When we invest in junior oil and gas companies, we are really placing a bet on the company’s ability to grow.
Why? Because growth is a primary factor driving price appreciation in a micro-cap stock. A company actively adding to its recoverable resource and ramping-up production is far more likely to appreciate than one enjoying afternoon tea on the sidelines. This brings me to Dune Energy Inc.
Back in October of 2006 (see report here) I first looked at buying Dune Energy (DNE) because its management embodied certain intangibles a junior producer needs to succeed.
One is competency: competency in drill-targeting, competency in drill-management and competency in budget-control. These are all required if a junior oil and gas explorer is going to be successful.
The other intangible is an unwavering desire to grow the company into a mid-tier producer. Unfortunately, this is one trait a management team often claims but rarely demonstrates. Dune, however, is different.
Alan Gaines and his boys do more than just talk the talk. Over the past year Gaines and co. engaged in a series of acquisitions and drilling programs which led to a dramatic increase in Dune’s production and reserves.
Of the acquisitions, the most notable was the takeover of Goldking Energy Corporation. This transaction alone increased Dune’s proved reserve base by 112.4Bcfe and added 136 producing wells to its repertoire.
More recently (on August 7, 2007), Dune entered into a series of “drill-to-earn” agreements with the potential of increasing its gross acreage position in the Fort Worth Basin Barnett Shale by 5,000 acres.
Management estimates the lands contain approximately 100 drill targets, enough to provide plenty of work for years to come. And to help exploit the new bounty, Dune is in the process of bringing in a second rig to the Barnett Shale district (the company already has one rig dedicated to the area).
Dune hopes to ramp up production to 55Mmcfe/d by year end through aggressive exploration on the new acreage and by tapping its existing drill-target inventory. If they reach their goal, it will amount to 74% increase over the company’s current production values of 31.6Mmcfe/d and represent more than a 340% increase in production levels since last October.
Why then is Dune’s stock hovering around the same price it was almost a year ago? Is it a sign of trouble? I don’t think so.
A lot of fresh shares hit the market in the Goldking acquisition and it takes time for the market to digest all of it. Furthermore, consolidated production numbers were not known until just recently.
Now that we know where “the new Dune” stands and where it is headed, I suggest you take a good, hard look at DNE if you’re portfolio is in need of some natural gas exposure.
Why? Because growth is a primary factor driving price appreciation in a micro-cap stock. A company actively adding to its recoverable resource and ramping-up production is far more likely to appreciate than one enjoying afternoon tea on the sidelines. This brings me to Dune Energy Inc.
Back in October of 2006 (see report here) I first looked at buying Dune Energy (DNE) because its management embodied certain intangibles a junior producer needs to succeed.
One is competency: competency in drill-targeting, competency in drill-management and competency in budget-control. These are all required if a junior oil and gas explorer is going to be successful.
The other intangible is an unwavering desire to grow the company into a mid-tier producer. Unfortunately, this is one trait a management team often claims but rarely demonstrates. Dune, however, is different.
Alan Gaines and his boys do more than just talk the talk. Over the past year Gaines and co. engaged in a series of acquisitions and drilling programs which led to a dramatic increase in Dune’s production and reserves.
Of the acquisitions, the most notable was the takeover of Goldking Energy Corporation. This transaction alone increased Dune’s proved reserve base by 112.4Bcfe and added 136 producing wells to its repertoire.
More recently (on August 7, 2007), Dune entered into a series of “drill-to-earn” agreements with the potential of increasing its gross acreage position in the Fort Worth Basin Barnett Shale by 5,000 acres.
Management estimates the lands contain approximately 100 drill targets, enough to provide plenty of work for years to come. And to help exploit the new bounty, Dune is in the process of bringing in a second rig to the Barnett Shale district (the company already has one rig dedicated to the area).
Dune hopes to ramp up production to 55Mmcfe/d by year end through aggressive exploration on the new acreage and by tapping its existing drill-target inventory. If they reach their goal, it will amount to 74% increase over the company’s current production values of 31.6Mmcfe/d and represent more than a 340% increase in production levels since last October.
Why then is Dune’s stock hovering around the same price it was almost a year ago? Is it a sign of trouble? I don’t think so.
A lot of fresh shares hit the market in the Goldking acquisition and it takes time for the market to digest all of it. Furthermore, consolidated production numbers were not known until just recently.
Now that we know where “the new Dune” stands and where it is headed, I suggest you take a good, hard look at DNE if you’re portfolio is in need of some natural gas exposure.
Via: SeekingAlpha
by Colin McCabe
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