Monday, April 14, 2014

Victory Energy Corp. (VYEY) Growing Permian Reserves, $36.4M in Bank/Private Funding

Austin-headquartered Victory Energy was hard at work drilling on their Texas Permian portfolio at the end of March and they had just closed a Designated Advisor for Disclosure deal with high-profile registered broker-dealer, Euro Pacific Capital as well, a firm widely-known for being headed up by influential and highly publicized economist/investment advisor, Peter Schiff. Further bolstered operationally by the prior securing in late February of a $26.4M credit facility via Texas Capital Bank out of Dallas, VYEY has been busy proving up more reserves to add to their already extensive base, alongside partner Navitus Energy Group, who is the other half of their Texas Partnership (est. 2008), Aurora Energy Partners.

The primary emphasis for the credit facility has been partnership operating capital, as well as providing access for VYEY to the some $10M in private placement capital available through Navitus. This roughly $36.4M worth of muscle has been and is going to be strenuously applied to the aggregation of additional cash-flow focused properties or exploitation of existing acreage. As this process progresses the new relationship with Euro Pacific will become instrumental for market-based communications and the company’s overarching goal of listing on the OTCQX Market.

Low-risk development in established, predictable resource plays like the Permian, has been a big part of the company’s rise to greater prominence and ever since acquisition of the first 320-acre Cotter parcel at their extremely hot Lightnin’ Property back in march of 2012 (now some 640 acres since the May 2013 acquisition of the McCauley parcel), VYEY has been rapidly improving their performance. The Lightnin’ is the source of VYEY’s latest drilling as well, which was detailed in a February operations update as having seen two new wells completed since the start of 2014 (McCauley 6 #2 and the Cotter 6 #2), with a third ready for completion (20% WI, 18.75% NRI). Solid shows through the Fusselman, Mississippian, and Wolfcamp formations on the Cotter 6 #2, which was being readied for a multi-stage frac at last report, broadly underscore production results off the McCauley 6 #2 (as well as the broader Wolfberry Trend’s potential), which was clocking 52 BOPD on average with 58 Mcf of liquids-rich gas since being put online in December of last year.

Lightnin’ has been a strong highlight for VYEY since the first two wells the company drilled back around the time of their initial purchase (Cotter #1 and McCauley #1, put on production in late march and June 2013 respectively), with successful drilling and completion of every well attempted thus far. Now that they have a big chunk of capital at their disposal to make timely drilling decisions a no brainer, markets should see an increased acceleration of VYEY’s logistical growth, proved reserves, and overall output as this year progresses. Growth through a combination of low-risk drilling on held properties and the acquisition of additional proved/producing reserves in known geology, where premium 20% plus rates of return and break-even under $65 a barrel is possible, is indeed a sound strategy and VYEY has made several recent appointments to capitalize further on this momentum, including the election of experienced general manager, Patrick Barry, to the company’s Board of Directors. Some remarkable progress for an up-and-comer like VYEY really and their recent February production update also contained good news out of the Chapman Ranch property over in Nueces County, which successfully flow tested its first well from the target Frio Sands during late January, showing around 67 BOPD with 10 Mcf of dry gas on average. Great secondary news out of a target the company actually acquired well before shifting focus to the prolific Permian.

Year-over-year performance comparisons from 2012 to 2013 tell the story of a fast-growing E&P and with some $6.2M in proved reserves, as well as a roughly 2.5x proved reserve value multiple on drilling/completion CAPEX for Permian vertical wells (which average estimated ultimate recovery rates around 100k BOE), VYEY now stands poised to deliver some serious shareholder upside as their scalable, demonstrably successful strategy advances. It is also worth noting that as a result of the Euro Pacific Capital engagement, VYEY has access to Euro Pacific’s heavily attended and influential conferences as well. The company will be acting as a presenter in future conferences, no doubt providing VYEY with highly valuable access to an even wider audience of key investors.

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