Jericho Oil Corp (JCO.V) recently released its “Management Discussion and Analysis (MD&A)” For Q1 2016 and there are some encouraging details in the report:
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In Q1 2016, despite an average spot Oklahoma Sweet Crude oil price of just ~$30 as well as other absorbed costs, including the building of its operational and administrative infrastructure in Tulsa, Jericho Oil’s Oklahoma acquisitions (joint ventures with its private partner) achieved a net cash positive result.
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Jericho’s 25% working interest in the 30,000 acre PostRock asset (noted as Buckmanville in the financials), acquired in Dec. 2015 for USD$3.26mm, is valued at C$7.84mm as at March 31, 2016.
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Jericho entered into an interesting hedge structure hedging roughly 25% of its current production at $45/barrel for the remainder of 2016 while giving its counterparty the option to lock in $45/barrel for 3,500 barrels per month of production in 2017:
“Post quarter-end oil prices have increased and Jericho Buckmanville engaged in a series of fixed for variable hedging transactions. The Joint Venture sold 4,500 barrels of crude per month for May 2016 to December 2016 at $45.00 per barrel. It also entered into a Calendar 2017 call option at $45.00. The call option includes a one-day option for the hedge provider on December 29, 2016 to elect to purchase 3,500 barrels a month for 2017 at $45.00 a barrel.”
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Jericho succinctly outlined its acquisition strategy and criteria:
“A key going forward acquisition consideration is having the ability to operate asset(s) at a break-even level of at least $40 WTI (West Texas Intermediate) pricing within approximately six months of acquisition. In our experience, market conditions are extremely hard to predict. The most prudent strategy is to manage for a longer-term lower price environment allowing our shareholders to be surprised only to the upside. We anticipate acquisition opportunities in the current environment to be plentiful but will remain conservative and prudent in evaluating and pricing opportunities.”
Jericho’s MD&A confirms much of what we already knew which is that the company has managed to execute effectively despite an overall challenging environment in the oil sector. Moreover Jericho continues to follow a disciplined and strategic acquisition strategy focused on the mid-continent region of the U.S. (namely Oklahoma). We will be looking forward to more news flow from Jericho during the summer and seeing the company continue to close accretive acquisitions while optimizing its existing assets in a highly cost effective manner.
Jericho Oil Corp. MD&A Q1 2016
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