Scott Shaw, Energas Resources Inc., Oklahoma City
Energas Resources’ objective is to bolster shareholder value through increased reserves, production, and cash flow, and decreased finding, development, and lifting costs. The year 2005 marks a new direction for Energas, as our focus has switched from high-risk exploratory prospects to drilling for reserves that are predictable and cost effective.
Our history
Energas was incorporated in 1989 as a British Columbia corporation when George Shaw purchased controlling interest in the company. At that time, the company was operating four oil and gas wells in southeastern Oklahoma.
In 1991, the company went public under Shaw’s watch and began trading on the Vancouver Stock Exchange, now known as the Toronto Venture Exchange. At the time, this was the only venue to raise venture capital, which the company was in need of for continued growth and expansion. The company used these funds to drill exploratory wells and drilled approximately 15 wells with limited success.
One of the company’s early goals was to attain approval to trade in the larger US market, and in 2000 Energas Resources became a Delaware corporation. Three years later, the company received approval from the Securities and Exchange Commission to begin trading on the OTC Bulletin Board under its current symbol EGSR.
Drilling exploratory wells is a high-risk process with an often low success rate. For this reason, Energas has recently changed its focus to work on shallow, low-risk development projects. The company still owns and drills exploratory prospects, however it is careful to participate only on a carried interest basis.
Current projects
The company owns and operates a natural gas gathering system located in Oklahoma, which serves the wells operated by the company for delivery to a mainline transmission system. It principally operates gas wells in the Arkoma basin in Oklahoma, the Powder River basin in Wyoming, and the Appalachian basin of eastern Kentucky.
Drilling rig in Pulaski County, Kentucky. Energas acquired these low-risk development properties in 2003. Photo courtesy of Energas Resources
In Oklahoma, Energas has an interest in three wells that produce approximately 75 Mcfd of natural gas to the company. The company will net approximately $17,000 per month at today’s prices.
In Wyoming, Energas has an interest in two wells that produce approximately 25 bo/d. The company owns a 35 percent interest, which generates approximately $12,000 per month revenue at today’s prices.
In 2003, Energas acquired natural gas properties in Kentucky that fit the company’s new strategy of low-risk development projects. This acquisition included Pulaski County field, Whitely County field, and as of late 2004, the Parkway Project.
Total production from the 59 wells in the Pulaski County field is currently at 435 Mcfd of natural gas. At current prices, this generates revenues of approximately $137,000 per month for Energas after royalties. Additionally, there are about 150 more locations to drill in this field.
In the Whitley County field in Kentucky, Energas deepened a well and discovered production of 50 Mcfd of natural gas from a zone 400 feet deeper, which brings the total field production up to 75 Mcfd of natural gas.
If it holds up, the company will see the monthly revenue from this well increase to approximately $23,000 per month. Management estimates that it will cost $50,000 to deepen the other three wells in the field and conservatively believes this will increase Whitley County production to approximately $50,000 per month after royalties.
Energas recently acquired the Parkway Project, a prospect that covers about 6,000 acres, has 18 wells, and contains roughly 60 locations for drilling development. The company is planning to build a 3.7-mile steel pipeline this fall to connect this project to a natural gas sales transmission line. From the initial production tests on the first few wells, we expect this project to quickly become the company’s crown jewel.
Additionally, the Rock Creek Prospect in Kansas covers around 2,750 acres and is located next to the Stohrville field, which has produced over 11 bcf of natural gas and over one million barrels of oil. Energas owns a 13.7 percent net revenue interest in the prospect.
The first well, the Carothers #1, has continued to produce an average of over 500 Mcf/d over the last 12 months. The Carothers #2 has averaged about 20 bbl of oil per day and 30 Mcfd of gas. The third well drilled was nonproductive and thus never completed. The Boomer Gates, the fourth well, is currently undergoing completion, and Energas is now drilling a fifth well in this field. From this prospect, the company nets about $20,000 per month at today’s prices.
Natural gas as an investment
Not only is natural gas used for heating and to generate electricity, it also accounts for about 60 percent of the value of chemicals made here, according to the American Chemistry Council. Natural gas is both the main fuel and the main raw material for the chemical industry. It is the starting point for the basic chemicals from which the fibers and compounds in shirts, eyeglasses, plastic bottles, and even the wrappers for single-serve soups are derived, as mentioned in a recent New York Times article.
The nation’s consumption of natural gas will increase by more than 40 percent between now and 2025, according to the US Energy Information Administration.
Natural gas prices continue to be on the rise since 2001. Unfortunately, Mother Nature has disrupted the nation’s gas supply the past few years with increased hurricane activity in the Gulf of Mexico, which has resulted in loss of production due to production shut-ins and pipeline interruptions.
With the most recent hurricanes, Katrina and Rita, striking the Gulf Coast, a key natural gas producing hub for the US, the result will most likely be higher consumer costs for the nation’s upcoming winter. The company’s management regrets the tragedy these storms left behind, but we are optimistic that the higher prices will only fuel companies like Energas, which are producing in areas not affected by the hurricanes, to aid in supporting our economy.
In order to obtain the company’s goal of bolstering shareholder value through increased reserves, production, and cash flow, Energas is working at building awareness and support through a well-developed financial relations program. Through this program, the message of the company’s technical value and investment benefits will be conveyed to new and existing shareholders by using various forms of media, news releases, and meetings with analysts, portfolio managers, brokers, and special situation investors.
Natural gas prices have risen sharply in recent years due to the strong growth in demand. New natural gas supplies are needed to continue to feed that demand. Energas is committed to help meet that demand by expanding the company’s resources, which will in turn service a portion of what is needed to continue to heat our homes and create products we all use on a daily basis. This will all come full circle through our investor relations program as we increase reserves, production, and cash flow, and as a result, shareholder value. OGFJ
Scott Shaw [sshaw@energas
resources.com] serves as executive vice president and as a director of Energas Resources. He is responsible for all aspects of the company’s investor relations policies, objectives, initiatives, operations, and finance. Shaw has been with the company for 12 years and is a graduate of Oklahoma State University in Stillwater.
