Target Energy is taking a very sensible and novel approach with the current IPO offering for its Oil and Gas project in the US and just might have come up with a winning formula
Laurence said, “Target was formed to explore for and to produce hydrocarbons in the United States of America, which continues to be one of the best operating environments for oil and gas in the world, due to the high value for products and low sovereign risk. Texas and Louisiana, the initial operating areas selected by Target, are well established petroleum provinces that continue to deliver significant discoveries to feed the energy hungry US market. Add an excellent business plan, good assets to a superb infrastructure, modern technology, our high level of technical expertise and considerable experience within the USA and I believe we have the makings of a very successful operation.”
The Company is offering 42,500,000 shares @ $0.20 per share to raise a total of $8.5 million. The offer is due to open on Monday 16 October and is scheduled to close on 16 November 2006. This will give the public a tic over 70% equity upon a full subscription. The company reserves the right to accept oversubscriptions up to a further 7,500,000 shares to raise a further $1.5 million. The minimum amount for the subscription is $5 million.
Purpose of the Offer:
Laurence gave a brief explanation of Target’s immediate plans; “We have secured joint venture interests with a number of producers in the states of Texas and Louisiana. We currently have interests in eight drilling programs and the money will be partly used to fund our share of the well drilling programs. Part of the funds will also be used to pursue other oil and gas opportunities which we are currently investigating in five other states in the United States of America and to provide working capital for the company.”
Target is concentrating on developing revenue from oil and gas projects in the United States of America. Laurence explains his company’s plan of attack. “We have chosen Texas and Louisiana because there is a huge amount of activity and there are a large number of opportunities. You still have to be careful as many of these look much better than they really are, so you have to look at each one very closely. I have worked in the US with Magellan Petroleum in the past and I’m conversant with how the local industry works. It is a good sector and if you get the right partners and the right people, there is a very good chance of finding oil and gas, providing you do your homework.”
“One of the great advantages of working in this area is the highly developed infrastructure. The greatest benefit of this is that we can expect to bring a project on stream within 30 - 60 days from completion of the well, which is a very fast turnaround. This means that upon successful discovery we could expect to obtain positive cash flow quite quickly.”
The prospectus indicates that Target is not actually doing the drilling itself. Can you tell our readers a bit about the company’s strategy?
Laurence said, “Our position in the initial stages is to take a non operating working interest, which means that we are partnering with other well proven operators in these specialised areas who will be actually drilling the wells. This allows us to minimize our early risks and enhance our prospects of taking good profits and obtaining early cash flow.”
Can you tell me a bit more about the projects you have ‘in the pipeline’ in Texas and Louisiana?
Laurence said, “Our program at the present time involves taking a working interest in 8 wells. Three of these will be drilled in Texas. There is a company called Everest Resource that has been doing very good work in Colorado County, Texas just west of Houston. They have had very good success rates with shallow gas wells. New technology largely involving 3D Seismic studies demonstrates these gas reservoirs very clearly as brightly lit seismic anomalies which gives rise to the high success rates. Currently Everest has been successful in 11 out of 14 of these types of wells drilled. We have negotiated a 25% share in three such wells. We expect drilling on the first well to commence in December and the other two will commence in late January. Given the data available, we feel we are participating in three very low risk wells that should be flowing gas within about 30 days after completion.
The rest of our program comprises the remaining five wells which will be drilled in the neighbouring state of Louisiana. The first well is a gas and condensate (liquid product) project which will be drilled by Pogo Producing Company ($2.7 billion capitalised company on the NYSE). They are a very experienced and very successful company with extensive interests in the USA and elsewhere around the globe. This project is considered to be reasonably high risk with potential of very high returns. Due to the risk factor we have taken a 10% interest in this project. The other four wells will be drilled in another parish in Louisiana. These are all prospects mapped around an existing salt dome. This area has been drilled previously between 1940’s and 1960’s. However typically with a salt dome, there is a lot of faulting and a lot of compartmentalisation. 3D Seismic investigation has provided the key to unlocking that detail and allows the operator to get quite surgical with their mapping. The company that is carrying out the drilling operations is Cyprus Drilling and we have negotiated interests up to 25% in each of the wells. Cyprus is very experienced in this type of specialised operation and their success rate is 8 from 11 wells.”
The prospectus mentions that it is not feasible to produce meaningful financial predictions given the speculative nature of hydrocarbon exploration and development. How and when do you expect investors might expect to see some return for their investment?
Laurence pulled no punches in dealing with this all important question. “Given the improved technology and our combined experience in the area, we have a high expectation of obtaining positive cash flow in the near term. In addition to our focused program in Texas and Louisiana, we are also investigating opportunities in other states in the U.S. It is our intention to build a sustainable ongoing business and to that extent, much of the initial revenues will be reinvested into developing further opportunities. As the company grows, shareholders will see a positive return from the rising capital value of the shares and other benefits that the respective shareholdings might deliver.”
Can you summarise some of the key strengths and fundamentals of Target’s offer?
Laurence said, “We have what we believe to be a very strong business plan all focused on taking the best profits for the least risk and as always, timing is very important. Some of the key points of interest to investors can be summarised as follows:
• A very good program of Eight wells drilled in 2006/07 in Louisiana and Texas;
• All wells sited in proven productive areas mapped on 3D Seismic;
• Our joint venture operators are well known to the management team and have successful track records;
• One of the best industry related infrastructures anywhere in the world, providing very rapid cycle time from deal, to drill, to production at a time of strong commodity prices;
• Potential 100% reserves: 4.2 million barrels of oil and condensate, 343 billion cubic feet gas equivalent;
• Very experienced technical and management team with extensive US, international and Australian experience and a very good local knowledge in Texas and Louisiana;
• High commodity prices even given the recent easing of oil and gas prices. We have structured our financial models for success even if oil eases to as low as US $30.00/barrel;
• Reduced risks by joint venturing with other principal operators and maximising opportunity for early and sustained cash flow.”
When you are not looking for oil or business opportunities, how do you like to relax?
For the first time in the interview, Laurence seemed stuck for words. He obviously knows a lot more about creating good business opportunities than he does about lolling around. “The family deserves whatever time I have available at the moment,” he said “and I can always be enrolled in enjoying a glass or two of a good ‘red’ with good company. Other than that I’ve been living and breathing Target for quite a while.”
Although residing in Perth, he confesses to being a “Bit of a Bronco’s fan in the NRL and the Lions in the AFL. That’s a legacy from my time in Queensland while working for Magellan.”
Target Energy has structured a very impressive business plan which has been developed around projects in geological areas well known to the management team, using state of the art technology which vastly increases the prospects of success. A highly advantageous joint venturing policy has been adopted with operators who are very experienced and successful in the various areas of specialty drilling operations that make up the core of the company’s initial projects. Further projects are being investigated and will be developed to ensure a long term and sustainable business.