Energy - smartinvestment.ca

[Bobwins]

http://finance.yahoo.com/news/.....00555.html

Slightly disappointing results.

Production down from 1373 in Q3 to 1259boepd in Q4.

Total revs and cashflow down...

Recognized 8million+ deferred tax expense and lost about the same amount for the qtr.

No explanation why installing 6 pump jets didn't boost production.

[Bobwins]

SKO.v C$.85

Stream has had their ngas wells shut in for several months because they couldn't find a reliable buyer. This agreement could be a big deal because it may allow Stream to obtain financing for their horizontal well. Stream expects that the horizontal will be in the 3-6mmcfpd range and provide a starting point to develop this large ngas field for European sales. This field also has high condensate production(200bpd/mcf ngas production) which should bolster the economics.




CALGARY , Feb. 19, 2013 /CNW/ - Stream Oil & Gas Ltd. (SKO.V) ("Stream" or the "Company") is pleased to announce that it has signed a gas sales agreement (the "Agreement") to sell gas production from its Delvina field to Thermo Energy Albania Shpk ("Thermo Energy"). Thermo Energy intends to develop and build a 24 megawatt ("MW") thermal power plant in Delvina, Albania , utilize Stream's gas production and sell the generated electricity to KESH (an Albanian power company) and other clients. The Agreement is key to Stream's plans to develop the potential of its substantial gas resource, which is expected to result in future growth in production and reserves.
The Agreement provides for the delivery of sufficient gas to power the 24 MW facility at 100% capacity. The initial start-up unit of 2.2 MW of the plant will require approximately 0.5 MMcf/d of gas from Stream, increasing to 6.5 MMcf/d when the plant is fully operational. Gas delivery is expected to commence in the second quarter of 2013. The Agreement has a term of one year, at which time the parties will meet to negotiate a longer term agreement based on market pricing and corresponding quantities. Stream will receive US$8.90/mcf for its gas in the first year; once the Agreement is extended, the new price will be negotiated based on European indexed natural gas prices.
Stream currently has the capacity to produce approximately 2.5 MMcf/d from its Delvina field from two vertical wells, Delvina 12 and 4. In order to increase productive capacity to 6.5 MMcf/d, detailed preparations for the drilling of the first horizontal well continues with the commencement of field activities expected in 2013. The Delvina field is estimated to hold approximately 184 BCF, with another 431 BCF from the adjacent structures, of gas initially-in-place ("GIIP") according to Stream's 2011 independent resource evaluation report.
"The signing of this agreement is a major step forward in the development of the Delvina field," said Dr. Sotirios Kapotas , President and Chief Executive Officer. "In addition to providing benefit to Stream in terms of revenue and justifying the drilling of the horizontal well, the construction of the plant will assist in creating in-country electricity generation for Albania and its people."
This is the first natural gas fired thermal power plant to be constructed in Albania . The local Ministry of Environment welcomes green power and the stable delivery of electrical power to the country. With a growing demand for power, Albania currently relies on approximately 95% of its electricity from existing hydropower plants with additional power imported to balance the country's power demand and backup production during dry and drought periods. As a result, Albania is extremely dependent on externally generated power and experiences blackouts or loss of power from time to time.
Stream's activities in Delvina are expected to provide significant reserve additions for the Company as reserves and resources are converted to proved and probable reserves. With this conversion Management anticipates growth in production and cash flow resulting in increased shareholder value.

[Bobwins]

Stream Oil and Gas aka Lil' Bankers

SKO.v/SOGAF -.11 to C$.93

Ok, I was disappointed in Q3 P&L. Missed my back of the envelope forecast of .10 to .12eps by a mile at .05. Q3 for SKO is 6/1- 8/31/12. If you look at a Brent crude price chart, you can see a big drop in price in that period, with the low about mid qtr. So avg prices dropped about $8/boe and that caused about $1million in lost profits. So if prices had been even, they might have come closer to Q2 but they still missed my production target. So what's up? Called CFO Jim Hodgson.

1. Earlier estimates of productive capacity included natural gas production, which is currently shut in. Delvina 12 is capable of producing 3mmcfpd. Stream tried selling to the local refinery but they pay slow and were up and down with maintenance so Stream is proceeding with other options. Also there was repairs to one of the jet pumps that lowered production AND the refinery closure for maintenance.

First option is to sell the gas to a Greek company that the CEO has worked with before and known for a long time. They propose to bring in ngas generators to produce power from the Delvina ngas. They already have imported one 2.5megawatt unit and are delivering it to the Delvina field. They will use the already existing Delvina 12 for ngas. Each generator uses about 400mcfpd so Delvina 12 could support 5+. The regional power line is less than a km away to hook up to and sell into. I asked what price they would get for the ngas, he said $9 to 10/mcf. So this is a near term catalyst for Stream. But it will take some time to get the first one hooked up and running properly, run the line to the power grid and generate revs. Then the Greek company proposes to bring in more generators based on producing cashflow from the first one. I asked if there was any doubt this company could finance the new generators and Hodgson said no.

I asked about the restart of the power generation plant. Apparently the government put out a bid request to restart the plant. It originally used heavy sour crude to generate electricity and was closed for environmental reasons. The proposal contained requirements that would be hard to comply with and made the proposal uneconomic so the company that was most interested did not submit a bid. However, the same group is now proposing to build a new 100megawatt plant for power generation and feel it will be more economical than trying to convert the old plant. This would be sufficient size to use all of the Delvina field production once it's developed.

Stream is required to drill one horizontal to prove up the concept. Initially they will use the ngas to feed the Greek mini plants and wait for the new power plant proposal to get to the construction phase before they drill any more wells.

2. Gas re-injection compressor. Stream has purchased a gas re-injection compressor that is being shipped from New Zealand. This will allow Stream to produce from their existing gas wells, strip off the condensate and re-inject the ngas into the field or produce it for power but the key is the condensate. Delvina is very liquids heavy at 100barrels condensate for every 1 mmcf gas produced. Delvina 12 could produce 200+bpd condensate and they will get Brent pricing. The compressor will take until early 2013 to be installed and operating but this is near term high revs for Stream. The horizontal well should produce another 300-400bpd condensate. 200bpd X $100/boeX92 days = $1.8million gross revs per qtr from Delvina 12 condensate.

3. Another catalyst is the installation of the 6 jet pump units in existing oil wells. The current production prior to installation is about 10-12bpd so the increase to 100bpd will add 90bpd per jet pump or 540bpd to Stream production. The first three units are ready to turn on and the next 3 will be installed and operational by the end of the year. 540bpd X $70/boeX 92days= 3.47million per qtr. First qtr of full production is likely to be qtr ending 2/28/13. Since this is new production, Stream will just have to pay a 2-4% royalty on the production.

4. There is another possibility for the ngas use. Bankers Petroleum has drilled a well,that is a dry hole, looking for ngas to perform Enhanced Oil Recovery on their fields in Albania. If they are not successful in finding gas, they may become a customer.

The first question I asked was about the pricing they receive for their crude. They sell most to an Italian broker at 68% Brent. The oil is shipped to a port, stored in tanks and once a month, a small tanker takes it away. The tanker is a small size and so the operating costs are relatively high at $12.90/boe. Stream is negotiating to raise the percentage to maybe 70%. They can also sell to the local refinery for 75% brent for their lightest oil and 60% for their heavy oil field. This works out to a blend of 71% Brent but the refinery takes it's time to pay. Stream gets paid in 10 days from the broker and closer to 90 days from the refinery. So they try to sell thru the broker. Another possibility is when production increases, Stream can contract more tanks and store higher quantities of crude for a bigger tanker to take away Stream's production. This would lower operating costs/boe and allow the broker to pay Stream more, maybe into the low 70% range.

I asked why Bankers was getting 81% for their production. Hodgson said they have looked closely at that situation. They found that Bankers is selling to the same refinery that Stream deals with so they are waiting 90 days for their money. Also they are responsible for transporting the oil to the refinery so their net is not as good as it looks. Bankers is also a lot bigger than Stream so they have volume to negotiate higher prices.

I asked about the horizontal well financing. He said they are close and expect to announce a deal in a month. They hope to issue one operational update that includes the financing, drill availability, takeoff agreements and timetable.

So in summary, 200bpd in high rev condensate is coming in early 2013 and possibly ngas production for the power generators at $9-10/mcf plus 500+bpd oil from the new jet pump units. That should be done by 12/31/12.

The horizontal well is expected to be at least 4mmcfpd plus 400bpd condensate.

So I was probably a little early in calling for big increases in production but it seems like Stream has multiple catalysts coming in the next few months. I am holding. Bobwins

[Bobwins]

Earned .05 vs .08 in Q2. Production increased but only to 1373boepd vs 1147 in Q2. Brent prices were down, leading to lower netbacks.

Going to review MD&A and call company later today. Will post whatever I find.

Bobwins

[Bobwins]

Stream due to report Q3 this week. Should be a good report.

Due to previously reported increased production earlier in the year, we should see avg production in the 1500boepd range, up from 1147 last qtr and that should boost eps to .10 to .12.

Still very cheap. They haven't announced financing for their big horizontal well project in early 2013 yet so financing for juniors still remains difficult. They need $15million for their first horizontal in the Delvina ngas project. There are some producing verticals but apparently they are not able to sell the gas. Success of the project would require hooking up to regional pipelines or selling to a restarted power generation plant, which is also looking for financing. I will clarify with company after financials come out.

[Bobwins]

Stream Oil and Gas, SKO.v/SOGAF C$.85
66,637,801 shares outstanding
3,830,752 warrants
3,055,000 options
73,523,553 total FD share count X C$.85 = C$62,495,020 market cap

Last reported qtr ending 5/31/12. Earned .07eps FD. That's a fwd p/e of 3. Very high netbacks.

24.8 million boe proved + probable (2P) NPV10: C$527MM(2P); $816 MM(3P)
•Added possible, contingent & resources-in-place
•Less than 8% recovery to date

Operating in Albania, Stream along with Bankers Petroleum, BNK.to, is doing workovers to large old fields that were discovered in the 60's and 70's but neglected once primary production started fading. Secondary and tertiary EOR were sparsely used in these wells until Stream took over. They produced 1141boepd in Q2 but should report 1500-1800boepd for Q3 ending 8/31/12. They had capacity for 2000boepd if all jetpumps were installed and that was all done before the end of Q3. Should boost eps to .10 to .12.

Company is projecting production of 12,500boepd by 2015!

http://www.streamoilandgas.com.....7May12.pdf

WHY INVEST?

1. already profitable, cheap producer selling for 3X or less fwd p/e and less than 1/10 3P NAV.

2. fiscal regime is very favorable going forward. Stream pledged a high percentage of existing production when they took over fields but they get the increased production from workovers, new wells.

3. High netbacks due to Brent pricing and high European ngas prices around $10/mcf.

4. More workovers scheduled for 2012 but big catalyst is Delvina field horizontal well. Delvina is one of the largest ngas fields in Europe. There are two vertical wells producing but Stream is going to drill a horizontal well in spring 2013 at a cost of $15million. They are trying to arrange a complicated sell forward financing that should be non dilutive. Once that is done, they also need a purchase agreement from and enduser. They are working with a company planning to restart a power generation plant but haven't finalized the deal.

5. Planning waterflood to enhance one of the fields. Will use produced water from other two oil fields to provide water and eliminate disposal costs.

6. Stock is relatively undiscovered. No PR firm, only earnings announcements.


Appreciate any comments/criticisms etc. It's not particularly liquid so you have to be careful when you are buying. I was not successful in buying at the bid so had to pick a day and buy at the ask. Probably wasn't patient enough. I expect financials for Q3 to be published 10/31/12 so we have several weeks before then to buy. I talked with CFO Jim Hodgson and was favorably impressed.