Being a successful Bulletin Board-listed E&P company is traditionally an uphill climb. Often, the slight liquidity, lack of analyst review, limited manpower and insufficient access to capital sets them up for failure in the public markets. But strong commodity prices, waves of new capital and eager investors have reenergized the oil and gas industry, and this atmosphere has given several microcaps a welcome opportunity for growth.

"The increase in commodity prices has certainly made it easier to survive," says Robert Cohan, president, chief executive and chief financial officer of Bakersfield, California-based Aspen Exploration Corp., a Bulletin-Board-listed company.

"Capital for drilling risky exploration projects remains difficult to obtain at a reasonable price, but is available nonetheless," adds Michael P. Piazza, CEO, Ignis Petroleum Group Inc., Dallas. Ignis has received capital from angel investors and hedge funds for drilling and evaluating acquisitions.

Microcaps trading on exchanges in Canada are also reaping the benefits of strong oil and gas markets. Steven A. Tedesco, president, CEO, and chairman of Centennial, Colorado-based Admiral Bay Resources Inc., says, "In these types of markets, it is a lot easier to survive as there is usually a great willingness or capability to raise money in Canada and Europe [versus] the U.S....."

Although it's become less challenging for a microcap to snag funding, hurdles remain-a major one being to attract investor attention. "The main challenge is to get on various hedge funds' or institutions' radar screens," Tedesco says. "In a boom market it is a lot easier, but when there is perceived weakness, the silence is deafening."

Financing and reporting requirements can be difficult. "The SEC recently began requiring companies to record derivative liabilities for certain equity transactions with registration requirements," says Lawrence Finn, president, CEO and CFO, Terax Energy Inc., Dallas. As a result, some smaller companies are showing large non-cash reductions in earnings and large non-cash liabilities on the balance sheet.

"It's mostly small public companies that utilize these kinds of transactions, and it's these companies that are later penalized when it comes to comparing financial results to those of larger companies," Finn says.

Also, because the stock is speculative, investors are accessing data from numerous sources, many of which may not have the most current or correct information. "The real challenge with smaller companies is to combat market speculation by delivering regular and timely communications to existing and potential investors."

Small publicly held companies still encounter problems getting access to rigs and services compared with their bigger competitors. Piazza says, "Rig scarcity is delaying project starts and higher service costs have increased the 'upfront' risk capital. Nonetheless, it's an exciting time for the industry, particularly for a small company, with opportunities abounding."

Executives agree that thriving microcaps recognize that credibility is essential. They also use their small size as an advantage and maintain cohesive management teams. With growing acreage positions, strategic drilling plans and seasoned leaders at the helm, some microcaps are primed for success. Here are a few of these.

Terax Energy Inc. Dallas-based Terax Energy (OTCBB: TERX) is focused on exploiting its leases in the Barnett Shale in north-central Texas. Its Barnett assets include contiguous acreage blocks in Erath (11,300 gross acres) and Comanche counties (16,276 gross acres). Terax has a 100% working interest in about 27,500 gross acres with 200 potential horizontal locations/possible reserves.

The company's market cap is approximately $99 million. In February, Terax completed a $16-million private placement of shares and warrants to continue its operations on its Barnett Shale acreage, to pay outstanding bridge loans and for working capital. Atlanta-based retail brokerage firm JP Turner & Co. LLC was placement agent.

In June, Terax produced 912,000 cubic feet equivalent per day, gross, 743,000 net. It has drilled six wells to date and three are producing, all in Erath County. A gathering system to service the Mitchell #1-H through #4-H wells has been completed and Terax has tied into the Louis Dreyfus Pipeline. This year, Terax plans to frac the Mitchell #4-H, #5-H and #6-H wells.

Management includes Lawrence J. Finn, president, CEO and CFO, Richard C. Binz, controller and chief accounting officer, and Sam M. Governale, vice president, field operations. Stephen Cochennet, Andy Hromyk, John Legg, David Pratt and Phil Wylie are directors.

Finn was vice president and chief financial officer of Las Vegas-based Petrol Oil & Gas and vice president, finance, for CDX Gas LLC in Dallas. Binz was controller for CDX, assistant controller at Crosstex Energy Services and held various positions at The Wiser Oil Co., Maguire Oil Co. and Edwin L. Cox Oil Co., all in Dallas. Governale was production superintendent of Swift Energy Co.

Cochennet is president of data-services provider CSC Group. Legg is an attorney in private practice. Hromyk is president of venture-capital management firm Century Capital Management Ltd. Pratt was CFO for Benton Oil and Gas Co. and Wylie is an attorney with Snell, Wylie & Tibbals.

The company applied to list its stock on the Amex in May.

Admiral Bay Resources Inc. Centennial, Colorado-based Admiral Bay Resources (CDNX: ADB) focuses on unconventional gas projects in the Cherokee Basin in eastern Kansas and the Appalachian Basin in Pennsylvania. Development of its current assets began in March 2004. Within the first 24 months of operations, the company had daily gas production of 1.5 million cubic feet; 160,000-plus net undeveloped acres; drilled or recompleted 150-plus wells, including three disposal wells; and established more than 311 billion cubic feet of proved, probable and possible gas reserves as of August 2005. The company aims to become a mid-tier gas producer with more than 500 wells, production of 25 million cubic feet per day of gas and 250,000 acres.

Admiral Bay has a market cap of C$58 million and no debt. In May, Macquarie Bank Ltd. completed a US$40-million senior first-lien secured revolving credit facility with an initial availability of US$15 million for Admiral Bay to develop its gas projects.

Directors include Steve Tedesco, president, CEO and chairman, and formerly a coalbed-methane consultant to Peabody Coal, Newfield Exploration Co., Calpine Corp., Berry Petroleum Co. and Wolverine Gas & Oil; Logan Magruder, president and chief operating officer, Quantum Resource Management LLC and the former senior vice president of Berry Petroleum's Rocky Mountain and Midcontinent regions, and Greg McMichael, former vice president and group leader, energy research, at A.G. Edwards Inc.

Officers include Robert Carington, CFO, formerly an executive vice president with Abraxas Petroleum Corp. and managing director, corporate finance, with Jefferies & Co. Inc.; and Gary Charles, vice president, operations, formerly operations manager with Equitable Resources and Statoil Energy.

Aspen Exploration Corp. Bakersfield, California-based Aspen Exploration (OTCBB: ASPN) was founded in Denver in 1980. The current focus is on the Sacramento Valley of northern California where Aspen operates 54 gas wells and owns nonoperated interests in 20. This year, it plans to drill 11 gas wells in the Sacramento Valley and one oil well in Kern County, California. Its drilling success rate is 86%-37 gas wells out of 43 attempts during the past 5.5 years.

In Denverton Creek, California, cumulative gross gas output has been more than 10 billion cubic feet from eight productive horizons. A few years ago, Aspen gained additional gas production from Vintage Petroleum Co. when it acquired a portion of its West Grimes Field assets in Colusa County, California. Aspen has drilled 11 successful gas wells out of 11 attempts in this field.

In the Malton Black Butte Field in Glenn and Tehama counties in northern California, the company has completed eight out of nine wells. Since its initial Emigh well in Solano County, California, in 1996, Aspen has drilled approximately 80 operated wells and had a recent success rate of 86%.

Robert A. Cohan is president, CEO and CFO. Previously, he was with Western Geophysical, numerous Rockies producers and Denver-based reservoir and engineering firm H.K. van Poollen & Associates. (For more on Aspen, see "Harvesting the Sacramento," Oil and Gas Investor, September 2005.)

Ignis Petroleum Group Dallas-based Ignis Petroleum Group (OTCBB: IGPG) was an exploration-stage 2004 start-up that commenced production in less than a year. It outsources routine operations to focus on the earliest part of the value chain, while leveraging strategic partnerships to execute its strategy. As a nonoperator, Ignis pursues partnerships with independent companies that have at least a decade or more experience in oil and gas.

Ignis has working interests in four producing wells and three undeveloped prospects. Its producers include three wells in the Barnett Shale and one in Chambers County, Texas. Ignis' prospects include North Wright, Crimson Bayou and Sherburne, all in Louisiana. The three Barnett wells, in Montague and Cooke counties, Texas, have produced more than 4,600 barrels of oil and 26 million cubic feet of gas since coming online in the second quarter.

Ignis has a 12.5%-before-payout working interest in the wells and Rife Energy Operating Inc. is operator. Ignis' partner and operator, Kerr-McGee Corp., recently performed a workover of its Acom A-6 well, and average daily production increased to 225 barrels of oil and 1.15 million cubic feet of gas.

Management includes Michael P. Piazza, president and CEO, Philipp Buschmann, chief operating officer, and Timothy Hart, CFO. Advisors include Alexander Kulpecz, Joe Gittelman, Fred Stein and Eric Hanlon. Piazza was formerly with ExxonMobil as an engineer, Hess Corp. in various financial and planning roles, and McKinsey & Co. as an oil and gas consultant. Buschmann was with management- and technology-consulting firm Booz Allen Hamilton, and Hart was CFO of accounting firm Taylor Madison.

Kulpecz was executive director, Shell International Gas, Power and Coal; Gittelman was general manager of exploration and exploration research at Shell Oil Co.; Stein was an engineer at Shell Oil and Devon Energy Corp.; and Hanlon was a vice president with Royal Dutch Shell and a partner with McKinsey & Co.

New Frontier Energy Inc. New Frontier Energy Inc. (OTCCB: NFEI) is a Littleton, Colorado-based company focused on domestic oil and gas plays. Its primary assets are a 30% interest in 31,000 gross (7,500 net) and 100% interest in 3,300 gross (2,800 net) acres of oil and gas leases, both of which are in the Greater Green River Basin in Colorado and Wyoming. It also owns a majority interest in a limited partnership that owns and operates the pipeline that leads from its property at Slater Dome to an interstate line.

New Frontier began producing gas out of six coalbed-methane wells and one conventional well in June 2005. It holds 28 different leasehold interests in approximately 40,000 gross acres in its Nucla prospect in southwest Colorado. Its current coalbed-methane projects, the Slater Dome/Coal Bank Draw and the Flattops prospect, are in the Greater Green River Basin, 16 miles east of Baggs, Wyoming. There are 11 wells and one water-disposal well in the Slater Dome project area.

The company is producing from six of 11 coalbed-methane wells and will drill an additional 44 direct offset wells. Estimated proved-developed and proved-undeveloped reserves are 6 billion cubic feet of gas.

This year, the company plans to develop Slater Dome by drilling 12 wells and the Flattops prospect by drilling two wells. New Frontier's market cap is $9.8 million, and it had long-term debt of $1,399 as of February. It plans to one day move its stock listing to the Amex or Nasdaq.

Paul G. Laird is president, CEO and director; Les Bates is secretary, treasurer, principal accounting and financial officer; Grant I. Gaeth is a director; and Jubal S. Terry is manager of exploration.

Laird is president of privately held E&P Natural Resource Group Inc.; Bates is founder of accounting firm Les Bates & Associates Inc.; Gaeth was a field geologist with The Carter Oil Co. and Humble Oil and Refining Co. (Exxon); and Terry was co-founder and vice president of American Rivers Oil Co. until it was acquired by Alliance Energy.

Avalon Oil and Gas Inc. Minneapolis-based Avalon Oil and Gas (OTCBB: AOGS) acquires prematurely abandoned oil and gas properties. The company is evaluating producing leases in southern Kansas, Oklahoma, Texas and Arkansas, and is interested in acquiring nonoperated working interests with workover and development opportunities. Its market cap is $15.7 million and it is debt-free. It entered the oil and gas business in September 2005.

Avalon recently acquired a 50% working interest in the J.C. Kelly well, on a 121.9-acre lease in Wood County, Texas, in addition to the E.A. Chance #1 and #2 wells, on a 40-acre lease in Camp County, Texas, and surface equipment from Krog Partners LLC. Management expects the J.C. Kelly will initially produce 10 barrels of oil daily, while the E.A. Chance #1 is producing five.

In July, Avalon bought a 25% working interest in the Lacey leasehold from C&M Exploration LLC, in Kingfisher County, Oklahoma. The leasehold has four potential reentry wellbores and two potential drilling locations (320 acres). The York #3 may contain probable reserves of 57,500 barrels of oil and 600,000 cubic feet of gas, while York #24-2 may hold 47,500 barrels of oil and 600,000 cubic feet of gas.

Avalon also holds nonoperated working interests in Starr, Wood, Camp, and Fayette counties, Texas, and Kingfisher County, Oklahoma. It's currently reviewing nonoperating working-interest investments in Texas, Oklahoma, Kansas and Arkansas. Its first leasehold acquisition was in Starr County in April, and Canyon Creek Oil & Gas Co. is its partner. Avalon holds a 50% working interest in the Boyle Field (267 acres) where eight drillsites have been identified. The field has produced more than 1.3 million barrels of oil and remaining reserves may total more than 1.3 million barrels and 242,900 cubic feet of gas. Avalon plans to drill 10 additional wells.

Management includes Kent Rodriguez, president and CEO, and directors Douglas Barton and Thad Kaplan. Rodriguez is a managing partner of Weyer Capital Partners, a Minneapolis-based venture-capital corporation; Barton owns consulting firm Venture Communications Inc.; and Kaplan is COO of Canyon Creek Oil and Gas, a subsidiary of Universal Property Development and Acquisition Corp., an independent oil and gas company.

William D. Anderson, Glen P. Harrod, Charles A. Crawford and Thomas Bugbee are on the advisory board. Anderson was executive vice president and COO for Wynn-Crosby Energy, senior vice president and partner with Netherland, Sewell & Associates, and supervisory reservoir engineer with Exxon and Exxon Production Research. Harrod was marketing manager for EnCana Oil & Gas Co. Crawford worked with Unit Petroleum Corp. and Helmerich & Payne, among others, as a geologic consultant. Bugbee was president of Bugbee, Anton and Associates, a senior manager at Ernst & Young and vice president at US Bank in Minneapolis.

Avalon plans to apply for a listing on the Amex during first-quarter 2007.

Baseline Oil and Gas Corp. San Antonio-based Baseline Oil and Gas (OTCBB: BOGA) was formed by Barrie Damson and Alan Gaines in 2005 to exploit three areas of mutual interest with El Paso Corp., Pogo Producing Co., Aurora Oil and Gas and Source Rock Energy in the New Albany Shale play in the Illinois Basin.

The company's total market capitalization is approximately $40 million and it has no debt. Its current acreage position consists of about 180,000 gross acres, 50,000 net. During the remainder of this year, Baseline plans to participate in the drilling of 10 to 12 wells. The management team is also committed to making a sizeable acquisition during this half.

In February, Irvine, California-based .C.K. Cooper & Co. arranged a $9-million private placement for Baseline that was almost 2.5 times oversubscribed. The E&P has a 50% interest in New Albany-Indiana LLC, which holds working interests in leases covering 101,000 acres in the New Albany Shale.

Management includes Barrie Damson, chairman and CEO; Alan Gaines, vice chairman and director; and Richard d'Abo, director. Damson was president of investment firm Damson Financial Resources Inc., and president and chairman of Bronco Oil Corp. and Delta Minerals Corp. He was also a director of the Independent Petroleum Association of America. Gaines is currently chairman and chief executive of Dune Energy Inc. Previously, he was a senior advisor to financier Carl Icahn. D'Abo is a transaction partner at The Yucaipa Cos., a Los Angeles-based private-equity firm.

Baseline plans to apply for listing on the Amex in 2007.

Comments