Strategic American Oil Corp. (OTCBB: SGCA)
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Website: www.strategicamericanoil.com |
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Read our report on Strategic American Oil and Gas (SGCA). |
Strategic American Oil Corp. (OTCBB:
SGCA) is an oil and
natural gas exploration and production company with operations in
Texas, Louisiana, and Illinois. In our opinion, the market has not
yet recognized SGCA’s technical expertise, promising portfolio and
strong financial condition. We also believe SGCA is positioned to
experience remarkable growth in the near term future by aggressively
leasing, drilling, and acquiring projects at various stages of
development.
SGCA has established a land portfolio with an aggregate gross
20,099 developed and undeveloped acres in Texas and Illinois. SGCA
has identified new exploration targets on their existing acreage and
management is applying the latest, most advanced technology in order
to maximize production. In addition, SGCA has also leased land
positions hosting previously producing wells with the goal of
enhancing or reestablishing production. Once again, in our opinion,
this puts SGCA and its shareholders in a position to benefit from
appreciation in the stock price as additional oil and natural gas
production is added into the mix.
In September 2011, SGCA acquired SPE Navigation I, LLC, which
included over $4 million in liquid assets and a $10 million working
capital bank line, in exchange for shares in the company. The
previous owners, who founded and developed Hyperdynamics Corp.
(NYSE: HDY), now own an even greater stake in SGCA as a result of
this acquisition. Hyperdynamics has been somewhat of a success story
in the market by rewarding its shareholders with a handsome return
on their shares. HDY’s price per share rose from $0.22 in April 2009
to $7.78 in January 2011, which is a huge return in less than two
years.
One of the reasons we would anticipate SGCA’s success, is that the
same shareholder group from HDY has provided more than 70% of the
company’s capital for acquisitions. In our opinion, this would
indicate the HDY shareholder group is committed to building long
term shareholder value in SGCA. Operationally, SGCA has improved its
results over the last twelve months by significantly expanding its
oil and gas production. In our opinion, since revenues are also
increasing at a rapid rate, SGCA could be on its way to becoming a
mid-tier U.S. oil and gas developer. In addition to expanding its
current projects, SGCA continues to seek accretive acquisitions of
production, reserves and other companies with promising hydrocarbon
prospects, as well as improve it marketability by listing on a
higher exchange than the OTCBB.
Texas
In February 2011 SGCA closed on the acquisition of a private Texas
oil and gas company, GBE, which owns working interests in and
operates producing oil and natural gas properties and its related
facilities in four fields located in Galveston Bay, Texas.
Immediately following this acquisition, SGCA sold 15% of its
aggregate working interest in the Galveston Bay fields for $1.4
million in cash to SPE Navigation 1, LLC (“SPE”), a company managed
by Michael Watts, who is the father-in-law of Jeremy Driver, a
Director and our Chief Executive Officer. Effective May 1, 2011, SPE
acquired an additional 10% of SGCA’s aggregate working interest in
the Galveston Bay fields for an additional $1.15 million. As a
result of these transactions, GBE became SGCA’s wholly owned
subsidiary and SGCA owned approximately 53% of the aggregate net
revenue interest in the four fields.
In September 2011, SGCA closed on the acquisition of 100% of the
membership interests of SPE for 95,000,000 shares of Strategic
common stock. SPE’s assets at the time of purchase were 25% working
interest in GBE’s historical interest in the Galveston Bay fields,
as discussed above, and one million shares of Hyperdynamics (NYSE:
HDY) common stock. Since HDY is a public company traded on the NYSE,
its value also fluctuates. On the date SGCA obtained control of SPE,
which was September 23, 2011, the closing market price of
Hyperdynamics common stock was $3.90 per share. Thus, the value of
SGCA’s HDY stock was $3,900,000. According to recent SEC filings,
SGCA has sold a portion of its HDY common stock for net proceeds of
approximately $4,000,000. In our opinion, the acquisition of SPE
provided liquidity sufficient to fund our activities and plan of
operations.
With the purchase of SPE, SGCA owns approximately 93% of the working
interest and approximately 72% of the aggregate net revenue in the
Galveston Bay fields. In order to maximize production from its
Galveston Bay properties, SGCA’s management plans approximately $2.6
million in improvements to the properties over the next year. These
plans include upgrading production facilities, installing new
pipelines, recompletion of existing shut-in wells, and various other
projects aimed specifically at increasing production. In March 2011,
SGCA secured an initial line of credit from a commercial bank for up
to $5,000,000 to support its work on the Galveston Bay properties.
In our opinion, this access to capital will put SGCA in a strong
position to execute its business plan.
Multiple high-value drilling targets have already been identified
in the fields of Galveston Bay. With more than 120 wells and only
20-30 wells producing, there remains a significant amount of “low
hanging fruit.” SGCA expects to ramp up production in the near term
with minimal capital investment. While exploiting these non-drilling
opportunities, a formal drilling program will also be designed and
implemented.
SGCA’s properties in Galveston Bay consist of five fields
encompassing 24,556 gross and 22,950 net acres located in prolific
producing areas. An independent engineering report estimated net
proved reserves as of October 1, 2010 total 3.6 million barrels of
oil equivalent (boe), or 21.9 billion cubic feet of natural gas
equivalent (bcfe), of which 27% is represented by proved developed
producing and shut-in categories.
Strategic American Oil also produces from two Frio Sand wells
(5800’) located on the Welder Lease. The wells produce 30 BOPD along
with 100 MCFGPD. A gas lift system is utilized to produce the wells.
Gas not used in the gas lift system is sold. The lease also contains
one salt water disposal well. SGCA also retains a 3% working
interest in the Janssen A-1 Well. The Janssen produces around 250
mcfgpd from the Roeder Sand (Wilcox) at a depth of 10,300 feet. PDNP
Pettus sand (oil) is behind pipe at 4000’ and a possible gas sand
was indicated on logs at 3060’. Through its wholly owned subsidiary
Penasco, Strategic American Oil also has the right to participate up
to 5% on a non-promoted basis on any additional wells that may be
drilled on the lease.
Louisiana
Strategic American Oil has current production in Louisiana with
wells situated in the Delhi South Field, adjacent to Denbury
Resources’ (NYSE:DNR) recently acquired Delhi Field. The company
retains a 97% working interest and an 81.25% net revenue interest in
approximately 136 acres.
Illinois
The stereotype normally associated with oil riches usually involves
Texas oil barons, but rarely do we hear about Illinois. However, the
Illinois Basin has produced nearly 4.5 Billion barrels of oil.
Identifying and leasing in the Illinois Basin is a part of a broader
effort by SGCA to institute a drilling program with prospects of
mixed risk profiles, ranging from waterflood opportunities, direct
offsets, step-out wells, and pinnacle reef prospects.
This portfolio of prospects is to provide the company a relatively
low-cost/high-reward portfolio of drilling locations in the heart of
the oil-rich Illinois Basin. SGCA has been working on the WF1
Prospect in the Basin for many months and is now finalizing its
designs for the pilot program. SGCA has received an independent
engineering report and has identified potential reserves which
indicate production can be achieved through primary and secondary
recovery. There are at least two additional zones that have not been
fully exploited in this field which may hold significant primary
reserves over and above the waterflood recovery.
SGCA has also developed an enhanced recovery project in Markham
City North field in Illinois, which has cumulatively produced 1.6
million barrels of oil. Recovery rates are expected to be 80 to 100%
of previous production, based upon a regional field analysis. The
company has contracted with Core Minerals to design a water-flood
pilot program which began in August 2011. Depending upon the results
of this pilot program, a full stage recovery operation will be
designed and implemented with a target depth range from 2,000’ to
4,000’.
SGCA has also leased an Illinois land position in a previously
producing oil field that could host significant in-place reserves
which the company would seek to produce using the Enhanced Oil
Recovery method. By researching the Illinois State Geological
Survey, SGCA’s management has discovered the oil field previously
produced an aggregate of 1.5 million barrels of oil during the 1940s
and 50s.
Nearby waterflood operations in the same zones have yielded a 1:1
recovery. SGCA has leased approximately 372 acres of the oil field
and plans to use existing wells for injection while drilling new
recovery wells to 4,000 feet. The ultimate goal will be to retain as
much of its current, and future, Illinois Basin projects as
possible, since the economics are so favorable, including high NRI
leases, low lease bonuses, solid well-control, multiple target
zones, low competition (due to good relations with mineral and land
owners) and low drilling/operating costs.
Management
CEO – Jeremy G. Driver
Mr. Driver is an oil and gas operations and financial professional
with a background in land-based E&P operations with public
companies. Prior to joining the Company, Mr. Driver served as
President of HYD Resources Corporation (a wholly-owned subsidiary of
Hyperdynamics Corporation) with operations primarily focused in
Texas and Louisiana from 2005 to 2008. He was able to lead the
operational turnaround of that company and bring it to
profitability. Mr. Driver has also served as the President of KD
Navigation, an investment and holding company in Texas since 2007.
Mr. Driver also served as an active duty officer in the United
States Air Force until 2005, specializing in foreign intelligence as
a Chinese Linguist.
Mr. Driver holds a Master's of Business Administration and a
Master's of Science in Accounting from Northeastern University,
Boston, MA. He earned his Bachelor of Science in Liberal Studies
from Excelsior College.
Vice President of Operations - Steven
L. Carter
Mr. Carter has served as Vice President of Operations since
December 20, 2006. Mr. Carter is a registered professional engineer
with twenty-five years of management and engineering experience in
oil and gas exploration, production operations, reservoir management
and drilling. Mr. Carter served as Operations Manager and Operations
Engineer for T-C Oil Company from 1990 to June 2003, where he
managed significant production, supervised drilling, provided
economic evaluations and designed project workovers, as well as
preformed numerous other engineering services. In July 2003, Mr.
Carter started Carter E&P, LLC, an independent oil and gas company,
where he has worked from 2003 to the present.
Mr. Carter has a B.S. in Petroleum Engineering from the University
of Texas at Austin. He currently resides in Portland, Texas.
Chief Financial Officer- Sarah
Berel-Harrop
Ms. Berel-Harrop has been with the company since early 2011. Before
joining Strategic American Oil she operated her own independent CPA
firm working with financial reporting and SEC filings for public
companies. Ms. Berel-Harrop was the former Chief Financial Officer
(CFO) of Hyperdynamics Corporation an oil and gas extraction company
based in Sugar Land, TX until 2006.
Previously, she held the position of Corporate Secretary.
Prior to Hyperdynamics, she worked as a staff accountant at Malone
and Bailey, PC; until 1998 as an accounting consultant for various
public companies; and as Treasurer/Controller of Harrop Construction
Company, Inc., a privately owned mid-sized construction company.
Ms. Berel-Harrop earned here Master of Business Administration from
University of Texas at Austin and her B.S. from Cornell University
Operations Manager- Craig Alexander
Mr. Alexander has been with the company since early 2011. Before
joining Strategic American Oil he was employed by Galveston Bay
Energy serving as Operations Manager. Mr. Alexander has 21 years of
oil and gas experience in production/completion engineering and
operations management with Erskine Energy, Millennium Offshore Group
and Amerada Hess Corporation.
Mr. Alexander earned a Bachelor of Science in Petroleum Engineering
from the University of Texas at Austin.
OTCBB Symbol: SGCA
Current Price: $0.085
Shares Outstanding:
270 million
Market Cap: $21.6
million
52 Week Trading
Range:
52-Week Low: $0.06
52-Week High: $0.20
Corporate Offices:
800 Gessner
Suite 200
Houston, TX 77024
Phone: (281) 408-4880
Fax: (281) 408-4879
Website:
www.strategicamericanoil.com
SGCA’s properties in Galveston Bay encompass 24,556 gross and 22,950 net acres. An independent engineering report estimated net proved reserves as of 10/1/2010 total 3.6 million barrels of oil equivalent (boe), or 21.9 billion cubic feet of natural gas equivalent (bcfe).
SGCA's portfolio of prospects in the the oil-rich Illinois Basin provide the Company and its shareholders a relatively low-cost/high-reward portfolio of drilling locations.