Jericho Oil For Better or Worse
Most oil companies are one-way bets on the price of oil. When the price is better, they go up. When the price is worse, they go down. For the last couple of years we have worked with a company that gets better as prices go higher and it gets better when prices go lower.
The guy running the company seems to understand what few people get. Prices of everything go up and they go down. That may sound stupid but management of most juniors and virtually all investors in the penny dreadfuls usually make one-way bets and the only way the company ever gets more valuable is if the price of the commodity they deal in gets better. That’s dumb. Prices always fluctuate and may go through several cycles before a mine goes into production or a petroleum play gets fully drilled.
I explained all this in a piece I wrote about Jericho Oil (JCO-V) in March of 2017. President Allen Wilson stated his plan clearly. When oil prices were in decline, Jericho Oil would pick up the low hanging fruit from underfinanced operators and advance them. As the price of oil has gone up, Jericho has put together a large land package and is preparing to drill for more oil. Realizing the up and down nature of the last few years for oil, Jericho has hedged 80% of their production through Q3 of 2018 so they survive no matter what happens to price.
The company scored a coup in late August when they announced an agreement where they would acquire up to 31% of a 9400 net surface acres package in the heart of the Anadarko Basin STACK formation in central Oklahoma. They are paying $9 million in acquisition and development costs for their piece. That deal implies a sunk cost of about $2300 per acre while later deals are being done as high as $17,000 an acre.
Most investors, including myself, are not that familiar with the STACK shale play. The Motley Fool did an excellent article on STACK in mid-December. You should read the article because the STACK play is the next big thing in shale.
The 9400-acre package in the STACK would allow for up to 160 drill locations. Potential investors should examine closely the latest presentation of Jericho. On slide 12 it provides the results of three other public companies who have drilled in the STACK formation. Well costs were about $4 million for each of the companies. BOEPD varied from 725-749 and the IRR varied from 65% to an incredible 74%. Jericho and their partner are right in the center of that STACK play.
The Permian basin got both popular and expensive at the same time. STACK is a cheaper alternative with excellent potential. Jericho is well positioned with excellent management and some of the strongest investors in energy. Their business plan works and will continue to work for the future. I believe 2018 will be a major move forward for Jericho as they begin to drill their STACK wells.
Jericho is an advertiser. I have participated in private placements in the past and own both shares and warrants. Naturally that makes me biased. Do your own due diligence.
Jericho Oil Corporation