Today we are releasing an update on PetroTech Oil & Gas Inc. (OTCPK – PTOG), our most recent initiation. Although the stock has gone down in concert with the market, management’s recent and pending progress are great signs for the near term and the lower price is a great entry point for investors.
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Recent and Pending Steps
In the near term, management plans to install cameras in order to post live feed of activity of its current leases in Texas on the Company’s website. This is an unusual move which would keep investors apprised of its progress in real-time. This move will likely provide investors with confidence that management is on track relative to its enhanced oil recovery testing. In addition, the Company has commenced the building of production equipment with CGM Energy in Minneola, Texas. In just the past 2 weeks, PTOG moved a rig out, pulled two wells and have started conditioning two well bores on its leases. Moreover, management is currently testing wellbores for formation treatment.
Separately, we expect to receive more clarity on progress in North Dakota later this month as not only has the Company lined up vendors for the Bakken Joint Venture for an AFE (similar to RFI/RFP.) Plus, management plans to visit the region and could seek to obtain additional leases.
The Bottom Line
Looking ahead, we continue to believe that PTOG’s 3-pronged strategy could ultimately result in huge profits. The innovative EOR tools could transform the way oil from depleted oil reservoirs is recovered and generate meaningful cash flow and profitability from the Company 110 wells in Navarro County, Texas. We expect that revenue meaningful production on a handful of wells could occur sometime in 2H13 which could ultimately produce a peak production level of hundreds of barrels per day over the next few years.
Separately, we believe that the pending closing of the JV Bakken contract could be huge for the stock, which only has 3.8M shares in the public float. The 30,000 acres (including the option) has huge Probable and Possible Reserves of 116.2M barrels of oil. Management hopes to begin drilling one well in 4Q13. The oil produced via this transaction could dwarf the Company’s wells in Texas, especially if PetroTech uses its EOR tools. We plan to provide a forecast once closing on the transaction occurs and more clarity is provided.
We rate PTOG Speculative Buy with a $0.78 price target based on the value of the EOR and services segments alone. Favorable field test results, clarity on new business and any activity on the JV front would likely prompt a higher price target as much of the risk in the stock would be reduced. Moreover, we will be able to better extrapolate and forecast future financial results.
Senior Analyst: Robert Goldman
Rob Goldman founded Goldman Small Cap Research in 2009 and has over 20 years of investment and company research experience as a senior research analyst and as a portfolio and mutual fund manager. During his tenure as a sell side analyst, Rob was a senior member of Piper Jaffray's Technology and Communications teams. Prior to joining Piper, Rob led Josephthal & Co.'s Washington-based Emerging Growth Research Group. In addition to his sell-side experience Rob served as Chief Investment Officer of a boutique investment management firm and Blue and White Investment Management, where he managed Small Cap Growth portfolios and The Blue and White Fund.
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