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Not just a pie in the
sky, Sunrise Energy Resources has current profitable production from their 2 wells in the
Ukraine with significant upside from the currently producing property + 7 more properties
Oil & Gas Equipment & Services
Sunrise Energy Resources, Inc.
551 Fifth Avenue, Suite 2020
New York, NY 10017
Chief Financial Officer
Interview conducted by:
Lynn Fosse, Senior Editor
Published March 29, 2007
Mr. Roman Livson, CFO. Mr. Livson has served as the
managing director of Thor Capital Group, Inc. heading its investment banking department
since its foundation in 2002. Prior to that he headed the investment banking department of
Thor United Corp. He brings to the company a valuable expertise in the Eastern European
energy sector. Mr. Livson worked for Coopers and Lybrand from 1994-1998 and received a
Master's degree in Mathematics of Finance from Columbia University in 2002.
Sunrise Energy Resources, Inc. is public US company engaged in development and exploration
of oil and natural gas.
Having acquired 100% of the Ukrainian oil&gas exploration and production companies
Esko-Pivnich and Pari, which collectively hold 8 licenses for exploration and development
of various oil and gas deposits in Ukraine, we now conduct all of our operations through
At the end of 2004 our estimated total proven and
probable reserves were around 12.4 million barrels of oil and around 67 billion cubic feet
of gas. All of these reserves are located in the Karaikozovsks field in Ukraine.
We plan to expand production of the Karaikozovsks property following the completion
of workovers on the existing wells. In addition, we expect to drill two other wells on the
property to increase production and proven recoverable reserves. In the nearest future we
intend to conduct a series of geological tests on the new licenses awarded to Esko-Pivnich
in order to establish the most efficient development scenario.
In addition, Sunrise Energy Resources, Inc. recently decided to acquire 100% stake in
Pari, Ltd. a ukrainian gas and oil company, which holds several licenses for oil and gas
fields in Western Ukraine.
CEOCFO: Mr. Livson, would you tell us
your background with Sunrise?
Mr. Livson: Sunrise Energy Resources
is a US public company operating exclusively in the Ukraine. We currently have eight
properties in our portfolio, of which three are in Eastern Ukraine and five are in Western
Ukraine. One of the properties is producing at the rate of 150 barrels a day from two
wells, one of the wells is producing about 105 barrels a day, and another one is 35-40
barrels a day. We have significant upside in the form of more wells to be drilled on the
producing property and of course the exploration of the remaining seven properties. We
have revenues of about $450 to $500 thousand a quarter and we are EBITDA positive.
CEOCFO: Why is
the Ukraine a good place to be for drilling?
Mr. Livson: First, the Ukraines current
production meets about 40-45% of its current demand. The rest has to be imported from Russia,
Kazakhstan and Turkmenistan. At the same time, it is actually in the middle of Europe so
all transit pipelines from Russia go through Ukrainian territory. Therefore, once we start
producing from our properties in Western Ukraine, we can actually sell our gas and oil
into the European Union. The government understands the importance of domestic production
because now that Ukraine is a separate country, they want to be independent from Russia, Kazakhstan
and Turkmenistan for its energy needs. They are doing their best to foster domestic
production, and now we do not have any export duties and the netbacks at this time are
higher than the netbacks in Russia and Kazakhstan. Lastly, we are going to pursue and
aggressive acquisition strategy and so far we have a two or three-year window whereby the
assets will remain undervalued but the market is going to correct itself and the reserves
valuations will be on par with Russia and Kazakhstan.
CEOCFO: What is
the common thread in your properties?
Mr. Livson: We look at properties with some
production that can be significantly increased by drilling new wells and we look for
properties with some reserves that also can be significantly expanded. The overriding
criteria is the valuation. We are looking at properties right now that we can buy it at
the valuation of .60 cents to $1.00 for a barrel of proved and probable reserves. That
would provide our shareholders with a tremendous upside potential because we are a public
company and public companies are typically traded in the range of anywhere from 4 to
$10.00 a barrel.
CEOCFO: Why is it
going to take two or three years for everyone else to catch up?
Mr. Livson: It is a transition period. There are
no international majors present in the Ukraine in terms of exploration and development.
They are there in terms of trading but so far, they have not bought any significant
assets. I guess it is like any country going through a transitional period; it just takes
time to correct.
CEOCFO: Could you
tell us about your CEOs background. Is he native to the area and could you share
some of your background?
Mr. Livson: Our CEO was born in the Ukraine. He
enjoys great influence in the oil and gas circles. He was the one who was responsible for
introducing to us our current portfolio of properties, both of the two acquisitions that
were made. He also referred to us several properties that we are currently evaluating. I
was born in Russia; I worked for Coopers and Lybrand (now PriceWaterhouseCoopers) for 4½
years and I was involved in a number of energy projects in the area.
CEOCFO: So you know and understand the area; tell us
about the geologists.
Mr. Livson: With regard to our geologists, they
are key to finding and evaluating new projects. Our chief geologist Mr. Posokhov, prior to
joining Sunrise, worked for the Ukrainian Geology Committee for around 40 years and he
knows the Ukrainian geology in terms of oil and gas like the palm of his hand.
Historically, the Ukraine does have significant oil and gas reserves even though people do
not generally know about it. They always think Russia and Kazakhstan in terms of oil and
gas, which is a very popular misconception. When Ukraine was part of the Soviet Union and
the big mega fields were discovered in Siberia, most of the resources went into
exploration and development but these fields and the Ukrainian fields, which at that time
had less potential, were largely neglected. Now of course it is different because Ukraine
is a separate country and the oil price is way up, so it makes a great deal of sense to
explore these properties and develop these properties. At that time when Mr. Postnikov was
the chief geologist at the Ukrainian Geology Committee, he saw a lot of promising
properties that went unnoticed and that was a big factor in his decision-making. He made a
note of all of these properties and right now these properties are the ones that we are
focusing on. We are lucky to have him onboard.
CEOCFO: What is
the financial picture of the company today?
Mr. Livson: We have revenues of about $450 to
half a million dollars per quarter. We are EBITDA positive and what is good about it is
that it is coming from just two wells. The prospects look very promising. We just
completed a third well on Karaikozovsk block in Eastern Ukraine. The preliminary test
results are excellent. We put out a press release in January of this year (2007) that we
expect to double the production from as a result of launching the new well and
consequently double the revenues. What has transpired since then was that we discovered
two gas horizons underneath the oil producing horizons. We now think that it makes more
sense to actually produce gas rather than oil from the new well and we think that will
more than double our production in revenues.
CEOCFO: Does it
make a difference whether it is oil or gas, or is it just what is more plentiful?
Mr. Livson: It does make a difference in terms
of infrastructure; we do need to construct additional infrastructure to produce gas. We
will need to construct an extra mile of pipeline and we will need to put together a gas
and condensate separation facility. What this means for us in terms of timing is that we
wont be able to launch this well until late July this year (2007). However, the
economics justifies it and it also justifies the additional investment of $2.4 million of
which we raised $550 thousand last week and we are looking to raise the rest in early
CEOCFO: How does
the investment community feel about being in the Ukraine and are there any obstacles you
need to overcome when you speak to people?
Mr. Livson: There is a popular misconception
that the Ukraine doesnt have significant oil and gas reserves and that has been one
of the biggest challenges. Right now, there are several public oil and gas companies
operating in the Ukraine, so that misconception is starting to erode. The other factor
that has been a big issue is the regulatory system that was inherited from the Soviet
Union. Right now it is making big strides at coming into line more with the US and
European standards, so it has become much less of an issue.
CEOCFO: Would you
comment on the cyclicality of the oil and gas industry?
Mr. Livson: There is a global cyclicality and it
has affected us. However, what gives us big confidence in terms of the overall picture is
that China and India are developing rapidly, so they actually drive the demand. What it
means for us is that Ukraine is always short of energy for the foreseeable future so we
will have no problem in selling our oil and gas. Right now, we have more demand than we
can produce. That gives us confidence that we can sell every barrel and every cubic foot
that we can produce. We think that the current pricing environment will continue for the
foreseeable future and that there will not be any big drops in oil price in the next five
or ten years.
getting equipment a problem?
Mr. Livson: It is a problem and it is a bit of a
trade-off. We can hire Ukrainian geologists, which is what we do and they are inexpensive,
but not necessarily the most efficient in terms of quality, timing and their equipment.
The other extreme is our American crews, which can be expensive, so it is a function of
how much funds we can raise. So far, we have been using Ukrainian geologists and if we are
successful at raising more funds, then of course, we will switch to American or Polish
crews that can do the job faster and more efficiently.
closing, why should potential investors be looking at Sunrise Energy Resources?
Mr. Livson: There are several factors as to why
investors should be looking at Sunrise Energy Resources. First, we are not a pie in the
sky; we have current production and we are EBITDA positive. We have significant upside in
the form of seven more properties in addition to the properties that we are currently
producing from, which holds tremendous upside potential.
Secondly, Ukraine has a long way to go in terms of
building its own domestic production. We are going to be part of this picture increasing
our production in line with other companies in the Ukraine. Thirdly, we are a public
company and we have access to capital, so in the next two or three years we can grow our
company both internally and by way of future acquisitions, which we intend to pursue.
Finally, we have a great team of people who really want this company to succeed.
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