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Dear Investor,
I spend a lot of time researching energy companies...in fact, my track record speaks for itself.
When I find an exceptionally promising company that's flying under Wall Street's radar, I really get excited because when you find a winner, the results can be spectacular. In addition, I'm especially impressed with the low-risk/high-return strategy the company is employing with their portfolio of oil and gas properties.
But those are only two of the many compelling reasons why I'm heartily recommending the company profiled in this report.
It's one of the sweetest, low-risk/high-potential-return strategies I've ever seen!
It's very similar to the way I manage my own stock portfolio to lower risk and still have the opportunity for massive gains.
Here's why I'm so excited about this company:
It's a terrific company with an aggressive and savvy management team. They are the new breed of oil and gas men. They are very impressive...the kind of guys you would want running your business.
For starters, let me assure you that Endeavor Energy Corp. (OTCBB:ENEC) is not a "wildcatter," foolishly spending capital on high-risk wells-the ones that, more often than not, end up being nothing but a dry hole.
That's NOT Endeavor. No, not at all. That's just not the way Endeavor's savvy management operates. They aren't about to go broke by recklessly spending the company's capital. They have a much better game plan.
They are aggressively accumulating a large portfolio of producing oil and gas properties as their core business, while at the same time making a smaller investment in a "Big Play" that could produce MASSIVE RETURNS.
It's a well-thought-out game plan and it's like a threelegged stool-a three-pronged approach that balances risk and reward, while rapidly growing the business.
Remember, I said Endeavor's management was aggressive!
Here's an overview of their exciting business strategy...
One of the first things Endeavor's management will tell you is "We're not wildcatters." Dry holes have a ZERO PAYBACK, so why drill in high-risk areas? That certainly makes sense to me. On the other hand, bring in a productive well, and you add both income and proven reserves, boosting the company's value.
The operative word here is "proven reserves" or extractable reserves. You can have thousands, or even millions, of barrels of oil-or trillions of cubic feet of natural gas-on properties, but if you can't extract the oil or gas, the accounting rules say you can't add them to the company's balance sheet.
Endeavor's management knows that, but they also know that potential reserves can be converted to proven reserves when wells are drilled and production begins.
So by acquiring large tracts of land with the highest-quality probable reserves and bringing in highly productive wells, potential reserves are quickly turned into a valuable revenue stream and proven reserves.
To implement this growth strategy, Endeavor is focused on identifying and buying into existing high-quality oil and gas plays with the potential for a very quick payback.
But Endeavor isn't buying just any existing production. No, that's not Endeavor's strategy.
Management demands the largest and highest-potential reserves available to go along with current production.
Sure, it takes a lot of homework and good judgment-and even a little luck. But when you have an experienced geologist like Keith Miles on your team, it makes the job a lot easier.
Miles is a home-grown expert; he graduated from The University of Saskatchewan. With his 35+ years of in-depth knowledge and experience in Western Canada oil and gas fields, he knows exactly what he's looking for.
As you may have already surmised - and true to Endeavor's style-identifying these shallow wells is Miles' specialty. He's an expert in the area and his recent success ratio is 85%.
That's an amazing record, and a great guy to have on the team!
The company's strategy calls for only drilling where they can expect production to exceed 30-50 barrels per day of oil-or 250 million cubic feet per day of natural gas-and a quick payback in six to eight months.
Endeavor's $12 million drill program for the next 12 months is targeted at 23 high-potential plays that Miles has identified as solid opportunities to increase both production and reserves.
The second leg of Endeavor's strategy is growth by acquisition. Generally, when a company buys someone else's existing production, their returns are lower. That's because the highest returns were earned by the risk-taker that drilled the well.
Today, things are a little different in the oil patch.
Over the past three years, a lot of new companies jumped on the energy bandwagon. They got into the business, grabbed a lease or two and drilled several wells. They hit on a well or two, but they also blew through their start-up capital. They now find themselves with negative cash flow and limited prospects. That's not a good position to be in...but Endeavor sees the situation as an opportunity to pick up existing production along with high-potential reserves.
Remember, we have Keith Miles looking at public information, analyzing the weak sisters' properties looking for the highest potential prospects. It's similar to getting the pick of the litter. That's a great position to be in.
Similar to their growth strategy, with their acquisition program Endeavor isn't just looking for production. They want to gain access to large leases covering substantial areas of land because that's like having money in the bank.
The strategy is working. Recently, Endeavor landed a HUGE DEAL providing the drilling rights on more than 1,695 sections of land, or almost 1.1 million acres, in the high-potential area of Central Saskatchewan.
With Endeavor's low-risk growth and acquisition strategy, it won't take long for the company to reach annual revenues of $81 million from production of 4,000 to 5,000 barrels of oil equivalent per day (BOED).
Now this is where it really gets interesting.
You'll recall I mentioned Endeavor's management was handling their property portfolio in a similar fashion to how I construct my stock portfolio. Here's what I mean...
The vast majority of my portfolio is invested in lower-risk stocks, but a portion is invested in higher-risk, higher-potential opportunities. These riskier positions provide exciting potential, and over the long term can produce tremendous returns.
That's exactly what Endeavor is doing with leases in Australia. This is where the company is prepared to make riskier plays that offer GIGANTIC rewards.
Yes, it's riskier, but Endeavor's desire to reduce risk comes through in spades when you consider that Australia is a friendly place to do business and doesn't have the uncertain geopolitical risk associated with many other offshore areas around the world.
Plus, knowing how Endeavor does business, you have figured out that Australia's leases have yielded many major discoveries and billions of barrels of production.
Initially, Endeavor was partnering with the highly respected, privately owned Holloman Petroleum LTD of Dallas, Texas. But Endeavor's aggressive management knows a good deal when they see it, so they bought the company to gain 100% access to Holloman's properties and their team of oil and gas experts.
This recent purchase gives Endeavor access to three high-potential Australian concessions near the Cooper Basin, Barrow Sub-Basin and Gippsland Basin. Many of the world's largest oil and gas companies are exploring and producing oil and gas in the areas adjacent to Endeavor's oil and gas concessions.
I'll explain more about the GIGANTIC OPPORTUNITY they have in Australia in a minute.
Endeavor's three-pronged strategy is providing exciting opportunities for aggressive growth in Alberta and Saskatchewan.
Endeavor recently acquired the option for drilling rights on 1.1 million acres in Central Saskatchewan-providing huge potential for future production and additional reserves.
Endeavor secured the drilling rights across 47 townships covering Moose Jaw, Foam Lake, Shell Lake and Whitehill Lakes areas. That's a HUGE amount of land, as a township encompasses 36 sections-approximately six square miles.
Endeavor is moving rapidly in the area, but true to Endeavor style they aren't rushing to drill. Rather, they are planning to shoot a 2-D seismic survey on 250 km of the best areas Miles identifies from existing data. Then when Miles reviews the 2-D data, he'll be able to determine the absolute best potential areas for next year's drilling program.
Once Miles has the seismic results, I'm confident Endeavor will have many high-potential sites. And when the drill bits start turning, production and reportable reserves will explode!
Endeavor has plans to drill multiple wells across many properties in Alberta and Canada. The company's drilling rights are located in:
Diamond, where the company owns a 50% working interest in three sections-1,920 acres-and there are three wells waiting to be tied in.
Near Arneson, Endeavor has 100% rights to eleven sections (7,040 acres) of land and acquired 10 square miles of 3-D seismic data with proven reserves of more than 5 billion cubic feet (BCF).
This area has the potential for 14 wells, and Miles has identified three high-potential drilling sites that are part of the current drill program. Success with one or more wells could significantly add to production and proven reserves.
In southern Alberta's Bow Island area, Endeavor has plans to drill a well in an area where production rates are 250-300 thousand cubic feet per day (MCF/D). A hit on this well would provide a six-month payback to the company.
In Onward, Endeavor has very promising oil prospects on 1,920 acres. Endeavor holds 100% rights and plans to drill two wells this year on Miles' best targets.
The Marengo area also has both oil and gas, with area production rates averaging 250 MCF/D. Endeavor has a very favorable farm-in agreement-15% royalties-on 9,760 acres and plans to drill two wells this year.
The Court area has both oil and gas production. Endeavor has another very favorable farm-in agreement (15% royalties) on 3,860 acres and plans to drill two wells.
Luseland is an area where production rates can be up to 50-70 BOPD and/or up to 250 MCF/D. Endeavor's farm-in calls for 15% royalties on 17,279 acres. They initially plan to drill two wells in Luseland.
The Whiteside area also has both oil and gas production. With a 15% royalty agreement, Endeavor plans to drill two wells on the 4,479 gross acres.
Chigwell is both oil- and gas-prone in numerous zones. Wells in the immediate vicinity have stacked reservoirs. Endeavor's initial agreement is for one well-with an option for a second-on 1,280 acres.
Endeavor's future drill program is well diversified across eight properties-and they are drilling multiple wells in most areas to keep their costs down. I expect Miles will continue his 85% drilling success ratio and bring in solid production on almost all of the 23 high-potential targets. The results could increase production by 1,500 to 2,000 BOED.
As the positive results are announced and the word starts getting out about Endeavor's strategy and success, I expect the stock to make a big jump. It could double overnight. But that's just the tip of the iceberg because of the opportunities ahead in the 1.1 million acres of Central Saskatchewan-and the Big Australian Play.
Endeavor's savvy management scored big with their buyout of Holloman Petroleum LTD. The purchase provides huge potential in both onshore and offshore Australian properties-and the company's low-risk/huge-potential-payoff strategy is being employed in Australia just like it is in Canada.
Endeavor is diversifying risk across three plays in widely separated areas of the country.
The Cooper Basin is located inland in South Australia. The area has sourced over 5 TCF of recoverable gas and 300 million barrels of oil since the first petroleum discovery in 1963. The area has more than 100,000 km of 2-D seismic data. There are more than 1,100 wells in 119 gas and 55 oil fields across the area. Endeavor has a significant 66.7% operating interest in permits PEL 108, 109 and 112.
Holloman previously spent approximately $3 million on survey work, including seismic. Their work targeted 21 wells with high-potential for multiple trap horizons within the prolific Hutton sandstone-which increases the opportunity for discovery.
Several operators in the area have recently hit successful wells, which bodes well for Endeavor's plays. Just one successful well in the Cooper Basin could mean 8-12 million barrels of production, and reserves potentially adding $25 million in shareholder value.
And, Endeavor plans to drill three wells in the Basin, which could add $75 million in shareholder value.
The VIC/P60 play is 339,769 net acres in the shallow water of the Bass Straight off the coast of Victoria, Australia. The area, Gippsland Basin, has recently become a major area of offshore development
Despite a long history of extensive exploration, many parts of the basin-especially the eastern region-are still relatively unexplored. Endeavor is not alone in the area. Several of the world's largest oil and gas companies are producing, developing and exploring adjacent to Endeavor's VIC/P60 concession. Endeavor has rights to 87.5% of the play.
They've identified six prospective leads, with the A-1 lead potentially holding reserves of 80-120 million barrels of oil, which equates to a gigantic potential of $2.5 billion in reserves.
Plus the balance of the play has reserves estimated at 600 MMBO and 5 TCF of gas. With shallow water depths ranging from 100 meters to 1,800 meters, the costs to drill in the area will be reasonable. We're not talking about deep-water rigs here.
Also, the area hasn't been shot with 3-D seismic. Endeavor's plan is to have a 3-D seismic survey completed in the portion of the permit where the six best leads were identified by 2-D processing in 1980.
Prospects of 80 to 100 million barrels worth up to $2.5 billion make this play tremendously exciting.
The Barrow Sub-Basin is an offshore basin (up to 200 meter water depth) on Australia's Northwest Shelf. Since exploration commenced in 1954, 77 fields have been discovered-including the giant Barrow Island oil field.
Endeavor holds a 100% interest in three concessions; WA-372P, WA-373P and WA-395P. The permits are located in a very oily part of the Basin, surrounded by significant oil and gas accumulations
Endeavor has some 3-D seismic data, but it needs enhancement. True to management's style, they intend to re-shoot the most promising areas before drilling.
There's a high probability of success with this play, and it could potentially add another 15-20 million barrels of oil in production and reserves which could add another $40 million in shareholder value.
This area is extremely exciting because it is immediately adjacent to the prolific Woollybutt oil field, which is currently producing 16,000 BOPD from two wells.
There's no question...Endeavor has significant potential in Australia.
When you combine Endeavor's low-risk growth and acquisition operations in Western Canada with the enormous potential returns from the VIC/P60 project in Australia, the potential for investors is staggering.
Here's what I see happening ahead: In the next few months, when investors begin to hear about and understand how effective Endeavor Energy's three-legged strategy is, Endeavor's stock will begin a steady climb to $3.85 a share-for an initial 114% gain.
Then, when Keith Miles' expertise kicks in with a highly successful 2007 drill program, the stock will make another huge leap as it reaches $5.30 a share by year-end.
At this point, early investors will be looking at substantial profits of $3.50 per share and gains of 194%. It could be time to take some profits, but we'll hang on to most of our shares for the huge payday when Endeavor reports substantial discoveries on their 1.1 million-acre Central Saskatchewan opportunity and their Australian plays...and the stock explodes to $9.50 or more a share.
I'm excited about Endeavor Energy and hope you'll add some shares to your portfolio before Wall Street wakes up and discovers Endeavor's solid, low-risk/high-potential-reward strategy.
Invest Successfully,
P.S. I love finding undiscovered, undervalued nuggets like Endeavor Energy Corp...rapidly growing companies that have huge possibilities with strong, experienced management and yet haven't been spotted by Wall Street analysts. If you would like to learn about more companies with explosive upside potential like Endeavor, please consider a subscription to my Stock Prospector Newsletter.
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Copyright 2007 Beacon Equity Research