Allied Energy (OTCMKTS:AGYP) is a small-cap player in the energy space, but the company has an interesting angle on the production model that may prove to put the stock in the spotlight over coming weeks and months as the world begins to grapple with the potential for an oil shortage and the specter of sharply rising oil and gasoline prices later this year.
First off, according to Bloomberg and Reuters, just a year after cutting production to an unprecedented extent in response to the onset of the pandemic, the OPEC+ alliance has come out this week with its belief that world oil markets will get acutely tight later this year.
According to communications, the coalition, led by Saudi Arabia and Russia, notes that the oil glut is just about gone and global oil inventories are likely to be gobbled up in a hurry as the world reopens and everyone decides at the same time that its time to go visit the folks or friends across the country or take that big trip to Australia, etc.
At the same time, major producers are cutting back production because oil is wildly politically unpopular at present and crashes, such as the one we saw last year, tend to leave lasting traumas. In short, it’s tough to get anyone on board for major new investments in new oil supply.
Boycott
For more examples of where things are heading, consider that, just last week, a Dutch judge to ordered Shell to cut carbon emissions by 45% by the end of the decade. There are more cases like this pending against oil companies, which is sure to pave the way for long-term upward pressure on oil pricing as companies cut back on exploration and production (E&P).
To add to the story, Chevron recently announced in its investor day that it will make last year’s 25% haircut on E&P investments permanent for at least the next five years.
Perhaps you’re thinking Exxon will pick up Shell’s and Chevron’s slack? Think again. Exxon just saw several board seats go to an environmental activist fund that plans to steer the company away from developing new oil supply.
And yet the price of Crude oil just closed on Tuesday at a 2-year high near $70/bbl.
Commodity markets work through the balancing forces of supply and demand. If supply runs short, the price must rise to draw in new investments in production, thus creating more supply, and driving prices back down. Etc.
But, given recent trends, where is that new supply going to come from? Allied Energy (OTCMKTS:AGYP) has an interesting answer.
The Sweet Spot
AGYP is making strong strides toward a new way of potentially rapidly expanding production at a time when the broad supply/demand picture for oil is skewed toward tightness and rising pricing.
Broadly speaking, 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 major advantage of a company that specializes in this niche is about timeframe – it takes as much as 2-3 years to develop a new oil strike and start brining supply to market. Reworking existing wells is a much faster way of “finding” fresh supplies of oil.
As the market responds to supply shortage concerns by propping prices higher, AGYP may be one of the few companies positioned to capitalize on the trend ahead.
Expansion
To advance that narrative, Allied Energy (OTCMKTS:AGYP) recently announced that it has leased 300 acres containing five additional oil wells in Crystal Falls, Texas identified as part of the Annie Gilmer Lease.
According to its release, the Annie Gilmer lease is in the small community of Crystal Falls, Texas on the banks of the Clear Fork of the Brazos river, approximately thirty miles north of the town of Breckenridge, Texas. There a total of five wells drilled on the lease, that is approximately 300 acres. There are five wells on the lease that were drilled to the Mississippi formation that is encountered at approximately 4100′ below the surface of the earth. The Mississippi formation, when caught on good geologic structure can produce prolific oil and gas cumulative numbers. There were six wells drilled on the lease starting in the mid 70’s with the last being drilled in 1989. Since the initial well, the lease has produced over five hundred thousand (5000,000) barrels of high gravity oil and over five hundred million (500,000,000) cubic feet of very rich natural gas. There are two permitted saltwater injection well on the lease. One of the injection wells will be re-converted to an active oil and gas producer.
Allied CEO George Montieth elaborated on the acquisition: “We are thrilled to add the Annie Gilmer Lease wells to our ever-expanding portfolio of Texas oil wells. Allied currently has a crew on the ground this week at this new location and expects to release flow rates, videos and other pertinent data shortly. Investors can also expect updates about our Green Lease location as the workover rig is now just waiting on weather to move onto the lease.”
We should also point out that the acquisition was non-dilutive, according to the company: “Allied is pleased to inform our shareholders that this acquisition, just like the Green Lease 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.”
This is also not some far-off conceptual project. The wells are capable of flowing now.
It may also be the case that the company will end up with more than it bargained for: According to drilling logs, the leased property also contains potential oil and gas reserves in the Caddo formation at a depth of approximately 3250′ below the surface of the earth. The Caddo formation has never been produced on the lease, however, there have been many Caddo wells completed immediately surrounding the Annie Gilmer lease. The Caddo formation will be examined closely to determine the potential for virgin oil and gas reserves.
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