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2008 Interview with: Dejour Enterprises Ltd. (DEJ-AMEX), Executive Chairman and CEO, Robert L. Hodgkinson - featuring: their micro cap oil and natural gas exploration and production, with North American flagship energy properties in the U.S. Rocky Mountains and Canada’s Peace River Arch. |
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2008 Has Seen Dejour Build Out Its
Management Team And Take Control Of Their Destiny By Acquiring The Remaining
65% In The Interest Roughly 60,000 Net Acres, Allowing Them To Control
120,000 Acres Where They Operate
BIO: Dejour Enterprises Ltd, (DEJ) an active micro cap oil and natural gas explorer and producer, strategically assembles and develops North American energy properties. The company has 145,500 net acres of premium energy assets in two of North America’s most prolific areas. Flagship properties encompass 128,000 net acres in the U.S. Rocky Mountains and 17,500 net acres in Canada’s Peace River Arch.
Mr. Hodgkinson: “Over the course of the past month Dejour has executed a series of transactions which will put us in control of our destiny in most of the oil and gas land that we have Piceance, Uinta and Paradox Basins.”
CEOCFO: Please elaborate on Dejour’s position. Mr. Hodgkinson: “In 2006 we purchased roughly 25% interest in a basket of acreages totaling 250,000 acres in those particular basins. We were a non-operating investing partner. However, we have subsequently drilled a couple of wells. We paid $400 dollars an acre for that original interest on a prorated basis to our ownership. In 2008, we have decided it is the time for us to take control of what we were doing and since we had built the team based out of our Denver office, which was just opened, we did a deal with a private owned company, Retamco, and we purchased from them the remaining 65% in the interest roughly 60,000 net acres. We now control 120,000 acres where we operate. We have 72% interest there and we retain a 25% interest in about 170,000 acres. 15,000 of those now are the subject of the joint venture in the Greentown area, where Delta Petroleum has made their large discoveries, with a wholly owned subsidiary of NYSE-traded MDU Resources Group Inc. (NYSE: MDU), Fidelity Exploration & Production Company. Fidelity and Dejour have established a joint operating agreement covering those particular lands and Fidelity will be the operator. This really puts Dejour in a position now where it can really begin to shine with this acreage. Not only is the activity increasing as a result of the escalation in the price of gas which is the reason we got involved there, but now we have the ability to control and focus on the development of our Basin centered, Williams Fork Gas, which cover about 30,000 of the acres that we have under control. In addition, we are developing a new play in the Mancos Shale, which will probably see some horizontal wells drilled. That covers over 20,000 acres now. On top of that, we have a very large oil play with our Dinosaur prospect covering about 50,000 acres, but that is something that we are inventorying in the future. The balance of the lands we still retained with Retamco is about 150,000 acres that we are packaging up with them. We are jointly marketing those to industry with the idea of getting those drilled where we will not really have an operational control.”
CEOCFO: Playing devil’s advocate, if it is such a good place to be why was it available for you to purchase? Mr. Hodgkinson: “Retamco is a very good land speculator in the United States. They are the 61st largest oil and gas leaseholder in the history of the US; not just in the Piceance, Uinta and Paradox Basin, but Montana, the Dakotas and Texas as well. They have been in business for over fifty years. Their interest is buying land cheap; buying and assembling land cheap and selling it at a much higher price. They had been accumulating land in this Piceance, Uinta and Paradox Basin for the last seven or eight years when nobody was there. When the gas markets were beginning to head south in 2006, they decided it was time to take some capital off the table so it was during that downtrend in that environment that we had the opportunity to establish ourselves. The principal has decided that his game is to sell land and he would like to focus on retirement, so there was the opportunity to do the deal that we did. On the other hand, we had drilled two very successful wells in North Barcus Creek and that was part of the trade with him. It made his position easier to deal with even larger companies without the encumbrance of having a 25% partner. Therefore, we sold them those lands back and he owned them 100%. For us it was a made-in-the-shade deal. I think it was a really good deal for him too.”
CEOCFO: Why do you like that area? Mr. Hodgkinson: “There has been a lot of talk about the Haynesville Shale in northern Louisiana and Houston Texas recently. It will be determined just how big volumes of gas will be there. However, the Piceance Basin has over three hundred trillion cubic feet of natural gas in place in the reservoirs of the Williams Fork. There is no other place until maybe the Haynesville Shale that we know of that has that kind of concentration of natural gas. At the same time, the values of this acreage was really discounted by the lack of pipeline accessibility and infrastructure. It just wasn’t in place. Additionally, the ramifications of LNG markets on the summer prices of gas created seasonal price disparities that were really noticeable in all of the Rocky Mountain regions, the Piceance Basin included. With all of that said, with the vagaries of the gas market now beginning to be a thing of the past, there is 50 to 70 BCF per section recoverable from these lands and that makes this play very economic.”
CEOCFO: What is the plan going forward? Mr. Hodgkinson: “The plan going forward is that we really have four businesses in this particular region. One we are an investing partner with Fidelity in the Greentown acreage covering 15,000 acres. Two, we are a co-marketer of about 120,000 gross acres with Retamco that we are going to sell for either cash or carry in the interest. Three, we have some long-term oil plays that we will be developing; over time these leases go on for the next ten to fifteen years. Four, and current in the next six to eight weeks we will have an operating plan of just how we are going to exploit the 30,000 or so acres that are in the heart of the Piceance Basin gas center reservoirs. In these particular areas we have been approached by other companies that have expressed interest to farm in with us, and joint venture with us. By the middle of September, we will have a very good idea just how we are going to proceed. Fortunately, we just recently received some authorities for permits (APD’s) to drill from the Bureau of Land Management, so we will probably have this program accelerated a bit more than we originally thought.”
CEOCFO: What about the funding for your projects? Mr. Hodgkinson: “We were very successful in northeastern BC where we drilled ten gas and oil wells last winter. Four of those are currently on line. The balance will be on line in the middle of August. They will be producing about CDN$1.5 to $1.8 million net revenue, after operating royalties and transportation on a per month basis. In 2009, that should actually extrapolate to about CDN $30 million annually. We have always been an equity based junior, but we are now taking on what I think is a very astute leverage through low priced debt through the Alberta treasury award banks, and other deals that we are doing. Therefore, we can begin to show the cash flow on a per-share basis. Canadian operations will take care of themselves when we have finally established a game plan for the US operations. We will probably be touching on the equity markets probably not earlier than we would think. That would depend on opportunities that are being brought to us now.”
CEOCFO: There are always challenges when it comes to personnel and equipment; how do you deal with that aspect? Mr. Hodgkinson: “There are a lot of challenges in business period, and certainly with escalation of activity in the oil patch that is the case. However, the Piceance/Uinta Basins are attracting some of the best talent in North America. The facilities are falling into place and the pipelines are being open. We did recently hire Harrison Blacker to be the COO of our US operations and he is now based in Denver. Hal has a tremendous history as an engineer and a CEO running major billion dollar operations and he is building the team and focusing on just how we are going to exploit the equipment and the personnel required to exploit each of these properties.”
CEOCFO: Is the investment community taking notice? Mr. Hodgkinson: “They are just beginning to take notice. We have had our first independent research on us about two weeks ago and now have been invited back to New York to make presentations to other research firms that are interested in doing research on us. We are now getting calls unsolicited from investing funds who have heard about us, so I think our day in the sun is just about here.”
CEOCFO: Why should potential investors be interested? Mr. Hodgkinson: “Aside from the value that we have created in the uranium patch from our minor investment, of the value that is given us going forward; now we have taken $30 million and will be adding $10 million more in the northern Alberta, BC, environment. We have created a value base well in excess of $100,000,000 dollars there. We are beginning to show the market how we can make returns in this particular patch. The pot of gold at the end of the rainbow is our US operations in my personal estimation. We may have well over 3 TCF in gas and potentially 500 million barrels of oil as a resource. It is up to us to go out and exploit it. If we could find a fraction of that, the value of Dejour will be a significant multiple on where it now trades.”
CEOCFO: What is your take on the current energy situation and what that means for Dejour? Mr. Hodgkinson: “The global oil business is a game that is way beyond the control of any particular group or country. I think the price of oil in this $125 to $ 150 price range per barrel is probably conservative over the longer haul. The price of natural gas has moved up very quickly; natural gas being a much more regional fuel is still trading at a BTU discount to oil. There is a lot of natural gas in North America and as the prices go higher, much more of it is available. That is the future of our energy game here. I believe that the price of gas will be conservatively priced north of ten and south of twenty on a long-term basis, so I think we are in the threshold to where the business is extremely economic.”
CEOCFO: In closing, what would you like to say to potential investors?
Mr. Hodgkinson:
“We are one of those firms that every investor should consider.” |
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“In 2008, we have decided it is the time for us to take control of what we were doing and since we had built the team based out of our Denver office, which was just opened, we did a deal with a private owned company, Retamco, and we purchased from them the remaining 65% in the interest roughly 60,000 net acres. We now control 120,000 acres where we operate. We have 72% interest there and we retain a 25% interest in about 170,000 acres. 15,000 of those now are the subject of the joint venture in the Greentown area, where Delta Petroleum has made their large discoveries, with a wholly owned subsidiary of NYSE-traded MDU Resources Group Inc. (NYSE: MDU), Fidelity Exploration & Production Company. Fidelity and Dejour have established a joint operating agreement covering those particular lands and Fidelity will be the operator. This really puts Dejour in a position now where it can really begin to shine with this acreage.” - Robert L. Hodgkinson |
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