The Speculator

In anticipation of more good news from Golden Gate Petroleum, we lift our holding by 50%.

PORTFOLIO POINT: We boost our Golden Gate Petroleum holding 50% on expectations of a run of positive news.

After reading the upbeat presentation delivered at the Golden Gate Petroleum (GGP) annual meeting in Melbourne on November 30, I was moved to consider lifting our holding.

Executive chairman Steve Graves repeated the company’s strategy to concentrate on low-risk, low-cost development opportunities based on acquiring or farming in on proven reserves.

That strategy is now starting to deliver, with a string of successes on ground acquired earlier this year in west Texas, widely regarded as among the most reliable oil and gas ground in the US.

Last week we bought, when Golden Gate’s share price drifted with the rest of the market to a week’s low of 1.8¢ down from a week’s high of 2.4¢ on turnover of 338.2 million shares. We picked up another 90,000 GGP at 1.8¢. That boosts our portfolio holding by 50% to 270,000 shares at an average price of 1.3¢.

The company’s first move under its new strategy was announced in October 2010, with a proposed deal to acquire proven but undeveloped reserves at a purchase price of less than $US1 a barrel.

That deal, completed earlier this year, involved Golden Gate buying 100% of the four leases then held by Arturus Resources (AKW) in “the prolific hydrocarbon-producing area” of the Permian Basin in Reagan and Irion County, Texas.

The acquired leases cover 8806 gross acres. The agreement called for the $US4.9 million purchase price to be settled through the issue of 196 million Golden Gate shares together with a payment of $US2 million cash.

That was completed earlier this year (see Speculator, June 15). Golden Gate now has 100% working interest and a 75% revenue interest in the ground acquired, which was then estimated to contain reserves of 4.3 million barrels proven oil (P1 – mostly proven and undeveloped) plus 11.54 billion cubic feet of gas. Combined P1 and P2 (50:50 probable reserves) were estimated at 10 million barrels of oil. Since the deal was conceived more than a year ago, the world oil price has nearly doubled.

With the completion of the deal, Golden Gate then had $2.5 million cash and no debt. It was then estimated that the dry hole risk on defined targets was less than 1%, with completion costs (including “fraccing” of $US1.5 million a well.

-The Speculator portfolio, as at December 7, 2011
No of shares
Purchase price
Current price
Current value
Image Resources
31/12/2010* *
0.362 av
$.552 av
Robust Resources
$1.49 av
Scotgold Resources
Scotgold Resources Options ex30/4/12 @ 8c
GoConnect Ltd
0.425 av
Broken Hill Prospecting
Austpac Resources
Potash West
Cortona Resources
0.146 av
Golden Gate Petroleum
0.013 av
TNT Mines
Quickstep Holdings
Orpheus Energy
0.164 av
Total value of portfolio
Cash at bank
Portfolio change since January 5, 2011 (started with $50,000)
All Ordinaries change since January 5 2011 (then 4846.9)
* Shares held from previous year, carried at their December 31, 2010 closing price. * * Bought extra 4000 Image March 15, 2011, at 42.5¢. Bought extra 5000 Minemaker, March 16 at 36.5¢. *** subscribed for 10,000 shares at 20¢ each - plus free 1050 entitilement from Image Resources. April 13: Bought 5000 CRC @ $0.165; sold 25,000 CRC options @ $0.05. April 20: Bought 60,000 Golden Gate Perro GGP @0.017 $20 brokerage = $3,120. May 11: Bought extra 50,000 Viralytics @ 6.2¢ = 0.046 av price. May 18: Sold 25,000 at $0.10; $2500 (less brokerage) = $2480. May 25: Bought 20,000 MAU @ $0.15 $20 brokerage = $3020. June 1: Sold 8,000 MAU at $0.25.5; $2020 (less brokerage). Will buy 50,000 VLA @ .069 plus brokerage ($20) = $3,470. July 13: Bought 100,000 GCN @ 0.08 plus brokerage ($20) = $820. July 20: Bought 15,000 CRC @ 0.14 plus brokerage ($20) = $2,120. July 22: Free TNT Mines allotted = $1,100. August 10: Bought 3,000 Robust Resources @ $1.25 plus brokerage = $3,770. August 17: Subscribed for 8,000 Orpheus Energy @ .25 (no brokerage) = $2,000. August 31: Bought 7000 IMA @ 0.31 $20 brokerage = $2,190. September 21: Bought 120,000 GGP @ 0.009 $1080 brokerage = $1,100. September 28: OEG 1250 from free 1 for 8 distribution from parent Coalworks (Sep 23) plus on-market purchase Sep 25 10,000 at 11.5 ($1150 brokerage) = $1,170. October 26: Consolidated VLA holding, 12,500 shares @ average 55.2c. NOTE: TNT not listed yet (deferred); but issue was "shares worth 25c). November 23: Sold TRF (net $2580) and MAU (net $1660). Bought 20,000 QHL @ .185 $20 brokerage = $3720. November 30: Sold 80,000 GoConnect @ 7¢ = $5580 after brokerage. December 6: Bought 90,000 GGP at 1.8¢ =$1640 (inc brokerage).

Two successful wells; third to spud this week

Golden Gate spudded its first west Texas well on October 10. Yesterday (Tuesday, December 6), the company reported its first oil and gas discovery well – SRH-C#6H -- was continuing to unload frac fluid from the successful fracture stimulation program.

“The oil and gas cut from the frac fluid production is currently running at approximately 80 barrels of oil and gas a day. About 30% of the frac fluid has been produced using an electric submersible pump. The fluid production rate has been set at 330 barrels a day to protect the intervals that have been stimulated,” reported the company’s petroleum geologist Mickey McGhee.

The company added that oil sales were planned to begin this week and a full production test is expected in two weeks after all the frac fluid has been recovered.

After initial preliminary tests on the well, the company estimated from log analysis it would yield 260,000 barrels of oil valued at more than $US20 million in gross revenue, assuming an oil price of $US80 a barrel. (It’s now about $US100.)

Meanwhile, the company’s second successful well – SRY-A#8A – is being prepared by Halliburton for hydraulic fracturing to start on Friday of this week. Golden Gate said it would take about seven days to run the frac program, then two to three weeks to unload the frac fluid before undertaking production tests.

The third well in the company’s planned 10-well drilling program will also begin this week, to be immediately followed by a fourth well planned to be completed before the end of the year.

A fifth well –planned for January – will be the company’s first horizontal well with a projected completion time of three weeks. Geologist McGhee added that “production rates from horizontal wells in our area appear to achieve three times the initial production rates of vertical wells”.

Yesterday’s announcement also confirmed the company was planning for a 110-well full project development. Well payouts have been calculated at 10 months with a 100 barrels/day production rate at an oil price of just $US80 a barrel.

There will be plenty of news in the coming weeks to hopefully stimulate the share price.

Golden Gate now has on issue 1,761,952,688 shares, which at 2¢ give the company a market capitalisation of $35.2 million, backed by net book assets of $10.5 million including cash of $2.4 million.

I expect shareholders may be tapped for another capital issue in a month or so, particularly with continuing field success.

This week: Bought 90,000 Golden Gate (GGP) at $1.8¢ = $1640.

David Haselhurst writes a monthly column for Money magazine. Please note that he is not able to provide personal replies to emails.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles