Mountainview Energy: An Oil Play In The Bakken
Sean Bellamy McNulty | May 02, 2013 03:07AM ET
If one were to assess the game changing macroeconomic events taking place around the world and rank them by importance, there is little question that the shale oil revolution would be among the top of the list. It has resurrected US domestic oil production and is one of the brightest parts of the US economy. North Dakota, where majority of the shale oil production is currently located, boasts a sub 2% unemployment and higher per capita income due to this technological innovation.
Dr. Mark J. Perry, a professor of economics at the University of Michigan, has provided some of the best coverage of this macroeconomic event via his blog, Carpe Diem, which I highly recommend you subscribe to if you don’t already. Below are five charts, four from his blog, to put in perspective just how revolutionary the shale gas revolution is.
First, the location of the Bakken Formation, which goes through the US states of North Dakota, South Dakota and Montana and Canadian Provinces of Saskatchewan and Alberta
Second is US oil production, which just recently surpassed production in the early 1990s.
The third chart highlights North Dakota’s contribution to this increase in production.
The fourth chart highlights the dollar value of North Dakota’s oil production. Often it is forgotten that although the US production is at levels last seen in the early 90s, oil prices even when adjusted for inflation are significantly higher than in the 90s. So the high production numbers today have a much larger dollar impact than they did in the 1990s.
And last but not least, jobs in oil and gas extraction.
Mountainview Energy, an exciting opportunity in the Bakken
Seeing this macroeconomic shift occurring, I’ve kept my ear to the street for opportunities in the Bakken. I believe I’m come across one in Mountainview Energy Ltd.
Get The News You Want
I came about Mountainview Energy through a serendipitous chain of events. A family friend, Livio Susin, setup a meeting with Jordan Capital, a Vancouver based brokerage firm. In the meeting, I met with the founder of Jordan Capital Stewart Vorberg and Vice President of Retail Sales Brian Paes-Braga. In the initial meeting we had a great conversation about the capital markets, but Moutainview Energy never came up.
Brian and I kept in touch, and during a number of subsequent conversations the Bakken Oil Fields came up. Brian said he had a play he was invested in and really liked in the Bakken which led to this article.
Mountainview Energy has been listed on the Canadian Venture Exchange under the ticker MVW since 2001, a relatively long time.
Source: Google Finance
The important takeaways from this chart are the intermediate pops in the stock price, the increase in volume since June of 2011 and of course the relatively long history. I was initially skeptical of this long history; is MVW a perpetual venture listing that occasionally pops, or is it a company on the rise to bigger and better things?
Oil Prospects at Mountainview Energy
The first thing to understand about MVW is that the MVW of 2007 is not the MVW of 2013. Below is a visualization of the balance sheet from December 2007 to September 2012:
The huge increase in gross fixed assets is a result of the 3 successful wells that were drilled earlier this year. These three wells increased production from 190 boe/d (barrel of oil equivalent per day) to 1100 boe/d, more than doubling the share price from $0.35 to $0.70 and raising the market cap to $50 million.
There is still massive upside potential in the 12 Gage Prospect, with 18 more oil wells to be drilled. You can see this in the map below, of which I’ve added the black arrows to highlight wells #1, #2 and #3:
Source: Mountainview Energy Investor Presentation
Of course, much of the upside in 12 Gage Prospect has been derisked given the success of the first 3 wells, but there will still be upside if the other 18 perform well.
MVW’s prospects aren’t limited to just the 12 Gage Prospect. In total, they own 30,000 net acres, and 12 Gage is only 12,579 net acres. The other projects include The Medicine Lake Bakken, The Statelilne Bakken, Lake Frances Alberat Bakken Prospect and Red Creek & West Pondera.
Source: Mountainview Energy Investor Presentation
If any of these remaining properties is remotely as successful, there will be another rise in the share price, as they have yet to be derisked. In addition, once they reach around 4,000 boe/d, the probability of them being acquired by a major oil producer rises substantially.
A Family Affair
MVW was founded by Joseph V. Montalban and Patrick Montalban in 2001. Joseph V. Montalban is the father of Patrick Montalban and grandfather of Joseph Montalban, who shares the same name. Patrick Montalban took over as CEO of MVW in 2006, at which point Joseph V. Montalban stepped down. Joseph V. Montalban founded his first oil exploration company in 1948, and over his long career in the oil business he discovered and developed a number of oil fields throughout Montana, including the Gypsy Basin, Highview and Bills Coulee Fields.
Patrick Montalban followed closely in his father’s footsteps graduating from the University of Montana in 1981 with a BA in Geology and going on to work in a number of oil and gas firms in the following years. He also is an important figure in the Montana Oil and Gas business acting as a lobbyist for the Northern Montana Oil and Gas Association and has been part of passing several tax simplification and stripper tax bills benefitting the Oil and Gas Industry .
The same oil and gas focus is true of the youngest Montalban, Joseph Montalban, who graduated from the University of Montana in 2008 with a degree in Business Administration and joined Mountainview Energy right after graduation to work in the oil fields.
This is where the story gets interesting, as up until the youngest Joseph Montalban’s involvement, Mountainview Energy hadn’t been involved in hydraulic fracking business. From an interview with Patrick Montalban:
“It was my son, our third generation in the oil and gas business actually, that had the idea, convinced myself and the management of this company that we needed to go into the Williston Basin and be a part of the Bakken Three Forks”
It was due to the encouragement of Joseph Montalban that Patrick Montalban leveraged his contacts in the industry to arrange for a $75 million in financing package that allowed Mountainview to purchase oil fields in the Bakken and to begin drilling three new bakken wells in North Dakota.
Joseph Montalban
The strong family ties that run through Mountainview Energy I find encouraging. Although there are examples of “crime families”, by and large grandparents don’t involve their grandsons in fraud. In addition, the longevity of the family in the Montana region demonstrates that they are likely upstanding citizens. I may be a biased in this assessment though, as I was also raised in a family business started by my grandpa, dad and uncle and in which my younger brother works in and will be taking over, Five Star Paving & Interlocking Brick.
Keeping my potential for bias in mind, I delved deeper into who the Montalbans were. Was this a family I wanted to be in business with? Or did they go from oil well to oil well, leaving their investors high and dry?
In a previous era, I may have made a few phone calls to Montana to see what I could dig up, but in today’s day and age there is an even better method of investigation, the internet.
Grandpa Montalban and Patrick Montalban’s internet profiles are relatively sparse, and understandably so, given the generation they are a part of. But Joseph Montalban’s profile, being only four years younger than I, is not. I was able to find a LinkedIn profile, plenty of newspaper articles and most importantly, his Facebook.
Now some may see this level of investigation as going too far, I see this as a relatively inexpensive lesson for Joseph with regards to Facebook’s privacy settings.
What first strikes me from perusing Joseph’s Facebook profile is that this is a man who loves what he does. In fact, I believe there are more pictures of oil wells than there are of his girlfriend. As an investor, I like this, but his girlfriend may not share my enthusiasm.
In addition, you can see how excited he is about Mountainview Energy’s prospect. Below is a picture with comments on the first oil well drilled on the 12 Gage Prospect property:
In case you missed it, Joseph’s comment to the side reads:
“AHHHH! I’m sooo excited!!!! We are finally Drilling!!!”
This type of excitement may be hard for some to grasp, but I can relate. When my dad, uncle, brother and the crew land a big paving job, they are just as pumped to get out there and start laying that “black gold”.
Joseph passion for his work and excitement for MVW’s prospects rings throughout his Facebook page. This is important, as not only will he suffer financially if Mountainview fails, he will also pay social costs given how intertwined the business and his personal life is. I like being in business with an operator who rejects the work life balance approach and instead intertwines the two. Thomas Edison said it best:
“I’ve never worked a day in my life. It was all fun.”
The Major Players at Mountainview Energy
Jim Arthaud (yellow hat) in an advertisement for his company MBI Energy Services
History has clearly demonstrated that the best decisions are made by those who participate in the benefits and costs of those decisions. This couldn’t be truer in MVW’s case, as 62% of the company is owned by insiders. The Montalbans and the board of directors have a huge stake in the success of MVW.
Of these owners two stand out, that being Carter Stewart and Jim Arthaud.
Carter Stewart is an exploration geologist who has worked in the Williston Basin for over 20 years. He also graduated from the University of Montana with a BA in Geology, same degree and university as Patrick Montalban. Professionally, he was a former director of Northern Oil & Gas, another Bakken Oil company with a market cap of$800 million. His heavy investment in MVW along with his expertise in the area is an important vote of confidence.
Jim Arthaud owns one of the largest private energy service companies in North Dakota. His firm, MBI Energy Sources, boasts revenues of $600 million annually and is continuing to grow at a rapid pace. From an interview with Mr. Arthaud:
“In the last five years we’ve grown our company five times over. We went from 200 employees to 1,100 employees, and we went from 100 trucks to 500, with another 500 subcontracted. In the next five years we plan on doubling that again.”
What I find encouraging about Jim Arthaud’s ownership is that he is a business operator with significant local knowledge of Bakken Oil projects given that he runs an infrastructure company for oil wells in the region. The fact that he chooses to invest his money in MVW is also an important vote of confidence.
Of the 87 million fully diluted outstanding shares, Jim and Carter own 32 million or 37% of the company.
The American Eagle Precedent
American Eagle Energy (AMZG) is an excellent precedent for near term price action. AMZG focuses on the Bakken area and is also just beginning to ramp up production, plus their wells are in the same area as MVW.
Source: American Eagle Investors Presentation
They were trading at $0.80 at the beginning of 2013, and when their boe/d rose to 1,600, the stock price took off to over $2.00.
If MVW the remainder of MVW’s wells are as successful as AMZG, they should see similar upside appreciation. There are also a number of other metrics which make MVW especially appealing when compared with AMZG, such as the family business nature of MVW, the 62% insider ownership for MVW compared to 20% insider ownership for AMZG and the 30,000 net acres for MVW versus the 6,000 net acres for AMZG.
The Bottom Line
The Bakken Oil Sands is a macroeconomic game changer that is an excellent addition to a well-diversified portfolio. It is the brightest spot of the US economy right now and it is less than 10 years old. There are many ways to play this exciting energy technological innovation, and I consider MVW to be one of the best ways to do so.
Admittedly, I’m not a geologist nor have I been down to North Dakota to evaluate MVW’s wells. But the actions of the people around MVW are what I believe to be the most compelling reasons to invest in the company.
First, you’re investing in a family with 3 generations of history in the Montana oil and gas business. This is appealing as you can be sure you are investing with an operation with local connections and local knowledge. More importantly, they didn’t just come to the Bakken once the good times hit and likely have a reputation that they have an interest in maintaining.
Second, you’re investing with other shareholders in Carter and Jim with extensive local knowledge. In particular, Jim connections in the region via his infrastructure business and his subsequent investment demonstrate his confidence in the projects and the Montalbans.
Third, you’re investing in a story that is just getting started. With only 3 oil wells drilled in the 12 Gage Project and 18 to go, there is plenty of upside left in that property, and another approximately 18,000 acres of future potential upside. This large development potential makes this company particularly attractive to a major. Keep in mind, hydraulic fracking is much less speculative than what oil drilling has traditionally been, with 99% of rigs hitting oil and nine out of ten wells making money.
There are of courses risks with MVW. Oil prices could be hit with a downward shock or their wells could come up empty, among other events. But in terms of a calculated risk, I believe MVW offers a superior opportunity to invest in the Bakken.
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