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UPDA: Junior Integrated Oil & Gas Firm With Stellar Revenue Growth
New report issued on a rapidly growing energy company which is targeting underdeveloped resources within the United States.
Universal Property Development and Acquisition Rated ‘Speculative Buy’ Target Price $.16 by Beacon Equity Research
In the report, the analyst writes, “Universal Property Development and Acquisition Corporation (UPDA) is engaged in exploration, development, production, storage, distribution, and blending of oil and natural gas. UPDA operates as a holding company, where it owns the controlling interest, which provides funding to develop proven energy reserves and cutting edge technologies. Through this business model, UPDA is able to better expand its portfolio of assets and broaden its base of knowledge and experience.”
A business model to capitalize on oil and gas exploration and production synergies
UPDA is holding company, owning controlling interests in six operating subsidiaries focused on oil and gas exploration and production, as well as oil and gas distribution, storage, terminalling and trading. UPDA follows a strategy of entering in joint-ventures that enables it to expand its portfolio of assets, extend its base of operations; engage individuals with extensive industry knowledge and experience and provide financing, while decreasing the operating risks. The Company’s current operating subsidiaries and joint ventures are UPDA Operators, Inc., Catlin Oil & Gas, Inc., Canyon Creek Oil & Gas, Inc., Aztec Well Services, Inc., Continental Fuels, Inc. and Heartland Oil & Gas Corp.
Aggressive acquisition strategy
During the 2007, UPDA have acquired 87% interest in two of its most important assets: Continental Fuel and Heartland Oil and Gas Corporation. Consequently, the Company went through an internal reorganization, establishing two operating segments:
Oil and Gas trading business conducted though Continental Fuel: distribution of oil purchased from Mexico in Texas. The segment’s major concerns are the operation of petroleum storage and terminal facility in the Port of Brownsville, Texas, as well as the blending, trasnportation and distribution businesses.
Oil and gas exploration business which is mainly carried out through the Heartland Oil and Gas Corp, Aztec Well Services, Canyon Creek and Catlin Oil & Gas. The Company has interest in oil and gas leases covering an aggregate of approximately 1 million acres with approximately 216 wells operating.
Acquisition of Geer Tank Trucks, Inc to complete the vertical integration at Continental Fuel
On December 17, 2007, Continental Fuels has completed the purchase of all of the outstanding stock of Geer Tank Trucks, Inc., a crude oil purchasing company with five locations in North Texas and nearly $50 million in annual revenue. The Geer acquisition includes 4 pipeline terminals with connections to major pipeline companies such as Colonial, Teppco and Plains and 5 service yards in various locations throughout North Texas, more than twenty 200 bbl transports, 50 frac tanks, water hauling and disposal facilities incorporating 2 commercial salt water disposal wells.
As a result, Continental has completed the next phase of its business plan by securing a consistent supply of crude oil, all of the equipment necessary to transport and process that crude and access to major crude oil pipelines to efficiently deliver the crude to market. With the completion of this acquisition, Continental become fully integrated oil operator with Port facilities; Contracts for the purchase, storage, sale and delivery of light crude in South Texas; Sources, facilities and equipment to transport and deliver crude; and contracts to purchase and sell crude in North Texas.
Significant acreage in the gas prolific Cherokee and Forest City Basins, Kansas
As of December 31, 2006, UPDA had proven reserves of approximately 16 thousand barrels of oil and 110 million cubic feet of natural gas located on 5,700 acres. However, after purchasing the majority of capital stock in Heartland Oil and Gas Corporation in April 2007, UPDA gained the rights for more than 1 million acres of properties in the gas prolific Cherokee and Forest City basins of northeast Kansas. The Petroleum Technology Transfer Council (1999) indicates that there are nearly 10 Tcf of gas in eastern Kansas alone (Cherokee Basin), while the Forest City Basin contains approximately 1 Tcf of gas.
With a small fraction of acquired acreage being explored and developed, the Company is sustaining a production level of 500 MCF per day. Going further, the successful exploration of the remaining land leases can allow UPDA to easily quadruple the production volumes in 2008 and continue with triple digit growth of production volumes in 2009 and 2010.
Stellar revenue growth
Following a number of acquisitions and joint ventures, UPDA started to report significant revenue mainly from its trading business. For the nine months ended September 30, 2007, the Company reported a revenue of $21 million compared to $0.3 million for the same period during 2006. The revenue growth was primarily due to acquisitions of Continental, Caitlin and Heartland.
Going forward, the recent acquisition of Geer Tank Trucks, Inc., and the rapid progress of gas exploration activities at Heartland could push the pro-forma revenue to $140 million in 2008 and to $170-200 million in 2008.
Rising oil and gas demand
World energy demand will continue to support high prices and premium valuations for companies with significant oil and gas reserves, particularly US reserves. In 2007, global oil demand is expected to increase by 1.3 million barrels per day (bbl/d), mainly due to increased demands from China and the US. According to the Energy Information Administration (EIA), world oil demand in the fourth quarter of 2007 is 1.8 million bbl/d more than fourth quarter 2006 levels. In addition, the EIA projects world oil consumption will increase by 1.4 million bbl/d in 2008.