Sterling for it. We have lots of headroom you know to develop this and put it into production
Host: What is the potential in the North Sea? Your operations there right now? What are the risks involved?
Art: Our primary focus is on the undeveloped discoveries, so as I said this well at Muness was the most, probably more of exploratory nature we have. Predominantly, in our portfolio we are offsetting either wells that have tested oil, or known quantities of natural gas, so we have one other exploratory project in our portfolio which we’ll be drilling next year at Palomino, but predominantly are what we call undeveloped discoveries. There’s lot’s of potential. It’s like what Alberta was 25 years ago. Major oil companies, they are pulling out, but not,… for opportunities that are small to them, but for companies such as ourselves that are, you know, substantial. You just have to look at Talisman’s announcement yesterday of committing to spend upwards of 1.6 billion dollars in North Sea next year. That says that there’s lots of opportunities available.
Host: What’s your target on oil now?
Art: I beg your pardon!
Host: What’s your target price on oil now?
Art: We run our internal valuations at 50 dollar Brent, and 40-50 dollar Brent range, but we look at Brent being, you know upwards of 60 dollars a barrel, in the next, coming year.
Host: OK, so just to summarize this dry hole just here. Just a part of doing business and there will be more in the future, will there?
Art: Absolutely, we have drilling booked through on the Sedco 712, through end of 2007 as we stand here currently, and we got large number of opportunities, so much so in fact that we are nearing the end of negotiations to contract the 2nd rig you know for next year, for a portion of next year, not for the whole year, just so we can get caught up. We’ve just, you know, done up, closed a bought deal here, for 65 million Sterling, 130 million Canadian, that was in two day’s time sold, and that was to fund our program next year, non-development part of our program. We call it our appraisal program.
Host: Very good, well thanks for joining us on such a short notice.
Art: Well thank you very much for having me.
Host: Appreciate it.
Host: Art Millholland is the president and the CEO of Oilexco, Inc. That’s OIL on the TSX.