Red Fork’s recent $5 million initial public offering closed oversubscribed, with the company eventually securing $5.7 million to fund its exploration and development.
Red Fork is touting its prospects of immediate production, courtesy of the 15 established wells bought from its US partner, Louisiana-based Metro Energy Group.
The vision is to use the proceeds from re-working those wells to bolster and fast-track the company’s planned exploration offensive – it is aiming to drill 10 CBM wells a year for at least the next three years across the project’s five known coal seams.
Red Fork’s journey to the North American CBM scene began 18 months ago, when a group of seed capitalists stumped up $2 million in cash and launched a search for a robust project.
The company is loosely modelled on Tomahawk Energy, the Perth-based junior that has enjoyed strong exploration and stock market success since its listing just over a year ago.
Tomahawk was founded around seed capital and a commitment to identify an acquisition opportunity. It eventually settled upon US gas assets that have since yielded a 100% exploration success rate. Like Red Fork, Tomahawk was introduced to its assets through Metro Energy.
The success of Tomahawk helped refine Red Fork’s search to energy assets in the US and increased the company’s confidence in taking on Metro as a project partner.
Adding to Red Fork’s pedigree is its association with Delta Capital, which acted as the manager to Red Fork’s $5 million offer. Delta also managed the IPOs of Tomahawk and of Louisiana Petroleum.
Red Fork’s immediate priority will be spending $600,000 re-working those 15 existing wells, which have potential oil and gas formations, as well as unconventional CBM targets.
The wells are in a 1685 hectares block in Osage County, Oklahoma that Red Fork picked up from Metro in a $US1.5 million cash and scrip deal that delivered Red Fork a 77.5% working interest (Metro holds the balance and is project operator).
Metro had begun re-working the wells before its partner listed on the ASX in October, so the success of the exercise should be clear sooner rather than later.
Red Fork expects the 15 wells to provide modest cash flow that will help cover the costs of the 10 new CBM wells it plans to drill in the first year.
By the company’s estimations, those 10 wells (which will cost about $US300,000 each) could achieve output of 1 million cubic feet per day and put Red Fork in stead for strong cash flow in time for the company’s first birthday.
A business case prepared by the company indicates the potential for Red Fork to be receiving up to $4 million in cash flow after a full year of production at these rates, assuming a $US-$A exchange rate of $0.75, the successful re-working of the 15 existing wells and the successful completion of 10 CBM wells.
This estimate is based on an oil price of $US55 per barrel and a gas price of $US6.50 per thousand cubic feet. Given the current heights of the oil price and the booming US gas market (the domestic US gas price is currently sitting well above the $US10 mark), these are conservative assumptions and Red Fork could stand to make a lot more should its operations proceed smoothly.
Notwithstanding this robust financial model, the company’s focus is clearly on building CBM reserves in what Red Fork executive director David Prentice describes as a “major producing field”.
The company’s leases sit just 8km north-west of the city of Tulsa, adjacent to the vast landholding of large private company Amvest Osage Inc and near the Oklahoma operations of TSX-V producer Admiral Bay Resources.
“Red Fork’s strong landholding in this field and its partnership with Metro provide us with a real chance of building a CBM reserve position that will put us on the map, when compared to our neighbours Amvest and Admiral Bay,” Prentice said.
Amvest Osage is reportedly producing 12.4 million cubic feet per day of CBM from its position and is drilling 75 wells a year. CBM reserves within Amvest Osage’s acreage are estimated at 2.1 trillion cubic feet.
Admiral Bay, meanwhile, is producing about 1.2 million cubic feet per day from its 51 wells. Its Swordfish CBM project, which is estimated to have 47.6 billion cubic feet of CBM reserves in place. The company has said it intends to drill 20 wells on its Oklahoma position over the course of this year.
Oklahoma is criss-crossed with gas pipeline infrastructure. In Red Fork’s small corner of the state, the company has two nearby pipelines operated by different owners, giving it some leverage when negotiating access to the infrastructure. Metro and Red Fork already intend to install and maintain a gathering system to facilitate switches between the pipelines.
Oklahoma-based crude oil purchasers provide a ready-made market for any crude oil produced from the leases.
While Metro will be managing the operations of Red Fork, the Australian outfit will be represented at ground level by its technical director, Bruce Miller. US-based Miller is a geoscientist with 25 years of experience in both CBM and conventional oil and gas drilling and completion.
He has also supervised the drilling of more than 400 wells in Oklahoma and its neighbouring state Kansas, making him more than adequately equipped to be Red Fork’s local eyes and ears.
Also serving on the Red Fork board is chairman Tony Brennan, who is also the chairman of Tomahawk Energy and Gleneagle Gold; and Michael Fry, who is also a non-executive director of Precious Metals Australia, Liberty Gold and Livingstone Petroleum. Prentice is also the chief executive officer of Gadens Lawyers.
The company has been built around a deliberately tight capital structure. Just 50 million shares and 18.5 million options have been issued, and of that 20% of the issued shares and 49% of the options are escrowed for two years.
Red Fork energy...at a glance
HEAD OFFICE
Level 25, Exchange Plaza
2 The Esplanade
Perth WA 6000
Ph: +61 8 9267 4220
Fax: +61 8 9267 4202
Email: admin@red forkenergy.com.au
Web: www.red forkenergy.com.au
DIRECTORS
Tony Brennan, David Prentice, Bruce Miller, Michael Fry
MARKET CAPITALISATION
$8.6 million (at time of listing)
*This profile, first published in a different form in ResourceStocks, was commissioned by Red Fork Energy
