"In a good spot" - Resource Clips on May 9th, 2012

http://resourceclips.com/2012/05/09/in-a-good-spot/

With no end in sight to uneconomical natural gas prices, Canadian energy companies strive ceaselessly to improve their oil-to-gas production ratios. This has led to a surge of drilling in such oil-rich formations as the Cardium, Viking and Bakken. Of course it is always easier for majors and intermediates to simply buy juniors with good ratios.

One junior close to being almost entirely oil-based is Aroway Energy (ARW:CA). With most of its operations based within northeast Alberta’s Peace River Arch, Aroway recently surpassed its 2011 exit production target of 600 barrels of oil equivalent per day (boe/d) by over 10% (to 670 boe/d).

The company’s 2011 performance was rewarded by being named to the TSX Venture 50, with Aroway ranked fifth among the 260 junior energy companies on the index. “We’re 100% oil-focused, and now it looks like 95% of our production will be oil,” says Christopher Cooper, Aroway‘s President/CEO. “Because there are a lot of larger gas producers in our area, it makes us a bit of an attractive target. Some of those gas-weighted companies aren’t making money on the gas, so they’re going to be looking for oil acquisitions.”

In the meantime, Aroway will continue to grow organically through the drill bit. On deck are nine to 10 more wells to be drilled before the end of summer, with a 2012 net exit production target of 1200 boe/d.

The company has all the cash it needs for exploration. “The last financing we did was in December 2010, and we haven’t had to do one since,” Cooper reports. “With our current cash flow and our bank line, which hasn’t been drawn on, we have no debt; we are fully funded through 2012.”

Beyond this drill program, there is room for regional expansion. Aroway started 2011 with 40 sections of land in the region. It now has 121 sections, all contiguous. All wells to date have been vertical, most of them targeting the Leduc zone, which is around 2,200 metres deep. There are also targets within the Triassic zone at 1,500 metres, as well as three to four shallower zones, all of which Aroway and its (private) joint venture partner insist are oil bearing. So far, these wells have been simple and inexpensive, requiring little to no fracking or horizontal drilling.

“We have a really big prospect list of new wells that can be drilled, which is another thing that a lot of companies like to see, if they’re going to buy it,” Cooper says. “They want to make sure there is still meat on the bone and a lot of drilling they can do.”

When speculating which companies could be interested in Aroway, one must first consider its closest neighbours. These possibles would not only want to increase their oil production but also their land holdings, which aren’t getting any cheaper to acquire. Aroway bought its land base at prices of $100 to $150 per hectare, whereas companies now face prices of $800 to $900 per hectare and more.

Potential suitors Birchcliff Energy (BIR:CA) Canadian Natural Resources (NYSE:CNQ), Crescent Point Energy (CPG:CA), Shell Canada (NYSE:RDS.A) and the Abu Dhabi National Energy Company “TAQA North” are all nearby. Birchcliff, with just over 21% of its production coming from oil, goes to the top of the list because it continues to suffer from low natural gas prices, and its market cap has fallen below $1 billion.

“I’m not going to comment on whether Birchcliff is going to acquire us, but they are a big company in our area,” Cooper says. “Thankfully, there are a lot of big, big players pretty much surrounding our land base. So we’re in a really good spot.”

At press time, Aroway had 54.3 million shares trading at
.65, for a market cap of $35.3 million.