Friday, October 14, 2011

Strategic American Oil Corp. (SGCA) Proves Advantages Of Home Grown Resources

Strategic American Oil Corp., a Houston based oil and natural gas exploration and production company, exemplifies a rising view in the energy industry that domestic oil and gas offers an expanding number of advantages over offshore and foreign operations. Much of this is due to a wealth of new technologies plus economic factors that have developed over the past 10-20 years, making previously untenable extractions economically viable.

Many people don’t realize that, although U.S. oil production peaked in 1973, the United States still has over half of the world’s active wells with the average U.S. well turning out about 10 barrels per day. More importantly, around 60%-80% of the original oil is still in place, remaining to be produced. In the case of Texas, no other region in the entire world has been as heavily explored or drilled, and yet there are still roughly 150,000 active oil wells and 60,000 gas wells in the state, producing over 1 billion barrels of oil/gas every year.The bottom line is that there are still tremendous amounts of energy yet to be extracted, over and above shale resources, and new technologies continue to build the potential. In the case of Strategic American, the intention is to look at decisions made forty plus years ago in the light of new technology and current economics to see what value can be extracted from that remaining 60% – 80% of untapped American oil.

Add to this the fact that the U.S., as the birthplace of the modern oil industry, still has the best oil and gas infrastructure and industry-experienced work force in the world. It’s the kind of environment that allows Strategic American to bring domestic oil to market in weeks or even days after a discovery is made, representing a huge advantage over offshore and foreign projects where political and timing issues often mean years of capital intensive development to generate a return. The result is that the risk-reward ratio turns toward domestic projects.

Strategic American currently has operations in Texas, Illinois, and Louisiana, and is in a financial position to aggressively seek accretive acquisition of additional properties and companies offering the required return on investment. The company has already established a land portfolio of 5,236 developed and undeveloped acres in Texas and Illinois alone. Strategic American has leased land positions hosting previously producing wells with the goal of utilizing proven technologies, such as water flood recovery, to enhance or reestablish production.

Texas – Strategic recently acquired Galveston Bay Energy, LLC, adding significantly to the company’s production and associated cash flow. Galveston net proved reserve estimates, based on a recent report from Ralph E. Davis Associates, Inc., are 12.9 million barrels of oil and 12.56 billion cubic feet of natural gas, translating into $97.4 million (undiscounted) or $59 million (discounted at 10%). Multiple high-value drilling targets have already been identified. This is all in addition to Strategic American’s production from two wells totaling 30 BOPD and 100 MCFGPD at the company’s Welder Lease project, plus working interest in the Janssen A-1 Well that produces 250 MCFGPD.

Illinois – So far, Strategic American has leased over 2,900 acres in the oil-rich Illinois Basin, including the Waterflood #1 prospect, along with the DST, and Oakdale NE. Moreover, the company has developed an enhanced recovery project in Markham City North field in Illinois, which has cumulatively produced 1.6 million barrels of oil. The goal is to provide Strategic American a relatively low-cost/high-reward portfolio of drilling locations in the heart of the Illinois Basin. The Illinois State Geological Survey (ISGS) estimates the Basin has over 4.1 billion barrels of oil remaining to be produced.

Louisiana - Strategic American also has production in Louisiana, holding a 6.25% overriding royalty on approximately 136 acres in Franklin Parish (the “Holt Lease”) and approximately 40 acres in Richland Parish (the “Strahan Lease”). The company’s Louisiana Holt wells are situated in the Delhi South Field, adjacent to Denbury Resources (NYSE: DNR). Denbury plans a secondary/tertiary recovery project using CO2 injection.

Financially, Strategic American is in a relatively strong position to pursue its growth strategy. In September of 2011, the company acquired SPE Navigation I, LLC, a private Texas based oil and gas company, which brought with it over $4 million in liquid assets. In addition to significant cash-producing assets, SPE also has a $10 million dollar working capital bank line, of which less than $1 million has been drawn, and holds no other debt. In exchange for SPE and its assets, Strategic American Oil agreed to issue an aggregate of 95 million restricted common shares, effectively granting a major stake in the company in exchange for SPE. The net result is a substantial improvement in Strategic’s cash flow and balance sheet.

It’s important to note that SPE was owned by family members of Strategic’s CEO, Jeremy Driver, the same group that founded and developed Hyperdynamics Corporation (NYSE: HDY), a Houston based international oil and gas exploration company. The family has a history of emphasizing shareholder value, with the financial resources to follow through, as pointed to by the fact that Hyperdynamics saw its share price jump from $0.22 to over $7.00 in less than two years.

Strategic American has established and continues to follow an ambitious policy of acquisition, exploration, and development, with the goal of growing to become a mid-tier U.S. oil and gas developer. The company is currently negotiating to acquire additional oil and gas production, 3D seismic data, and independent companies.

Although Saudi Arabia and the Arab League, along with Russia, continue to be the world’s biggest oil producers, it should not be forgotten that the United State is next, with many U.S. and North American resources yet to be tapped or even fully explored. American oil production has actually increased since 2008, in spite of a sluggish economy. A domestic oil production renaissance stands to improve not only the nation’s trade balance but also its energy security. As technology continues to open the door to formerly out-of-reach resources, companies like Strategic American can be expected to play bigger roles in the nation’s energy future.

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