Friday, May 2, 2014

Innocent, Inc. (INCT) Focused on Proved Reserves, Tight Cost Controls as Powder River Basin JV in Wyoming Advances

Innocent has honed their strategy remarkably in recent years and is now focused squarely on opportunities where low initial funding requirements and tight controls over the project economics can be implemented. The company is targeting direct offsets to former production or to wells with demonstrably favorable oil and gas shows in the energy-rich Wyoming/South Dakota region. The current primary focus for INCT is their Powder River Basin exploration JV in northeast Wyoming alongside oil and gas veterans, Evergreen Petroleum out of Dallas.

With an impressive track record stretching back over a century and a half, Evergreen makes an eminently competent GM for the project and they will deliver the full force of this considerable development experience to the task of lease selection, drilling, and eventual production. With formation targets as shallow as 2.5k feet in the Powder River Basin, geological analysis by Evergreen should quickly turn up quality lease acquisition targets and the JV has tapped Pacer Energy out of centrally-located Gillette to handle initial mineral title reviews and conduct acquisitive operations.

Also out of Gillette is the project’s operator, L & J Operating Inc., which will oversee all the remaining substantial requirements, ranging from bond acquisition, to Joint Operating Agreement preparation and the payment of contractors or suppliers, as well as sale of the final production and subsequent payments to the JV. L & J Operating will be under close scrutiny by the JV via daily reporting and other periodic analysis, with INCT tagging requisite engineering and geology hired guns as the need arises. A lean and mean strategy by INCT in this incredibly rich basin, which is home to the top 10 producing coal mines in the country; and INCT is also eyeballing broader prospects throughout Wyoming and in South Dakota which exhibit similarly optimal development characteristics and which are aligned with INCT’s business model.

The JV is anticipating lower API oil in the Powder River Basin and has devised a strategy involving a mix of enhanced oil recovery solutions like gas, water, steam, and even fire flooding (or injection well flame fronting to drive the oil to production wells). Also in the mix will be low-cost and environmentally friendly radial horizontal drilling technology that allows for a series of small diameter laterals to be created, a technique which has shown incredible production results in even low-permeability, thin net pays. The combination of drilling in areas that have a substantial history and Evergreen’s vast experience in the region/industry should really give INCT a leg up when it comes to hammering out lease production in the Powder River Basin. The company also has access to a trove of analytical and technical IP for Oklahoma and Texas that grants them access to overlooked and undervalued opportunities in these areas, with formation maps and the associated testing/production data, as well as historic well log data on developed/shut-in fields, remaining reserves and potential cash flow estimates. They even have well completion, injection well, and tank battery engineering data appropriate to Oklahoma and Texas, a vital IP asset which places the company in a prime position to acquire overlooked yet valuable reserves for pennies on the dollar.

U.S. oil and gas wells are on-track to exceed near-record 2013 production as crude inventories climb to their highest levels since 1931, even as roughly 35% of the EU’s crude oil and 30% of its gas needs are threatened by the evolving situation in Ukraine and the associated sanctions on Russia. The U.S. will continue to play a major role on the global oil and gas scene for years to come according to the EIA, which has slated 2016 as a future high-water mark, with output expected to climb to 46-year highs on the strength of shale production. Wyoming producers in particular have recently been shifting more into oil due to falling natural gas prices and ample supply, leading to a situation where, barring some kind of massive LNG architectural build up, this logistical background noise will be really good for INCT’s own oil development bottom line. The efficiency of that bottom line also plays heavily off of Evergreen’s vast experience in the region of course, as well as their numerous industry connections and this Wyoming JV looks like the start of a beautiful friendship for the two companies.

To INCT this is an exciting time, developing oil and gas in North America via a laser-focused business model that emphasizes predictable, sustainable value and partnerings with proven oil and gas industry operators. The strict line-item detail level at which funding will be approached, combined with clearly defined, conservative assumptions, should drive home real bang for the shareholders buck and investors will want to keep an eye on INCT as their Wyoming JV progresses.

More information on Innocent, Inc. available at www.innocentinc.com

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