Ashley: Hi I’m Ashley Johnson, I’m here today with John Jurasin, CEO of Radiant Oil & Gas. This is The EnergyMakers Show, welcome to the show John.
John: Hi Ashley, how are you?
Ashley: I am well.
John: Thank you for having me.
Ashley: Thanks for joining us. Why don’t you start by telling us a little more about what is Radiant Oil & Gas today?
John: Radiant Oil 7 Gas is a publicly traded OTC company. We are looking to do transactions in the Gulf Coast region of the United States. We’re concentrating on places where we believe there is a lot of value and that means that we’re basically doing conventional plays in the Gulf Coast of the United States.
Ashley: Why don’t you talk a little bit more, I know that you guys use some different technology which makes conventional drilling a lot more efficient.
John: The technology aspect of what we’re doing is I think is pretty considerable. These old fields that we’re looking at redeveloping, we have a great case example of one of those fields that was bought by an independent oil and gas company, they did some very good 3D geophysical methods on it with new processing technology. They were able to image correctly where oil and gas is and as consequence on one of these old fields this company brought production from 500 barrels a day to 22,000 barrels a day and effectively produced 44 million barrels of oil in 7 years. So that model is the model that we aspire to be on all projects that we’re looking at.
Ashley: I kind of want to hear what got you into geology in the first place.
John: I got into geology actually because of the Arab oil embargo. I thought it would be a good place to make some money and I happened to be in the sciences end of things and went into geology to get the new oil and gas business.
Ashley: Now today we’ve experienced a lot of market changes in the last several decades; going forward how do you anticipate riding that wave?
John: That’s a great question. As you know we have just come off of what I would arguably consider the worst oil recession since 1928. 2008 in my view was akin to 1929 and what’s happened since 2008 is in my view you’ve had a re-equilibrium of all the commodity prices worldwide. So you ask the question why is oil $55.00 a barrel, the answer is that’s what someone is willing to pay for it.
I think the market today is a market that is very sober as far as commodity prices are concerned, and I think because of that and because of the economy we’ve had that was not so great in the last 9 years we’ve had a little bit less demand than we probably normally would have, my view is that the market is going to stay very steady. I think coming out of one of these lows you end up being in a 5 to 7 year cycle of stability and in my view I think we’ll be kind of ticking up but gradually into the $60.00 barrel range by the end of next year. It’s not only my view but I think people like Goldman Sachs as well believe that way.
Ashley: Now for you guys though, your margins are fantastic right? You’ve kind of got this padding a little bit better with conventional, it doesn’t cost as much, right, as far as fracking?
John: That’s absolutely correct. At the end of the day here the strategy we decided to stick with is a strategy of very low risk properties that are already tried and true. These are the properties that have been in the possession of the major oil companies over the last 70 or 80 years. The majors have exited the United States for certain reasons and we have a generational opportunity to pick these leases back up and develop them. And so when we develop them to your point we believe that we can drill wells in the 5,000 to 8,000 foot range for $500,000 to $1.2 million for drilling complete. That’s very competitive; even if we look at our worst case scenario of 50,000 barrels per well that’s still a 3 to 4 to 1 on your money and our program is built as a very low risk program with returns that we believe are superior returns to the market.
Ashley: We talked before this about drywells and what does that mean exactly because I know you guys are actually able to kind of reinvigorate some of these “drywells” that aren’t necessarily dry.
John: The definition of a dry hole is a well that you drill and you may find hydrocarbons in it but it’s not economic. So a dry hole is an uneconomical well that’s drilled. Relative to what we are doing we have found that in a lot of these old fields some of the wells that have been abandoned and have sat there during this terrible period of oil as low as $26.00 a barrel, those wells were abandoned by operators because they were not economic and in effect we believe that 10% to 15% or maybe 20% of our opportunity is looking at those wells at today’s economics. Where we can go and evaluate them, test them and produce them.
Ashley: That’s really contrarian to what a lot of people are saying about the industry so can you tell me a little bit more about that?
John: Well that’s exactly right and I use the analogy that we talks about earlier about playing tennis and hitting the ball when people are not. Effectively where people are we believe that you have elevated prices for everything – land prices in the neighborhood of $30,000 to $40,000 an acre. By contrast our acreage positions cost $200 an acre. My view is that all of those costs that you bear where you’re putting a lot of upfront cost to develop these unconventional fields, we believe we want to leverage those costs and use them today to develop these properties that are much less expensive to develop. And in my view you have an advantage on the time value of money when you do that; meaning you’re putting your money to work today and you’re not spending as much. So in my view that helps the general economics of the program.
Ashley: So fracking has a lot of costs associated with it, costs of water and sand, why don’t you tell me a little bit more about the way that you guys are drilling that doesn’t require overhead?
John: I think the simple answer to that is we want to avoid those upfront costs. When you have to spend those initially you have a tendency to on the time value of money degrade the investment. Avoiding those costs and avoiding the controversy of fracking is where we would like to be. We’re not using large amounts of sand in the well; we’re not drilling wells that are 10,000 foot horizontal. These are generally in areas that have been tried and true and people have been doing this kind of work in these fields for 100 years. So I agree with you, we’re playing the counter play, and we are avoiding all the controversies of fracking and sand and costs and water.
Ashley: You make a really great argument about a conventional play, so is that attracting more people to conventional?
John: It’s just now starting to. If you look at the last month’s articles in the Wall Street Journal I think they make a good argument for getting back into the conventional world, especially as to it terms of rates of return. And it’s my view that as oil stays in this range that others will understand that the economics for startup in the conventionals are not as great and therefore we are absolutely in a competitive market. And what I mean by competitive market, not only are we competing with the Gulf Coast versus the Rockies versus California, but we’re also competing with Saudi Arabia and all of the other oil interests around the world. My view is that competition is not going to go away for a long time. As you know, when people are looking to make money they get very competitive and we want to play in that competitive space because our view is that we are much more competitive than those trends at the margins that we’re looking at. So we’re purposely wanting to be in the trends where margin is your favor.
Ashley: Thank you so much for joining me today John, I appreciate it.
John: Thank you very much.
Ashley: I’m Ashley Johnson, this is The EnergyMakers Show. I was here today with John Jurasin, CEO of Radiant Oil & Gas. Thanks John.
John: Thank you Ashley.
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