Description

Fieldpoint Petroleum is an unhedged, U.S.-based oil and natural gas play which is undervalued, poised for an improved listing, and essentially gives investors significant exposure to one of the sector's most promising natural gas prospects "for free."

FPPC has shown impressive EPS growth over the last year. The company earned .07 in 2004 and should earn at least .15 in 2005, for a year-over-year growth rate of more than 100%. The company earned a record .04 in Q2 this year (getting only about $45 for their oil and $5 for their natural gas, far below what they should receive going forward given current commodity prices and the fact that they are unhedged) and I expect their baseline run rate going forward to be at least .04 per quarter (quite possibly higher), just on the strength of current production. In addition, the company is currently drilling a promising well in New Mexico which, if successful, would further increase the company's production and EPS.

FPPC has the most impressive reserves in its peer group, and its reserves are primarily high quality light sweet oil. As of December 31, 2004, it had proven producing reserves of 880,991 barrels of oil and 1,413,232 million cubic feet of gas (this is equivalent to roughly 1.1 Million BOE of proven producing reserves). Those reserves would be expected to last for over 14 years based on last quarter's run rate. For context, microcap peers BSIC and PYOL have reserve run rates of 9 years and 5.8 years, respectively.

FPPC is a very well managed company. The company's CEO Ray Reaves has never diluted shareholders, takes a reasonable salary, and has been a buyer of FPPC stock on the open market in quantities significant in relation to his salary (despite being the company's largest shareholder, by far). Reaves own 37% of the company himself and FPPC insiders collectively own roughly 53% of the company's o/s.

FPPC also has a pristine balance sheet, with no net debt after backing out cash.


PALO DURO BASIN PROPERTY


The company currently holds 3325 net acres in the Palo Duro Basin ("PDB"), which (according to geologists and analysts close to the story) shares many geologic characteristics with the Barnett shale in the Fort Worth Basin, a multi trillion cubic foot natural gas discovery and the largest producing gas field in the state of Texas.

The Barnett field averages 640 BCF of recoverable gas per square mile (640 feet) and total recoverable reserves are estimated to be 25 TCF+. Successful wells drilled in this region have been long lived, estimated at 20-30 years. Most importantly, drilling in the Barnett region has produced very high success rates (close to 100%).

Management believes that the company's 3325 net acres is enough for a 20 to 30 well drilling program, which could have a considerable, incremental effect on reserves, production and earnings. In fact, just one well coming in at 1500 MCFPD (which management believes is a reasonable expectation, based on the above metrics) would double the company's total net production.

Based on Barnett shale-like reserves of 150 gross BCF per square mile, and assuming a 10% recovery rate and 20% royalty structure, FPPC's 3325 net acreage could potentially yield as much as 60 BCF in new reserves. The current market value of these reserves would be at least $120 million.....versus FPPC's market cap of about $24 million.

Assuming production of 1500 MCFPD and a selling price of just $5 MCF (an extremely conservative projection in the current pricing environment) each successful PDB well's annual production would add about .05 to the company's annual earnings.

The company is in the process of permitting their new Palo Duro Basin property for an upcoming internally funded drilling campaign. They have recently announced their intention to begin drilling their PDB properties by Q2 2006, though I believe that this drilling campaign could kick off sooner than that, subject to favorable results by other operators in the area and rig availability.

FPPC is the only public microcap company with holdings in the PBD that has positive earnings TTM. FPPC investors get a company that is reasonably valued based on current production, while also getting exposure to the extraordinarily promising PD prospect "for free".

Catalyst

CEO Reaves has made it very clear that the company would like to secure an AMEX listing as soon as possible. The company has long qualified for an AMEX listing in every respect except that the stock price hasn't consistently exceeded $3. I believe that FPPC is likely to secure an AMEX listing after the stock closes at or above $3 consistently for roughly 2 weeks (as of this writing, the stock has closed at or above $3 for 5 consecutive sessions).

I expect an Amex listing to significantly increase the company's level of exposure, resulting in an increased stock price.