|Shares Out. (in M):||81||P/E||0.0x||0.0x|
|Market Cap (in $M):||130||P/FCF||0.0x||0.0x|
|Net Debt (in $M):||25||EBIT||0||0|
How would you like to invest in a U.S. based oil producer that sells for half of its proven reserves and for a fraction of its proven and probable reserves? With production estimated to double by year-end, the potential licensing of a valuable patented technology, and a potential U.S stock exchange listing, Nimin’s severe undervaluation should soon end.
Rehabbing Neglected Oil Wells in Wyoming
Nimin’s main asset is in four fields in the Big Horn Basin in Wyoming. The Big Horn Basin has produced oil since the early 1900s. The Basin has produced 1.4 billion barrels of oil, and is still producing 34,000 barrels a day.
Producing only 320 barrels a day, these fields were neglected when Nimin acquired them in 2009 for $27 million. Previous ownership had only drilled one well in 25 years. In 2010 alone, by drilling six wells and doing some service operations Nimin was able to boost production to 800 barrels a day. This year, Nimin plans to drill 18 wells. Six wells have already been drilled. This should boost production dramatically by year-end.
Patented Technology to Grab Oil in California
In Kern County, California, Nimin owns 640 acres of an asset called Pleito Creek, which has an estimated 35 million barrels of oil. But since its discovery in 1951, Pleito Creek has proven to be very difficult to get oil out of.
Nimin is working on applying its patented Combined Miscible Drive Technology (CMD), a proprietary thermal extraction technology, to this field. Pure oxygen and water are injected at high pressures (1500 psi), creating a combustion that then creates steam and carbon dioxide helping recover the oil.
The economics are such that the technology breaks even around 150 barrels a day, which is where Nimin’s production is right now. The company is building a facility at its field to be able to pump in more oxygen. At 300 barrels a day production, the company generates over $17 a barrel in profits. The company thinks that it may get to 500 barrels a day by year-end.
Their CMD technology may have huge value, but the stock is so cheap we don’t have to value it at all right now. But one day, Nimin could license this technology to other oil firms or acquire land on the cheap, knowing it could get oil out of it.
Production to Double By Year End
The combination of 18 new wells in Wyoming, 2 wells in California and pumping new oxygen in the California fields with its CMD technology should enable the company to see an explosion of growth in production in the third and fourth quarter of this year.
Investors were a bit disappointed that production fell from the fourth quarter’s production of 1,035 barrels a day to 982 barrels a day in the first quarter. The company had a liner problem in one well in California, which caused production to drop off. Also, winter prevented them from drilling in Wyoming. Now that the summer is upon us, drilling can continue in Wyoming. The liner problem is being fixed in California and the new oxygen facility is being completed. Production is poised to see a dramatic jump.
The second quarter’s numbers should be around 1000 barrels, but q3 and q4 will see big growth and the company should end the year around 2000 barrels a day. A doubling of production in six months is an impressive feat and I think will cause a revaluation in the stock.
Small Producer, But Huge Valuable Reserves
The main reason for its absurdly low valuation is that Nimin is producing very little compared to its reserve base. Consider that it has 17.4 MMBOE (Million barrels of oil equivalent) in proven reserves and 28.6 MMBOE proven and probable reserves. But the company is only producing around 1000 barrels of oil a day.
Nimin is actively working to drill new wells and to turn proven reserves into the more valuable “proven producing” category of reserves. The company estimates that they add $6 million in reserves every time they drill a well. That is $0.074 per share of value for every well.
The company’s net asset value (PV10 value) is $311 million in proven reserves and $515 million in proven and probable reserves. Nimin has $10.9 million in cash and $36 million in debt, or net debt of $25 million. With 81.3 million fully diluted shares outstanding, this means that Nimin’s NAV is $3.52 per share compared to its current share price of $1.62. And its proven and probable reserves are potentially worth $6 per share. Nimin is one of the cheapest oil companies in North America with very little exploration risk.
There Should Be a Premium on American Produced Oil
Management has learned the hard way of the importance of where you own resources. CEO Clancy Cottman and President Sven Hagen ran PetroFalcon in Canada, a very successful Canadian oil and exploration company that operated oil fields in Venezuela. Hugo Chavez, Venezuela’s socialist President, seized those oil fields and that disaster drove management on their next go-round to look for a safest geography they could find. You can’t get safer than the U.S.
This makes the Nimin valuation that much more compelling. Investors are taking zero geographical risk.
Like many small companies, very few investors know about Nimin. If Nimin can get over $2 per share, they will list on a U.S. exchange, which would be a big profile boost for the company. Further, doubling production will open eyes. And finally, proving out their CMD technology by year-end could cause a revaluation in the company. On its assets alone, Nimin is worth around $3.50 per share, and that is valuing the technology at zero. Nimin could double by year-end.