Although oil prices have come off its highs of the year, the commodity is trading at a much higher price when compared to last year and we consider this to be a bullish indicator for the oil and gas sector.
After oil prices pulled back, we started to analyze junior oil and gas companies to better understand the businesses that would benefit from higher oil prices. One of the operators we became aware of is Permex Petroleum Corporation (CSE: OIL) (OTCQB: OILCF) (FSE: 75P) which owns assets and operations across the Permian Basin of West Texas and the Delaware Sub-Basin of New Mexico.
A few weeks ago, the junior oil and gas company reported results from five recently re-completed oil and gas wells located in Eddy County, New Mexico and in Martin County, Texas. The re-completions were successful and came online at a combined initial production rate of 50 barrels of oil equivalent per day (BOEPD).
Based on data from Permex Petroleum, production from the five re-completed oil and gas wells stabilized at 35 BOEPD (increased the company’s total production to 71 BOEPD). The management team plans to have the results published within 30 days and will incorporate the findings for enhanced oil recovery.
A trait that we find to be unique for Permex Petroleum is its focus on combining its low-cost development of held by production assets for sustainable growth with its current and future projects to scale growth. We believe the management team is executing on a multi-faceted growth strategy and are favorable on the location of the assets it owns.
Permex Petroleum owns a portfolio of strategically located assets and maintains operations in some of the most prolific oil basins in the United States (US). At current levels, we find the valuation of the business to be compelling and believe the location of the assets de-risks the business. Over the next year, we expect the company to report important data points from the oil and gas wells it owns and consider these to be potential event driven catalysts.
While oil prices were in a down-cycle, Permex Petroleum was focused on acquiring strategically located assets. According to the company’s corporate deck, it paid approx. $2,000 per acre in a region where land is as expensive as $65,000 per acre (pricing will vary depending on the location of the property and number of benches/formations owned by operators under the lease) and we find this to be significant.
By executing on horizontal leg conversions and lateral drilling programs, Permex expects to scale the business and we are favorable on its low-cost strategy for infilling. We believe the management team’s low cost growth strategy has substantial upside potential and find the risk-reward profile to be favorable at current levels.
Currently, Permex Petroleum owns more than 75 oil and gas wells in high-profile US oil basins and more than 11,000 net acres of held for production property in Texas and New Mexico. The company also owns a royalty interest in more than 70 Proved Developed Producing (PDP) oil and gas wells and we consider this to be an undervalued aspect of the story.
Permex Petroleum is executing on an organic and inorganic growth strategy and has completed several strategic bolt-on acquisitions since 2020. We believe the company is in the early innings of a major growth cycle and want our readers to be aware of the opportunity.