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And You Thought Tag Oil Was A Bargain... Wait Until You See Its Partner

Summary

The cash balance is C$7.7 million with no long term debt. So the rest of the company is worth about C$4.3 million to the market.

NIS is scheduled to spud the well in its fourth quarter, before the end of 2016.

Tag Oil, the operator of leases in which East West Petroleum has a share has announced a waterflood program to increase production and eventually reserves.

Dual completions and recompletions in zones that do not currently produce offer more chances to increase production, earnings, and cash flow.

East West Petroleum (OTCPK:EWPMF) still gets no respect from the market. At a recent closing price of C$.135 on September 9, 2016, the market value of the company's common stock was still only C$12 million. That is an improvement over a few months back, but the stock is still very cheap. With the latest cash balance at the end of June, 2016 of $C7.7 million and no long term debt, the rest of the company is only worth about C$4.3 million. For a company that has production and positive cash flow, as well as some speculative possibilities that seems a little undervalued, even in the current hostile industry climate. Of course, it does not help that the company has not reported profits for a while like the rest of the industry. But with no long term debt and lots of cash for its size, it is really hard to go broke. That cash balance provides excellent downside protection for the stock, and there are now some immediate prospects for growth.

Interestingly, management did not repurchase any shares in the latest quarter, after repurchasing a little more than 1,000,000 shares in fiscal 2016. Nonetheless, the company does have approval to purchase a little more than 8 million shares until about February, 2017, and that should also limit the downside risk of the stock price. The lack of purchases probably has to do with more opportunities available to spend the cash on operations in the future, and the higher stock price currently than much of last year.

Source: East West Petroleum Investor Presentation, February, 2016

For nearly a year, operator, Tag Petroleum (OTCQX:TAOIF) and partner East West Petroleum decided to not do much exploration or developing until oil and gas prices improved. Instead the companies simply banked the cash flow from the production. Now, there is not much more improvement left to oil and gas prices for the time being. Plus operational improvements that lowered costs, and new upgraded management allowed operator Tag Oil to propose some minimal exploration and a water flood program. The waterflood alone could substantially increase production and reserves, though initially, the reserves connected to any wells converted to injection wells would be lost.

There is also the possibility of cheap reserve additions from intervals that are not yet producing. Production has slid from the amount shown on the slide, but the remaining production can still provide significant...


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