We are launching coverage of CircleStar Energy, Inc. with a Strong Buy-Speculative Rating at a $7.50 DCF Valuation on 45MM shares (fully diluted) @3,000 BOE daily production by end of 2014 @$75 net revenue per barrel. In the last 45...
CRCL NBT Initial Report
Circle Star Energy Corp (CRCL)
CircleStar Energy is moving quickly from a junior player to a major force in what NBT and others are now calling "The Next Bakken Oil Play"—the Kansas Mississippian resource in Northwest Kansas and Oklahoma. Today they announced several transactions totaling approximately 111,000 net acres to the Company that, in addition to the previously announced 64,000 acre leasehold in Gove and Trego counties, take the Company's total contracted Northwest Kansas acreage position at approximately 175,000 net acres. This deal like the others is cash and stock…no word yet on how much of each (we will assume in the same ballpark as the initial 64k acreage).
The 111,000 acres are located in Decatur, Graham, Logan, Norton, Rawlins, Sheridan, and Thomas counties, Kansas. The leasehold interests include 100% working interest and an average net revenue interest of approximately 80%. The Company will receive, as part of these new acquisitions, approximately 40 square miles of 3D seismic and 100% operated working interest in an oil well producing from the Kansas City-Lansing formation, which sits above the Kansas Mississippian.
What makes the Kansas City-Lansing/Kansas Mississippian play so potentially valuable to shareholders is what we call the "Kansas Two-Step"—drilling inexpensive vertical wells with the latest 3D/Telluric magnetic technologies to get 80-90% success rates on new wells in the relatively shallow Kansas City-Lansing formation and THEN JV/farm out horizontal wells into the deeper but richer pay zones of the Mississippian oil share UNDER the KC-Lansing.
Click here to see our initial report on CircleStar.
CEO Jeff Johnson has tapped his 30 years of oil industry connections to ramp this $100k a month oil player into what now look like will be a 6000+ barrel a DAY player based on our existing pro-forma. Their projections for the existing 64,000 acres got them to 3000+ barrels a day in production by 2015.
Adding 110,000 ADDITIONAL acres gets us past 6000+ barrels a day (using the same economics for these vertical wells and farm-out JV deals on the underlying Mississippian.)
NOW we are talking about CRCL getting to critical mass—i.e., a large enough player to attract outright buyers of the company:
1) Private equity players (which there are hundreds with literally $trillions in cash looking for the "Next Bakken" type of plays)
2) Foreign oil companies (SNOOC from China already in this play with SandRidge Energy SD for a few $billion)
3) Domestic public E&P; companies looking to get into the rapidly expanding Kansas Mississippian resource play
Take a look at this video from SandRidge CEO Tom Ward to get up to speed on the Kansas Mississippian play.
Congrats to the very hardworking CEO Jeff Johnson…we are going to have to go back to the valuation drawing board and figure out what 6000 barrels a day does to our pro-forma NPV per share valuation. Our $7.50 target now seems about $7.50 too low (waiting for deal specifics to re-value).
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Founder and Editor-in-Chief for NBTEquitiesResearch.com. Contributor and Anchor for the Fox News Channel and Fox Business Network 2000-2013. Chairman & CEO of NBT Group, Inc., a boutique private capital investment bank and investor relations organization.
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