AN OPTIMISTIC REALIST’S VIEW OF ROLLING A START-UP BOULDER UPHILL

It’s remarkably easy to get caught up in all the negativity espoused by media pundits, brokers, and industry insiders over the past year of this well-extended dowturn. No pun intended. 

The negativity intensified even further when that “other” party formed our provincial government. My goodness! Speaking as a hard-core conservative, you would have thought the entire sky had fallen and the last nail had been driven into the proverbial coffin. Heck, we even joked internally that given our corporate name and striking logo colour similarity to “that” party, we might be better served by changing our name to “Crush” Resources and declaring we are now the first “provincially owned” oil entity in Canada. Thankfully, that hasn’t occurred, but you get the point.

Those who know our group know we prefer to paint in greens and blues – green for profits and blue for the right side of the political spectrum. Both of which appear extremely illusive given the recent shift in our province’s political direction and the “lower for longer” mantra that is rightfully considered the new norm. Although I digress, it’s my view that will turn out to be an illusion. By the way, if it hasn’t sunk in yet, this is likely the future, so we better get used to it.

By anyone’s standard, this is a horrendous time to be a producer. By now, we’re all well aware of the negatives. Some more so than others. However, as an oil entity looking to raise capital and acquire producing assets, believe it or not, there really are some bright spots, and for the most part, we tend to focus on ways to capitalize on them.

So, here’s where I need to add a disclaimer alert! I wish to preface my remaining comments with an expression of gratitude. I am exceedingly grateful our humble entity did NOT complete an acquisition we had set our sights on last year. As luck would have it, the precipitous drop in commodity prices provided the incentive to rethink the acquisition, which ultimately led us to sit on the sidelines until the smoke had cleared.

The about-face on that acquisition was not founded on any great forethought or insight. Rather, I would chalk it up more to dumb luck and timing. Watching from the sidelines, however, isn’t quite what it’s cracked up to be, especially if you have commitments to investors. Thankfully though, the forced exile released us from the burden of an ill-timed acquisition, which, given the plunge in prices, may have crippled our company before it had a chance to hit its stride.

Fast forward to today. WOW! What a difference a year makes, and with hindsight as our governess, I am thankful we did wait it out. I mean this in the most sincere way possible and with total respect to existing oil company presidents, who have the unenviable task of maneuvering their company through what is arguably one of the most difficult and prolonged downturns the industry has ever experienced. For those who have successfully managed to do so to this stage, you have my immense admiration. For those who couldn’t, you have my sympathies.

But, imagine this for a minute. What if you could build an oil company in today’s environment? Would you do it? Many would answer NO thanks. Some might argue (successfully by some viewpoints) the best in the industry is now behind us and the future path to success is murky at best. They could also point out the new reality of low commodity prices represents a paradigm shift within the industry. In this, they would also speak partial truths. However, by dwelling on what and how the industry functioned in previous years, it’s undoubtedly easy to miss the opportunity it now represents. As the saying goes, “Not being able to see the forest for the trees.”

But, here is an interesting twist. Carnage aside, this downturn has created more positives for our humble entity in the past six months than all the previous months of our hard work combined.

Remarkably, this downturn has actually provided companies like ours with a sense of optimism and hope. As an example, these unstable conditions have provided an excellent talent pool on which we have now built a solid technical team. That opportunity was simply not available to us pre $40 oil.

In addition, it has provided an equally important element – the possibility of CAPITAL. This downturn has essentially strengthened our potential for capital raise, which is an outcome many firms like ours would not have dared to predict only one short year ago.

We’ve come to understand first hand there’s a surprising amount of capital waiting on the sidelines, particularly in the USA, much of which is earmarked for the energy sector and, more specially, the Canadian energy sector!

Even more gratifying is a fair amount of this capital seems to be interested in what firms like ours represent. We aim to be a fresh entry point into the oil and gas industry through a well-structured company with a quality operating team, quality board of directors, and zero pre-meltdown cost burdens or over-leveraged assets and G&A. For them, and us, the changes taking place within the industry represent enormous OPPORTUNITY. A once-in-a-generation opportunity, and that’s rare.

For us, what was a negative conversation pre $100 oil (i.e. if you don’t have production, we really don’t wish to chat with you) has now turned into qualified, serious discussions about the win-win benefits of partnering with a capital firm.

I personally feel the optimistic conversations like this will continue, especially for firms with a solid corporate structure. They carry with them all the positives you might imagine from such discussions, including one very specific acknowledgement. The acknowledgement that building an oil and gas company via “conventional” means is actually not that bad an idea. Gone for now are the conversations about swinging for the fences ($40 oil tends to do that). It’s now in vogue to actually talk about building an entity conservatively, one barrel at a time. I’m over simplifying but you get the point.

Don’t misunderstand. Aggressive growth is still very, very important. No one enjoys sitting around while someone dabbles in the business or is satisfied with 100 BOEPDs of production, least of all the private equity firms. However, there now seems to be an alignment of thinking, which supports the thought you can be very aggressive within a conventional oil play while building a substantive company in the process.

It’s no secret firms like ours rely heavily on the smaller individual investors, especially in the very early stages. From that perspective, we are extremely fortunate to have our share of these individuals, many of whom have remarkable faith in our vision. At some point, however, you have to step out of that space and attract real capital. The kind that builds substantive enterprises. The kind that lights the fuse once you have the rocket ship on the launch pad and the boosters filled with nitro.

That’s our firm right now. We’re at the crossroads between what we are and what we can be. Thankfully, we are well prepared to continue our journey on the “what we can be” road. And, in light of the aforementioned negatives, I find it ironic we would arrive here with such a positive outlook. But then again, BELIEF is a remarkable influencer.

Consider for a minute how things have unfolded for our humble entity just within the last three months. During this period, we brought three critical team members to our company, each of whom relish the opportunity to have ownership and control of the ship with equal responsibility for its direction. Next, we secured a $1.5M convertible debenture agreement with a quality investor, and then we wrapped up a PSA on a small revenue producing asset we intend to grow to 500 BOEPD’s in 2016. This is an asset that fits perfectly within our “acquire, merge, and consolidate revenue producing asset” strategy.

Okay, so the capital amount is a speck relative to the big boys, but to dwell on that would be missing the point. From my humble perspective, this is a company builder. This amount added to our existing investor base represents a major move forward, and I view the capital as just one aspect of this. CONFIDENCE is the other. Confidence is the intangible that separates the “what we are currently” from the “what we can be”. These small, but significant, steps have led us to the attention of some larger equity firms, whose interest I currently view as promising.

Regardless of the above and putting aside the current turmoil and uncertainty, the bottom line is we happen to believe there is a great deal of opportunity in this economic climate and building a remarkable oil company from the ground up is entirely possible. In fact, we believe it’s not only possible, we can’t think of a better time to do it. We embrace the belief building an oil and gas company in today’s market requires operational discipline. This is a discipline that may have been lost in most entities at $100 oil but which is absolutely essential at $40 oil.

And lastly, I consider myself an optimistic realist, so I have no illusions there are still plenty of boulders that will require pushing up hill in the future. Nonetheless, we continue with our belief all capital needs a proper home, so that particular boulder may now be slightly lighter going forward.