LONDON, UK (miningweekly.com) – Examining smaller-scale oil and gas producers and their performance can often highlight useful economic indicators and outliers in the junior sector.

In this regard, Quattro Exploration & Production’s recent history is illustrative of a smaller-scale operator advancing its position through strategic acquisition and incremental expansion of output.

Weathering the economic headwinds over 2013, the company has seen its share price rise from a 52-week low of $0.04 to stand at $0.58 on August 7. This is down from a 52-week high of $0.93 achieved on April 23. 

COMFORT ZONE

In the short term, the company is aiming to increase production from 1 500 barrels of oil equivalent a day (boe/d) to 2 000 boe/d by the end of the third quarter from two operations in Alberta and one operation each in British Columbia and Saskatchewan.

“We averaged close to 1 700 boe/d to 1 750 boe/d for the second quarter [and] we’re on track to hit 2 500 boe/d by year-end,” Quattro chairperson, director, president and CEO Leonard Van Betuw told Mining Weekly Online. “We’re in a comfort zone where we can generate cash and meet our immediate project needs.”

“We’re about 75% gas and 25% oil right now but, with our drilling programme, we’ll push the mix to 60% gas and 40% oil over the next 18 months,” he added.

The three-year drilling programme is part of the company’s $50-million capital budget announced on June 30. Funding will come from cash and by allocating 70% of the projected cash flow from operations expected over the next 30 months.

Phase 1 will focus on Western Canada, with the company in the process of licensing 24 wells of which 15 are targeting oil and eight natural gas. The wells will be drilled over the next 12 months.

BUILD UP

Essential for Quattro’s effort to increase output has been a series of acquisitions over the past few years, including those from minority partners, companies struggling against economic headwinds, or from those seeking to divest noncore assets.

“At several properties we had interests between 55% and 75%, so it made sense to approach minority partners and buy up remaining stakes,” Van Betuw said, adding that other acquisitions occurred after previous owners shut in gas as the North American price – natural gas wellhead – sunk across 2011/12.

This, he noted, was the time when "many guys" were saying, "this is just not our area of interest", and started selling properties, and Quattro bought them with roughly 60% of production still shut in.

This was followed by a distressed sale from a company with difficulties coming out of the 2008/09 crisis. In 2013, Quattro also bought assets from a US player with a Canadian subsidiary. "They’d found bigger fish to fry,” Van Betuw noted.

“All of this will allow us to bob, weave and get up to 2 500 boe/d,” he explained. “And once we get there, we’ll maintain it. Then we’ll have the potential to grow slightly higher to 3 000 boe/d, which is feasible and within our cash flow.”

Bottlenecks are not expected, as Quattro has ample capacity to cope, Van Betuw stated, pointing out that in British Columbia, Saskatchewan and Alberta the company had, on the gas side, almost 50-million cubic feet a day of processing capacity – about 10 000 boe/d.

Existing agreements will provide the necessary sales platforms for the new output. “In addition, the new volumes represent not just top-line revenue increases but also provide the advantages of economies of scale,” he said.

GO FOR GUATEMALA

Away from Canada, Quattro is establishing itself in Guatemala. It has signed an agreement to acquire an exploration and exploitation contract for a 380 000 acre land block in the North Petén basin.

It is also negotiating the purchase of a property producing 254 boe/d heavy oil and with proven and probable reserves of five-million barrels. In addition, the company has been examining opportunities in the South Petén basin.

“We started by buying a significant proprietary database from a company that moved out of Guatemala over three years ago,” Van Betuw explained, adding that his experience in the country stretches back to the 1990s.

“The area isn’t really greenfield because quite a lot of exploratory work has already been undertaken there, with about 30 exploratory wells drilled over the last 40 years. Some of the earlier ones were under the auspices of companies like Mobil.

“The data from these wells has been logged and catalogued into our database, so we’ve got a pretty good level of understanding here,” he noted.

The company is now working to get its concessions defined and the permits in place. “This will enable us to hit the ground running,” Van Betuw said, highlighting that the site’s advantages include close proximity to the Perenco pipeline, which Quattro hopes will transport its output to the Piedras Negras terminal.

Many still consider Guatemala to be a higher-risk location for natural resources investment. However, when speaking to Mining Weekly Online, Van Betuw was confident about the jurisdiction and its legislative environment. “Of course, there are a few challenges here and there. But Guatemala [is stable] and has had five governments democratically elected without interruptions or challenges,” he commented.

“The country also has proper environmental laws in place and the necessary administrative infrastructure for the government to send us to the right people to speak with if we want to drill a well, for example,” Van Betuw added.

He had a dim view of those who believed they could still bend the rules in Guatemala. “All the necessary rules of law are in place [but] there are a few people who still think they can treat Guatemala like its still cowboy country," Van Betuw added, noting that "You should work within and respect the rules”.