Friday, December 07, 2012

Thunderbird Energy (TBDYF) And Natural Gas

Thunderbird Energy Corp. (TBDYF on OTC / TBD.V on TSX) is drilling for natural gas in Utah and oil in Wyoming.  Let's see if they've had any success so far.

My readers know my preference for a geologist at the helm.  Their CEO is not a geologist but their Chairman is one, so maybe that plus the petroleum experience of the rest of their team is enough to get something done.

Their Gordon Creek natural gas project in Utah is notable for its 2P reserves of 39.3 Bcf, according to their NI 51-101 report.  Using a current price estimate of $2.71/Mcf, this discovery has an unadjusted gross value of $106.7M.  That may seem like a lot but we haven't yet annualized it based on the expected life of the property, nor have we subtracted operating costs at the wellhead.  Thunderbird's own estimates are more conservative, figuring an operating cost of $1000/well/month plus $0.45/mcf, for a discounted NPV of just under $70M.  Photographs on their website show an extant pipeline on the property, which is all they need to get their product to market.

Their Wyoming oil project is not as well developed, so I'm looking forward to seeing more data.  I'd also like to hear how they plan to extract and market the CO2 reserves they believe they have at Gordon Creek, and how this will not interfere with the more valuable natural gas they will put through their pipeline.

The good news about their natural gas find is that natural gas prices in North America are at record lows thanks to a glut of supply, and every natural gas operator on the continent loves to remind investors of how an eventual increase in price will make their projects worth much more.  It's good that Thunderbird has an agreement with another company to receive royalties and fees.  It's not so good that their breakeven analysis (in their corporate presentation as of December 2012) ignores sunk costs; since they're obviously not making a decision to walk away from the Utah project, their exploration costs should be considered necessary exploration costs and not sunk costs.

Check out their financial statements from January 2012.  Note 2 sheds further light on their agreement to receive royalties and fees; this relationship is contractually contingent on Thunderbird's completion of further well drills.  The $25M in payments agreed upon so far won't dig Thunderbird out of its $29M retained earnings deficit.  Thunderbird will have to hit significant additional 2P finds to remain a viable company.

My bottom line on Thunderbird is that it's one of those natural gas plays that has done a lot of things right up until now.  Their management still has to do a lot of things right - further fundraising, further successful drilling - to keep the company alive and/or out of a forced sale to benefit its royalty partner.

Full disclosure:  No position in Thunderbird Energy Corp. at this time.  

Further disclosure:  Please note that I use the energy sector's convention of "mcf" for one thousand cubic feet, but the financial sector's newer convention of "M" for one million dollars.