An Oct. 26 research report noted that Mackie Research Capital Corp. initiated coverage on Pulse Oil Corp. (PUL:TSX.V) with a Speculative Buy rating and a $0.50 per share target price. Pulse is an oil and gas exploration and production company targeting plays in Alberta, Canada.
"The big upside for investors, and what differentiates this small-cap company from others in the current market, is its miscible flood enhanced oil recovery project (EOR) of two Nisku pinnacle reefs at Bigoray (100% working interest)," wrote analyst Bill Newman.
Newman described two production scenarios for those assets. The first, at the high end of expectations, assumes an 80% recovery rate, which is the "average recovery factor of 52 nearby analogous reefs that have been developed with a miscible flood," he wrote. This could produce more than 2 Mboe/day and add 12 MMboe of light oil reserves, for a value of more than $177 million ($2.01 per share).
The lower end assumes a recovery rate of 60%. This could translate into ~6.5 MMboe of new reserves, for a value of about $65 million ($0.74 per share).
Newman pointed out that these figures, $177 million and $65 million, compare to Pulse's current market capitalization of ~$4 million.
About the possible production, Newman concluded: "The potential upside from a successful Nisku reef EOR project is so large that we expect substantial stock price appreciation (i.e., 10 times upside) even if the miscible flood achieves expectations at the low end of the range."
Pulse could achieve this "massive upside" without the "significant cost of an extensive horizontal drilling program," the analyst added. This is because the expected capital requirement for each Nisku reef is "only $3M" as little infrastructure needs to be added for production. Drilling, however, is necessary on the company's other properties in Mannville, and Pulse could fund that with free cash flow generated from these Bigoray operations, Newman stated.
Another attractive component of the Pulse story is its experienced management team of Garth Johnson and Drew Cadenhead. These former senior executives of TAG Oil founded Pulse Oil. With Pulse, they are using a strategy similar to the one they employed with TAG, "acquiring quality assets during a market downturn and unlocking immediate growth and value through low-risk field operations followed by development and exploration drilling," noted Newman.
The two Pulse partners, who have not taken a salary in the past two years, have a "combined investment of $1.3M in Pulse at an average cost of ~$0.11 per share, holding ~14% of the outstanding shares, Newman indicated.
The company is currently trading at around $0.22 per share.