In an Oct. 18 research note, John White, a ROTH Capital Partners analyst, reported that Torchlight Energy Resources Inc. (TRCH:NASDAQ) relayed an "encouraging operations update," with the latest developments regarding finances, operations and exploration, "which, on balance, we view as positive."
White addressed the updates one by one. The financial news was that Torchlight refinanced some existing debt, which generated $6 million in proceeds, White noted. It used half of the amount to pay back a promissory note and will spend the remainder on drilling and lease acquisitions. The transaction was a private placement of Torchlight's 16% Series C unsecured convertible promissory notes, with interest and principal due on April 17, 2020. Notes may be converted into a 6% interest in specific oil and gas leases at the company's Orogrande project.
As for exploration, Torchlight continues work in this regard. Starting in mid-October with the University Rich A11 #2, it will drill three wells in the Orogrande Basin to test more than 15 previously determined potential pay zones.
Also at Orogrande, Torchlight plans to conduct three-dimensional seismic imaging of a "large anticline structure" identified on its acreage there, indicated White.
In the Wolfcamp Formation, the company identified five distinct, unconventional targets whose thicknesses range from 86 to 160 feet. "This is another positive step forward in the effort," White wrote.
As for the latest in operations, Torchlight replaced the recently installed gas lift system at the Founders A25 #1H well with a traditional tubing and packer system, after the former failed to increase fluid production. "Analysis continues to indicate the presence of crude oil; however, the over-pressured natural gas is preventing the oil from reaching the wellbore," White explained. Management believes oil will flow once gas production releases pressure on the oil.
At its Winkler project, the recently fracked UL 21 War-Wink 47 2H well is producing more than 300 barrels of oil per day.
ROTH has a Buy rating and a $1.75 per share price 12-month target on Torchlight, whose stock is trading at about $0.88 per share.