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Navigo Energy Inc. (NVG) |
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CEOCFO Current
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This is a printer friendly page! Navigo Energy restarting company growth
through drilling and selective acquisitions Bio of CEO, Company Profile: · 230,733 gross
acres
Two major projects launched during the winter of
2002/03 include an exploration program at Gift Lake and on exploitation/development
program at Zama Lake. CEOCFOinterviews: Mr.
McIntosh, where was Navigo Energy when you became its CEO and what changes did you
orchestrate? Mr. McIntosh: “When I arrived a little over a year ago, Navigo Energy, formerly known as VENTIS, was an independent producer that had gone through a sales process which failied, due to steep production shortfall and as a result had been stranded. I came in and have built a new management and technical team. We are now in the process of moving the company forward and transferring it back into a growth focus. There are a number of transformations which we had to undertake in that first year. First was the stabilization of the production base, which was on a very aggressive decline. We achieved that stabilization in the third quarter of last year, with production stable over the previous quarter and spending under cash flow. Secondly, we needed to increase field operating reliability. We had a number of challenges with respect to field facility quality and operating processes. We have spent a great deal of money in 2002, roughly, a third of our available funds or ten million Canadian dollars, redoing operating field facilities and improving field-operating reliability. Today, Navigo Energy has solid field operating liability. Thirdly, we wanted to rebuild the intellectual capital, or in other words, the people skill set of the corporation. Today, about 85% of the people in this company are new since the day I arrived. The senior management team worked together at Amerada Hess Canada, in previous years and that experience brought us back together here. Finally, we want to restart the growth of the company through the drill bit and, hopefully, through selective acquisitions. Late in the fourth quarter of 2002, we put the drill bit back in the ground on projects the new team has developed and with good success so far. We also wanted to strengthen the balance sheet and as we exited 2002, our balance sheet is about one-to-one debt to cash flow, using 2002 prices in contrast to a much higher debt level previously. It is clearly much stronger than that using current or strip pricing. Those are the principal items that we targeted and that we have carried out so far in the transformation of the company.” CEOCFOinterviews: What are your future plans? Mr. McIntosh: “The next step is to go back on a growth profile. At the end of the year, we sold non-core properties comprising about 650 barrels a day; these properties that were the least attractive to our portfolio. In essence, our company is focused in two areas, one in northern Alberta and on in southern Alberta. Our interests are usually 80-100% in those particular properties and as a result we have good leverage from our own efforts. On our undeveloped acreage base, we hold about 190 thousand net acres, with an average working interest in the order of 75%. The producing properties are about half oil; the average API of the oil in our portfolio is 36 degrees, so we don’t have any issues about heavies. The other half of the portfolio is conventional natural gas, so it’s a balanced combination. In the first quarter of this year, we initiated activity in two high-impact areas. One in the north in an area called Zama, is a low to medium development risk project with potential of one to three million barrels of incremental reserves. The other impact project underway is our Gift Lake Exploration Project. This opportunity comes to us by virtue of a unique relationship we have with one of the Aboriginal groups. The deal gives Navigo exclusive access to almost 190 thousand acres located in the heart of Peace River Arch oil and gas production until the year 2006. This land block has essentially been off limits to industry since 1986 due to land Claim issues that were recently settled. We have just announced a discovery on that particular program. We have also announced our plans for three additional wells. Both of those projects are moving forward with encouraging results. Our net undeveloped acreage includes about 20,000 acres on the Gift Block. Since we have an exclusive arrangement until 2006 we will be able to explore the block in a systematic way." CEOCFOinterviews: Is the infrastructure in place for the area? Mr. McIntosh: "Yes, with the exception of the Gift Lake. In the North and particularly the area that surrounds Zama, the wells that we drill will immediately tie into the existing infrastructure. In some cases, there would be the necessity to set up a pump jack for a new well or something of that nature, but there are no significant facility or construction issues to deal with. The other area that we are operating currently is the Gift Lake exploration project. Large parts of the area are winter restricted but late summer/fall drilling activity is planned for our current exploration plays. We are going ahead with infrastructure and a road system for our discovery." CEOCFOinterviews: Why that particular area? Mr. McIntosh: "First, Gift Lake is an area where industry was excluded in 1985. In essence, industry was thrown out of Gift Lake by virtue of the aboriginal land claim settlement process. We are pretty much the first company back in the area since 1985. As a result the area has n ever had modern 3-D driven seismic exploration. Secondly, if you look at the location of the block, it is right in the heart of the eastern Peace River Arch in the midst of large oil and gas fields. It was our view that there was a great deal of opportunity in these lands that the industry has not been able to access for two decades if we could get to them. That is why we constructed this arrangement. We view a great deal of the area as an oil play; however, we are also working on natural gas plays in the northern end of the block. The discovery well, on which we have released information, tested 190 barrels a day of 42 degree API oil on a restricted rate, so that bodes well for recoveries, producing ability, and pricing.” CEOCFOinterviews: You have a large percentage of the projects you are working on. Why the heavy concentration? Mr. McIntosh: “Our ownership does vary somewhat, with the numbers I mentioned earlier on average. As we move into southern Alberta, our average working interest tends to be a bit lower, around 50 to 70%. The southern Alberta area is a year-round access area, where we have an active drilling program underway, but where individual wells do not have the same magnitude of up-side opportunity. For example, the wells that we are drilling in the southern Alberta area today are expected to encounter about a quarter of a billion cubic feet of gas, produce about 250,000 cubic feet a day on initial production and can be drilled and completed for about 150,000 Canadian dollars. The economics work extremely well but you have to have a higher rate of activity in order to make the program a significant contributor. That particular program is going well. We have nine completions since we put the drill bit back in the ground in that area and the program is meeting our expectations. Let’s come back to the broader questions as to why we would want to have a high working interest versus spreading the risk. We are certainly prepared to spread the risk, however, when we look at this years activity, we do not have constrained capital nor are we prepared to spread risk on things that we consider to be low to medium risk, particularly low to medium development risk. We have somewhere between two and four million barrels from existing properties on low to medium risk development type activities. That makes sense to do ourselves since the potential leverage from success is very high. The impact on us could be substantial. The fact that we have high working interests also means that we get to control our own destiny on those properties. In terms of the Gift Lake area, the aboriginal community has the right to come in for 25% working interest if they pay 25% of the well cost. I believe that as we move forward to production that they will do that on a consistent basis. Since we already have a 25% built-in partner in that area we wouldn’t choose to be diluted down. There are other larger projects we are working on where we would seek to have somewhere between 33 1/3% and 50% working interest. There is always a balance between risk and reward and capital capability. In our case, we run a portfolio analysis on our activity so that we are able to try to achieve that balance. If we were looking at a particularly risky project that was attractive because of its high up-side potential, we would probably choose to bring in partners or be in a partnership with other parties. It is not an exclusive in our mind by any means; it is driven by the practicalities and the benefit that we see of individual projects/prospects in our portfolio.” CEOCFOinterviews: What are your opinions on the current energy situation and how does it affect your company? Mr. McIntosh: “I am not sure that I can add much light on oil pricing, we all know that current oil prices have a great deal to do with the current unrest in the world, both in Iraq and Venezuela. I have no sense of how long that is going to be; the only thing that I am sure of is that it will change. We will not sustain these oil prices. We do not expect to do work that requires oil prices in the order of twenty-eight to thirty dollars WTI and beyond in order to be successful. Our planning number for oil activity is in the order of twenty-three dollars WTI and we are happy if we could see a sustainable price level there. The ups-and-downs of the oil market not only cause a great deal of economic dislocation, but in the long-run they do not do the industry a great deal of good other than short term cash flow. The natural gas side in North America is a bit of a different picture because we face declining yield from drilling in our basins in North America. Consequently, the likelihood that natural gas will be a long-term discount BTU commodity to oil may be behind us. The high prices are probably not a long-lived situation but we had a cold winter in various areas of the continent, which drove demand. We had a slow response from the industry in terms of adding new productivity into the equation and that has set the stage for current prices. Volatility is demonstrated by last summer in Western Canada where there was some gas trading for as little as a dollar per thousand cubic feet. The pricing and the volatility in the pricing is a fact of our business and high prices are not anything that anybody can successfully count on for the long-term. You have to construct your business model and implement your business based around what we would call a long-term pricing outlook that may be in the order of twenty-three dollar oil, some say it should be lower than that. On the natural gas side we target projects at three-and-a-half U.S. dollar/mcf.” CEOCFOinterviews: In closing, what sets Navigo apart? Mr. McIntosh: “There are a number of things that set us apart. First, we believe that we are seriously undervalued in the marketplace, so that positions us as a value play company. The stock currently trades in the order of 3.40 –3.50 Canadian dollars. We think there is a net asset value in the company in the order of 4.50 dollars. It is one of the few instances where you can buy an undervalued company and we think that is a consequence of a history that the company has gone through. Second is the fact that we have a very disproportionate amount of low to medium risk development potential in the existing portfolio. That is very important because it is one thing to have a great deal of exploration upside in the portfolio but it comes with a different kind of risk. I think we now have a great deal of both in terms of the development side and in terms of the exploration side. Third, the company, by virtue of legacy, has been left with a great deal of tax pools, in excess of 170 million dollars, so we have a very long-term tax horizon before we start paying taxes. That means that all of our cash flow is available to us for investment rather than the 55- 60% as might be the case of a company that is fully taxable. We have rebuilt this company, taking advantage of the structural changes that have taken place in the western Canadian oil and gas community. The Industry has restructured by new aggregators and trust companies, by the almost total disappearance of the mid-cap sector from the basin and by the limited number of people that are our size. That is a watermark change in the industry and we have repositioned ourselves to take maximum advantage of that and the opportunities that flow from that restructuring.” disclaimers |
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