East West Petroleum (TSX-V: EW) CEO David Sidoo Provides an Update on Drilling in Romania & Waterflood Program in New Zealand
Gerardo DelReal: This is Gerardo DelReal with Resource Stock Digest. Joining me today is President, CEO, and Director of East West Petroleum (TSX-V: EW) (OTC: EWPMF), Mr. David Sidoo. Mr. Sidoo is a successful businessman and entrepreneur based in Vancouver. Upon graduating from the University of British Columbia in 1982, where he held a four-year football scholarship with the UBC Thunderbirds, he was drafted to play professional football with the Canadian Football League. David retired from football in 1988 and was introduced to the brokerage business.
After a successful career in the brokerage business, David left Yorkton in 1999 to pursue private investment banking. He was founding shareholder of American Oil & Gas, which was sold to Hess Corporation in December 2010 for over $630 million dollars in an all-stock transaction. He's back trying to do it again with East West Petroleum. David, thank you for joining me today.
David Sidoo: Thanks for having me, Gerardo. I really appreciate it. It's been a long time, but I'm happy to give an update now to all the patient shareholders of East West Petroleum.
Gerardo DelReal: Well, we're definitely at an important crossroads. Now East West Petroleum, of course, is a TSX Venture Exchange listed company, which was established in 2010 to invest in international oil and gas opportunities. Since then, East West has built a diverse portfolio of attractive exploration assets covering a gross area of over one million acres. The company has its primary focus on two key areas. One, New Zealand, where it has established production and cash flow, and Romania, where it has fully carried on an ongoing 12-well exploration program. I provided a brief introduction of your background, David. Could you please give us an overview of how you got involved with East West Petroleum?
David Sidoo: Sure. It was about five or six years ago when the boom was happening in the United States and unconventional drilling was yielding these large results in the United States, in the Permian Basin, in Ohio. There was a lot of wells being drilled by the majors using different technology, and that technological advancement started making to eastern Europe. There were some companies called Bankers Petroleum and FX Energy that started to pick up some acreage in Poland and eastern Europe where there was a lot of acreage that had been drilled before but under poor technology, had yielded some decent results, but the feeling was bringing this new technology from North America and eastern Europe, you were going to have some barn burner wells there.
We decided to get involved in that area, and we picked up a million acres in the Pannonian Basin in Romania. We farmed into it by bidding through a bid process in Romania and acquired four different assets there. Our goal there and what we permitted and built our application on was drilling three wells on each one of those four assets for a total of 12 wells over a period of two to three years.
It was about a $60 million dollar CAPEX program, and right after we acquired that, we started looking for a partner that understood the area. We quickly were introduced to a subsidiary of Gazprom called a company called NIS, N-I-S. They were next door in Serbia drilling wells, right next to where we picked up all this acreage. We did a deal with NIS where we would have them pay 100% of the exploration costs of these 12 wells over a period of time to earn 85% and they would carry East West Petroleum for 15%. On top of that, we got all our half a million dollars of carrying and covering costs to get the assets initially when we bid back as well.
We're in that place for zero dollars, and we just had our first well that we drilled. It was drilled on time and on budget. No environmental issues. It was a conventional well that was drilled, and it's been cased, and some sampling cores have been removed from three different zones. They're primarily a gas well with some oil zones, which was a plus for us. Right now, NIS is going to be testing that well right now, Gerardo, over the next couple of months. Obviously, when you case it and test it, you feel that it's a commercial well, so we feel that it's going to be a commercial well. We're going to use NIS and Gazprom's processing facilities for the gas and oil, which is going to give us a lot higher price.
If the testing goes well, which we think it will, we're going to use the same pad that this initial well was drilled on, and step out and drill a second well, which we can do quite quickly. We can do that in the fall to start building out that resource and giving that particular area a resource number. We're hoping anywhere from 150 to 400 barrels of oil equivalent, Gerardo, is what we're going to get from this particular well. It's just one zone off of many wells we can drill. We've also got three other assets that we're permitting, also.
We're pretty happy with what's happened over there. It's taken a lot of time, but now that we've proven that we can, with our partners, drill a well on time, on budget, without any environmental issues, I think it's a positive for us. The testing some time in May and June will get results on that, and that will give us an idea of what the next steps are. We're fully carried for it, and it can be a nice cash cow for East West with multiple wells being drilled in different basins there in Romania.
Gerardo DelReal: Excellent. Now, obviously, everybody is hoping that that first well is successful, the one that's being tested now. You mentioned a step-out well from the same pad. Is that already permitted?
David Sidoo: That has been permitted right now. The company currently has eight million in cash and cash equivalents in the bank. It has a very low burn rate. We reduced our entire burn rate overall with the company. We've got our CAPEX and our OPEX is all being covered by our production in New Zealand, so we're not burning any money. We're going to keep that eight million bucks solid in the company. Once we start having some success and we get to commerciality in Romania, then our 15% kicks in, and we start paying our 15% of the share, but that's okay when you have production and cash flow coming. We do have that step-out well permitted.
Gerardo DelReal: Excellent. Now, just to provide some context, you mentioned that you have approximately eight million dollars in cash in the treasury. Could you provide listeners a summary of the current market cap and the share structure, because it's pretty tiny, relative to the partners and the assets that you've attracted and put together?
David Sidoo: Oh, yeah. It's just a function of what happened to oil prices over the last little while. We just got just over a 13 million dollar market cap right now, and stock's trading at 14, 15 cents. You've got eight million bucks cash and cash equivalence in the bank. You've got carrying 12, another 11 wells, maybe more, in Romania. You've got this new water flood technology that we're using with our partners in New Zealand to enhance some more of the production that we're getting in New Zealand to build up our cash flow. We're not getting really any value for anything in Romania right now, and very little value in New Zealand, but I think that will start to change as we start to tell the story and have more success, Gerardo. I think that's what the current shareholders are waiting for and the market's been waiting for.
Gerardo DelReal: Well, you mentioned New Zealand. Let's talk about that waterflood program, because that could have a pretty significant impact on the bottom line. I know you had a news release, I believe last week, that outlined briefly the waterflood program and the initiative there. A lot of the details may have gone over speculators' and investors' heads. Could you please provide a little bit of color to why that's such an important program if it's successful?
David Sidoo: Sure. Our partner TAG Oil has used this technology to flood other zones that they have production from where the production was starting to decline a little bit. They use an injector well to pump water into the reservoir, which increased over a four to six month period the production by 50 to 100 to 150% in some of their other reservoirs. They approached us a couple of months ago, and we did some studies with them and decided that it would be a good idea for us to do the same type of injection at the east site, where we have seven wells that we have drilled with TAG. Three of them are producing, and four of them are currently shut-in because the production is too low.
We started with the waterflood about a week ago, as we press released, and it's going to take about a couple of months to stimulate the entire reservoir of all seven of those wells that we've drilled. Once we start to see an increase in production, which we think we will see, I would guess we would probably see maybe a 50 to 60% increase from the current 400 barrels we're producing right now. We're hoping for between 600 to 800 barrels of production coming out of these six to seven wells that we're going to pump this water into, this new technology.
The deal that we did was that we want to make sure that this works. If it works and increases our production by 50% over a six-month period, we're going to pay back the million dollars of East West's portion for the waterflood back from the incremental increase in production. So if we go from 400 to 800 barrels a day, and our portion on that increases 150 barrels, we'll take the revenue from the 150 barrels and pay our million dollars back each month until our million is paid back to TAG.
Virtually, we have no risk with attempting this waterflood and trying to enhance that east site reservoir to stimulate it to increase some more production. I think that's quite fair that TAG did that with us, and it's a good deal for the shareholders. We're going to get a good look at how much we can enhance the production basically for free for now. If it is successful, we'll happily give up some of the incremental production increase we get to pay down our debt. The rest of it goes to the bottom line.
Gerardo DelReal: Excellent. Now, you obviously have a reputation, David, for being a great deal maker. You've been very successful in the past. Is East West looking at potential opportunities here for later on this year?
David Sidoo: You know, to give ourselves a big upside, because with reducing the burn, having that cash, getting additional cash flow from New Zealand, being carried in Romania, that's fantastic. I think Romania is going to be the real company builder here for East West, but I'm also looking actively for other assets in North America that have some big upside potential. You know I've got a lot of good contacts from the days of Gasco Energy and American Oil and Gas. I've been speaking to a lot of different people in the industry.
The oil business is starting to perk back up now. There are deals out there. We're going to do a smart deal if we do one, and it's going to be one that's going to be referred by colleagues of mine that I've worked with in the past and had success with. We're not going to stop until we build this company to where I think it should be. Have oil prices hurt us a little bit, and it hurt a lot of different companies, but we've been able to maintain our cash and our cash flow and cover all our CAP and OPEX costs and stay alive. I think that's a testament to management's ability to be very nimble in these markets.
Gerardo DelReal: Again, considering the market cap, that's a lot of potential catalyst, David. It sounds like it's going to be an exciting 2017. I want to thank you very much for your time. Is there anything else that maybe I missed that you'd like to add?
David Sidoo: No. I just want to thank all the shareholders and thank them for their patience. I was buying the stock down at 10, 11, 12 cents, every time it came down a little bit. I'm a believer in the company, and I'm not going to let this thing go until I build it into a big company like I have in the past. I'm going to stay focused on East West.
Gerardo DelReal: Excellent. You mentioned buying stock. Do you have off the top of your head how much skin in the game insiders have?
David Sidoo: Oh, in East West, we've got 88 million shares out. We probably own collectively between us about 20%, 16 million shares. You're in for a pound, you're in all the way, Gerardo. You can't do these things unless you go in all the way. It easily takes with these start-up venture capital companies five to seven years to build them to a level where you get some interest from a major. We're in the sixth to seventh year of the East West infancy, so we hope that this year is going to be the year that we develop some real strong resources here within the company and we start looking at other major players to take a look at us.
Gerardo DelReal: Excellent. Well, as you continue to develop the company and results start coming out of Romania, David, I hope I can have you back on to provide an update soon.
David Sidoo: For sure. Thanks for having me on. It's been a while for East West, but I appreciate it.
Gerardo DelReal: Thank you.