Galleon Energy Transitions Into Unconventional Oil
George Fisher submits:
Galleon Energy (GO.TO (Toronto) C$6.50,GLNYF.PK $6.06) is a small cap Canadian natural gas exploration and production company with extensive land assets and two interesting development fields. With 750,000 acres in the Peace River Arch field in western Alberta, GLNYF has the ability to expand its resource base through an aggressive drilling program focused on either natural gas or oil. Galleon, due to its size and capital base, carries a higher financial and execution risk, but could reward investor handsomely. The ability to switch drilling programs from natural gas to oil based on market conditions gives Galleon somewhat unique flexibility for its size.
In my opinion, cash flow, production, and proven reserves are the best matrix to analyze small cap energy companies. The main questions that need to be answered are: Does operating cash flow cover the necessary capital expenditures to continue expanding production and add to reserves? If not, how is the shortfall to be funded – additional debt or secondary offerings of equity that will dilute current shareholders? At what point will cap ex become internally funded? These answers will provide some insight into the potential future of a shareholder’s investment.
Galleon is close to having cap ex funded by operating cash flow, and has the resource base to grow production needed to bridge this gap. Somewhat stronger oil and natural gas price should put the company over the top, along with continued success in Galleon’s drilling program.
Investing, Long Term Investment, stock market | admin February 16, 2010
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