Petro River Oil (OTC:PTRC) just announced it made a significant oil discovery. While most oil and gas industry headlines are focusing on the ability to make a profit with oil trading at near rock bottom prices, why is a discovery important? Previously announced oil discoveries in Alaska by Spanish oil company Repsol SA (BME:REP) and Hurricane Energy’s (OTC:HRCXF) claim of “largest undeveloped (oil) discovery on the U.K. continental shelf,” rocketed the valuation of each company. Each of these discoveries will not impact the actual supply chain until 2021 for Alaska production and 2019 for the UK discovery meaning additional carrying costs on top of other major company legacy costs. Petro River, with a market cap of $13.5 million, has no legacy costs and no debt and is looking at potential discovery reserves of over 21 mm barrels from its Oklahoma and California projects that can be added to the supply chain as quickly as Petro can drill.
The Geopolitical importance of new oil discovery in the US is obvious and compelling – less dependency on foreign oil, positive effect on trade imbalance and the creation of more jobs. Not many other industries can provide such a quick fix with resources, technology and manpower to facilitate these mandates.
Petro River is a conventional oil company with its core focus on discovery. Using the latest innovative 3-D seismic technology, Petro River is concentrating on historically prolific fields including Osage County, OK and Kern County, California where over 200 million and 108 million barrels, respectfully, were extracted from historical vertical production. It’s a simple and cost effective business plan. Find the overlooked oil fields through analysis of the 3-D seismic data, then drill and drain the discovery.
Petro River’s latest discovery in Osage County validates this process. In July 2016, 35 square miles of 3-D seismic was reprocessed defining 4,480 acres of structural closures with multiple target formations. With the first well confirming the discovery, the company will immediately drill additional wells. Petro River will drill a total of 60 wells in this field where adjacent properties have already produced over 200 million barrels. Longer term operations include Denmark with a total of over 457,000 acres and prospective resources of 72 million barrels of oil.
A key component to Petro River’s success is the technological analysis of 3-D seismic data on the targeted fields. Historically geologists and geophysicists have relied on sophisticated seismic techniques to generate reams of data that are fed to computers via satellites and used to build complex three-dimensional structural and stratigraphic models of the earth. Analysis of this data could identify potential fields for discovery. It was not until the most recent use of 3-D seismic technology where these scientists could view actual three-dimensional models under the earth’s surface. Identifying oil reserves via the seismic images increases the understanding of the reservoir and optimizes development plans, lowering exploration risks.
Discovering oil is key but creating profits in the current cost environment is a challenge. Comparing extraction costs of a conventional play like Petro River to a shale company is not difficult. There is no doubt that shale oil costs more than conventional oil to extract. There are a lot of variable costs of extracting shale oil, every well has a different level of cost-per-barrel production from as low as $40 a barrel to over $90 a barrel. These costs are normally paid upfront and these wells have a comparatively shorter production life compared to a conventional well. Petro River’s cost savings generated from the 3-D seismic technology exploration and discovery process combined with conventional drilling practice translates to an extraction cost of $10 or less per barrel.
All facts considered, Petro River’s value has not been recognized to a full or even partial valuation. Given the data on potential reserves, lower exploration and lift costs, significant upside exists for this company.
Disclaimer: OG Market Report has been compensated in the past, and expects to be compensated in the future, by Petro River Oil Corp. for investor relations services. OG Market Report reserves the right to be compensated for investor relations services by companies mentioned in this article. OG Market Report is not liable for any investment decisions by its readers or subscribers. OG Market Report is NOT a registered broker/dealer/analyst/adviser, holds no investment licenses and may NOT sell, offer to sell or offer to buy any security.