Harry Norman for Proactive Investors talks to Mike Ford, CEO of Caza Oil and Gas, listed on the open market oil and gas producer sector.  Stock ticker CAZA, share price 10.88p, market capitalisation £17.92 million. Please note Caza Oil and Gas is also listed on the Toronto Stock Exchange.  www.cazapetro.com.

Harry Norman: Please give the investment community a brief introduction to Caza Oil and Gas, the company’s focus and your strategy for creating value?

Mike Ford: Okay Harry, well, Caza is a US based oil and gas exploration appraisal, development and production company with assets in Texas, New Mexico and Louisiana.  

Our strategy continues to be centred around two key focus areas.  One the high impact area under our vast 3D seismic database in Texas and Louisiana along the Golf Coast.  And two the oil rich areas of the Permian Basin in West Texas and southeast New Mexico.  

Harry we recognise the value in generating and drilling high impact prospects.  Our extensive 3D seismic database allows us to achieve this while giving us a distinct competitive advantage over companies of a similar size and value.  

We are currently considering two high impact prospects for drilling in 2012, Consilience and Lewis.  That means that the natural gas prices remain low in North America and Caza is focusing the majority of its 2012 budget on the Bone Spring horizontal play in southeast New Mexico.  

The Bone Spring formation contains stacked pays including the Avalon shale, the First, Second and Third Bone Spring Sands, and the Wolfcamp.  Each zone is capable of delivering a good return on investment.  

All of our properties are on shore.  We do have some bay properties that are in very shallow water but they’re all under state regulations not federal.

Harry Norman: Caza Oil and Gas has just released its final results for the year ending December 2011, please would you talk us through these results and your thoughts on them?

Mike Ford: Yes, well, as recently reported in our Final Results Announcement, our proven reserves increased 36% to 2.35 million barrels of oil equivalent.  The net present value of the future net revenue attributable to the proved reserves increase 63% to US $46,000,000 and proved plus probable reserves increased 72% to US $145,000,000.  

Our average production volumes increased 38%, and due to the change in commodity prices along with the increased volumes, our revenues were up 83% to US $4,000,000.

Interviewer: Could you talk us through the state of Caza’s development and production reserves and resources and tell us about your current development and production activities and your expectations of these assets?

Mike Ford: Again, with oil prices remaining high, Caza plans to capitalise on its position in the horizontal Bone Spring play of southeast New Mexico.  

According to our recent reserve report, Netherland, Sewell and Associates has assigned 100 viable Bone Spring horizontal drilling locations to our current leasehold position with total proved plus probable plus possible net reserves to the company of 16.7 million barrels of oil equivalent.  And these wells exhibit high production rates which translate to consistent increases to our cash flow throughout the year.

Harry Norman: What is the rationale for Caza exploring the possibility of divesting the San Jacinto property in Midland County, Texas?

Mike Ford: Well, we’re very pleased with the progress made at San Jacinto and we recognise that there’s a strong growing market for this type of asset.  

As we’ve proven with the first two wells, you can successfully commingle and simultaneously produce out of multiple pay zones.  In this area with long life reserves, a successful exit would have the potential to unlock the increased value that we have created at San Jacinto and give the company a nice early return on investment.  

If an agreement to sell San Jacinto is ultimately reached, we intend to use the proceeds to further existing assets with greater reserve and cash flow potential such as our Bone Spring properties and to pursue new opportunities in order to add additional shareholder value.

Harry Norman: What is the drought situation currently in Texas Mike and is it impacting any of Caza’s development activities?

Mike Ford: Well, the drought is extensive and everyone has had to make necessary adjustments in their daily routines, but so far it hasn’t negatively impacted Caza’s development activities.  And as far as I know, it really hasn’t impacted any of the energy sector at this point in time.

Harry Norman: In South Texas and South Louisiana, Caza is more focused on high impact exploration and uses a proprietary database.  Tell us about this database Mike and how the dry well at Arran has affected your thinking about these properties and about the database?

Mike Ford: Well, as I stated earlier, the database gives us a distinct competitive advantage over other companies.  The entry cost to acquire seismic data licences in our focus areas, creates a barrier to most companies of a similar size.  

Since we have licenses to such a large amount of data, we can apply new reprocessing techniques to specific areas in order to create unique proprietary data sets.  The newly reprocessed data then allows us to identify and match structurally complicated features while using direct hydrocarbon indicators to lower the risk.  

And it’s with this technology that we’re able to locate large opportunities that have not been seen historically.  

Now, Arran was a disappointment, but these high impact prospects while having greater upside potential, do carry much greater risk.  Arran provided us with vital data that’s allowed us to improve the modelling associated with these features which should translate into lowering risk for us in the future.  

We still see real value in our seismic database and, as stated earlier, recognise the value for our shareholders in continuing to generate and drill high impact prospects.

Harry Norman: What can you tell us about Caza’s high impact resources and your current activities and plans for your high impact exploration portfolio?

Mike Ford: Well, as I just stated before, Caza intends to continue generating and drilling high impact prospects in the future.  Although the price outlook for North American natural gas is currently problematic, high impact prospects in Louisiana typically produce large amounts of associated liquids making them economically viable despite the low natural gas price.  

Therefore, we’re evaluating our Lewis prospect against the rest of our project portfolio and continue to work with the third party operator with the intent to drill a test well sometime this year.  

We’re also currently marketing our Consilience Cib Op prospect in Atchafalaya Bay, Louisiana.  The Cib Op play has garnered attention in this area because of recent discoveries that are in close proximity to our lease block.  

Provided we’re successful in the marketing efforts, we intend to drill a test well at Consilience as early as Q4, just following the hurricane season.  Beyond that, we continue to generate and refine new projects from our seismic data set to add to our growing portfolio.

Harry Norman: Please tell Investors whether Caza Oil and Gas is still debt free and talk us through the company’s capital structure and financial situation going forward.

Mike Ford: Well Harry, Caza does remain debt free at this time and it’s probably a unique thing to see an energy company of our size that’s not carrying debt.  

We also still have a working capital of about $8,900,000.  We plan to sell down in our Bone Springs project to a 25-50% level.  We will sell down to a manageable interest in our high impact projects in Louisiana and apply possible proceeds from the sale of San Jacinto to other value creating opportunities that are currently available to us.  

And our current outstanding fully diluted shares in the company would be 202.3 million shares.

Harry Norman: What can Investors expect from Caza Oil and Gas over the next 12-18 months Mike?

Mike Ford: Over the next 12-18 months we intend to organically grow the reserves and cash flows of the company by primarily focusing on lower risk oil portfolio projects.  And as stated, we would also like to see test wells drilled at Lewis and Consilience.  

We have a strong opportunity set in front of us and with proper execution the growth potential for the company is substantial Harry.

Caza Oil & Gas (LON:CAZA, CVE:CAZ) today told investors it is putting its controlling stake in the San Jacinto property in Texas up for sale.

It said that recent operations on the property were a success and the Caza Elkins 3401 and 3402 wells are both performing as expected.  

However, Caza says it is looking to sell the property because it has even more favourable investment opportunities elsewhere and attractive sales prices for similar properties.

"We are very pleased with the progress made at San Jacinto and recognize that there is a strong and growing market for this type of asset.  A successful exit would have the potential to unlock the increased value that we have created at San Jacinto,” said chief executive Michael Ford.  

“At present, we are exploring the options and opportunities available to us with the successful sale of this property and will look to further update shareholders as and when there are further developments." 

Caza owns an 85 per cent working interest in the Caza Elkins 3401 well, with a 63.75 per cent net revenue interest. And it has a 75 per cent stake, with a 56.25 per cent net revenue interest, in all the other wells drilled on the property.

The asset has now been listed with property marketing firm the Oil & Gas Asset Clearinghouse. It will determine the level of interest in the current market.  

Caza says that the orderly marketing of the property is most likely to achieve a desirable valuation but it is under no obligation to sell if offers don’t meet its expectations.

The future sale proceeds would be used to develop existing assets and make in investments.

“Caza remains actively involved in reviewing and grading such opportunities on an ongoing basis, and management remains keen to continue growing the company's asset base and production profile using a variety of means,” the company said.

Chief executive W Michael Ford said that it intends to “target these oil and liquids-rich opportunities within our inventory”.

Caza has a 40% working interest and a 32% net revenue interest in the Mud Slide Slim well in New Mexico, which has been producing gas since 2008.

This prospect includes the Bone Spring horizontal play where a host of other producers have been drilling wells in the past 18 months.

Caza said it recently conducted its own extensive stimulation and production tests on each of the Bone Spring zones in the Mud Slide Slim well. 

The tests showed each zone of interest, the Avalon Shale and 1st and 3rd Bone Spring Sands, to be commercially productive and therefore viable horizontal targets. 

Caza has now comingled these zones with the well producing at a peak daily rate of 159 barrels of oil per day and is currently producing 73 barrels of oil per day using a pumping unit.

W Michael Ford added: “The recent re-completion of the Mud Slide Slim well in the Bone Spring Formation has further improved our production profile at a relatively low cost to the company.”

“More importantly, we are very excited about the Bone Spring Formation and the potential for further horizontal drilling within our lease blocks.  We are currently evaluating the production potential of the Bone Spring horizontal play and how it might impact our current New Mexico acreage position. This may also impact our 2012 drill plan when evaluated against the rest of our prospect/property inventory.”  

Caza added that fourth quarter production overall increased to 277 barrels of oil equivalent per day, up 19% on the third quarter’s 233 barrels of oil equivalent per day. 

Shares rose by 7% to 10.85p.