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Torchlight Energy Resources Inc (NASDAQ: TRCH) Is Today's Energy Focus

Torchlight Energy Resources Inc (NASDAQ: TRCH) Is Today's Energy Focus
Written by
Jarrod Wesson
Published on
April 25, 2017
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Torchlight Energy Resources, Inc. (Nasdaq: TRCH), the oil and gas exploration and production company with interests in Permian Basin and the Eagle Ford Shale in Texas, has delivered interesting returns to the investors recently. They can be explained by the recent receipt of money from debt holders and the data obtained in the Flying B Ranch #2 vertical well in the Lower Wolfcamp A and Upper Wolfcamp B sections. In this article, we will explain why these new developments are making traders excited. In a quick slide, this is the company that you are about to discover:SourceMoreover, this is the recent price move.SourceBusiness and AssetsTorchlight Energy Resources, Inc. was incorporated in Nevada in October 2007. It was initially called Pole Perfect Studios, Inc., but after a share exchange agreement with Torchlight Energy, Inc. in February 8, 2011, the company obtained a new name and also a new ticker. The change was necessary as the company was engaged in a new business activity, which is the acquisition, exploration, and exploitation of oil and gas properties in the United States. Resultantly, this became the sole business.The following is a timeline slide that resumes very well the acquisitions and the financing obtained by the company. The most important milestones were, in our opinion, the acquisition of 168,000 acres in September, 2014 and $50 million letter of intent signed in September, 2015. Have a look:The company owns interest in three oil and gas projects:

  • The Orogrande Project in Hudspeth County, Texas (100% working interest): On August 7, 2014, the company signed a Purchase Agreement with Hudspeth Oil Corporation. The company owns interest in an area of 172,000 mostly contiguous acres.
  • Hazel Project in Sterling, Tom Green, and Irion Counties, Texas: On April 1, 2016, Torchlight Energy Inc. acquired 66.66% working interest in approximately 12,000 acres in the Midland Basin from McCabe Petroleum Corporation. The development of this area was responsible for the recent jump in the share price and other investors seem to have made money even before. The holders of the Company's Series C Preferred shares elected to increase the working interest in the project, obtaining 33% more some months before the company announced the good results obtained from the drilling. Yes, my friend, professional investors in this field can usually smell a good project. The drilling activities commenced on December 27, 2016.
  • The Hunton wells in partnership with Husky Ventures in Central Oklahoma: These are the fields that are producing revenues since December 31, 2016. The total interest owned by the company is 8,800 total acres in Viking AMI, 5,000 acres in the Rosedale AMI, and 4,300 acres in the Thunderbird AMI.

Obviously, what we went rapidly to look for was the amount of reserves owned, the estimated net proved oil and natural gas reserves, and the estimated present value (discounted at an annual rate of 10%) of estimated future net revenues before future income taxes. The company uses the PV-10, which is the way we can compare assets of different companies in different countries. Have a look at this document if you want to know more.10-kThe proved reserves are about 130,017 barrels of oil equivalent. That is a little amount of barrels, since the company only accounted a single producing well in Oklahoma – the Judy well in the Prairie Grove AMI. We need to wait until the company can make more assumptions about the future wells that are being operated at the moment. However, the present value discounted at 10% of the total proved reserves is close to $330 million. The total value that traders give to this company is, at the moment, $91 million, which consists of a market capitalization of $83 and less than $12 of debt. We will let investors make their own conclusion about these figures.StrategyThe key in the business of Torchlight is that the company is able to identify low risk projects at attractive entry prices. How do they do it? Very easy; they have very experienced personnel. They have extensive operating experience in Texas, know the market very well, and are able to identify an opportunity in the area. We checked the Board of Directors and found that the directors are old timers in the oil business coming from families operating in the sector for at least a century. We believe that in a mature business such as the oil and gas industry, the investors need to make investments with these type of companies as the oil fields in Texas are already very well researched.Recent DevelopmentsOn April 24, 2017 the company announced that it had "successfully tested the Flying B Ranch #2 vertical well in the Lower Wolfcamp A and Upper Wolfcamp B sections". The test obtained an approximate of 20 barrels of oil per day with associated gas, which has yet to be measured. In addition, it was communicated that the company will soon start the tests of Leonard interval and frac it to prove up a third horizontal bench. We believe that this final part of the process will be great catalyst if everything works well. Additionally, on April 17, 2017, the market got to know that the the company had received $8 million in unsecured 12% promissory notes through a private placement. John Brda, Torchlight Energy's CEO, stated the following about the announcement:

"This test validates our theory that commercial production of oil and gas from horizontal development in multiple stacked pay zones across different areas of our lease is achievable. As we approach the Leonard we are hopeful to prove up the potential of a third bench in our Hazel project, which will add significant value to the acreage. " Source

ConclusionTorchlight Energy seems to be receiving good news from the steps the company has taken over the last three years. Many months of exploratory research, acquisitions and negotiations and oil production development are now bearing fruit. Is there hidden value still in Torchlight Energy? We believe so. The company has many other projects still under evaluation, and it is believed that the well test results will be delivered soon. If they are positive such as it happened this time, the share price will jump again. Thus, we encourage investors to stay on top of the latest developments. We will be updating our subscribers as soon as we know more. For the latest updates on TRCH, sign up below!Disclosure: We have no position in TRCH and have not been compensated for this article.

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