The oil market continues to be resilient.
Prices are holding above the key $60 level in the US WTI Crude market, which reflects continued fears about the future potential of a shortage after economic activity, particularly travel, picks up as major OECD economies “reopen” following a sufficient distribution of effective Covid-19 vaccines.
The rush to travel and see long-lost loved ones is thought to be monumental in terms of a potential demand factor for energy markets, with crude oil at the front of the pack.
A Sticky Situation
This will follow one of the periods of lowest new investment in future production capacity of any year over the past half century.
That fact is driven by two big spurs: the pandemic and the trauma of printing negative-forty-dollars-per-barrel just about one year ago, and the powerful acceleration in the public’s enthusiasm about electric vehicles.
In other words, both the short-term and long-term prognoses were simultaneously undermined, making it hard for oil explorers and drillers to develop new sources of supply over the past year. As a result, we are heading into a period of unprecedented second-derivative demand acceleration with unprecedented underinvestment in new supply.
The result could be a spike in the price of oil and the very sudden appreciation of companies with models best-fit for just such a scenario, with a beta advantage for smaller cap oil and gas players such as Range Resources Corp. (NYSE:RRC), Callon Petroleum Company (NYSE:CPE), SM Energy Co (NYSE:SM), and Patterson-UTI Energy, Inc. (NASDAQ:PTEN).
One interesting slightly more speculative opportunity could be Allied Energy (OTCMKTS:AGYP), a smaller play in the space with an interesting angle on providing value that could multiply as the price of oil rises.
The company specializes in the business of reworking and re-completing existing oil and gas wells located in the thousands of mature oil and gas producing fields across the United States, with the objective of mobilizing its expertise and technology to drive higher production volumes, longer well life, and more efficient recovery of proven and available oil and gas reserves in acquired wells.
The Evolution of the Industry and AGYP
It takes about three years to truly develop a new oil find. If we are cruising for a shortage over the next 18-24 months based on underdevelopment of new resources a year ago, then new models of ramping production will be in play.
Allied Energy (OTCMKTS:AGYP) is interesting because it provides a different path to increased production and one that carries messaging far more likely to appeal to the climate change agenda than traditional producers.
The company most recently announced that it signed the final agreement contract with Energy Management Resources, LLC and has acquired an 80% stake in an initial two northern Texas oil wells identified as the “Palo Pinto #1” and “Palo Pinto #2” wells. Allied Energy’s land position will allow the company to develop up to ten additional wells in the surrounding Baylor County Texas area known locally as the “Green Lease.”
Allied CEO George Montieth elaborated on the acquisition: “With this Palo Pinto acquisition and with Curtis recently joining our team as Oil Operations Manager, real oil production for Allied is now only a few short weeks away. The Company’s goal before summer is to have multiple wells at two different lease locations producing daily, with more new wells coming online throughout 2021. Allied has two important things going for it now that it has never enjoyed before: 1) Strategic funding of acquisitions, in a shareholder-friendly way, is being done with the long-term success of the Company in mind and 2) Rising oil prices that make re-completing formerly producing wells with 21st century technology highly lucrative. We are in the right industry sector at the right time and now we have the working capital to take advantage of this surging oil market while putting our years of expertise to good use. Based on the leases we now hold and others we plan to acquire I believe that Allied will strongly position itself as an oil producer within this market sector.”
According to its release, Allied is pleased to inform its valued shareholders that this acquisition was completed through a non-dilutive, all-cash purchase and immediately adds significant value to Allied’s bottom line as a new asset on the books.
Based on formal due diligence completed by Ardent Oil and Gas Consultants (http://ardentoil.com) the estimated ultimate recovery of the two Palo Pinto wells is approximately 113,000 barrels of oil or about $6.7 million dollars assuming a price of $60 per barrel for crude oil.
This represents one of several applied examples of AGYP’s model set to potentially come to market through the business of reworking and re-completing existing oil and gas wells located in the thousands of mature oil and gas producing fields across the United States, with the objective of mobilizing its expertise and technology to drive higher production volumes, longer well life, and more efficient recovery of proven and available oil and gas reserves in acquired wells.
This strategy is potentially particularly potent in an environment where oil prices are rising and well above recent longer-term expected levels, without regulatory interference, including OPEC+, and where the development of new sources of supply have been strikingly absent.