(Disclosure: The following represents my opinions only. I am not receiving any compensation for writing this article, nor does Hydra Capital have any business relationship with companies mentioned in this post. I am long IKM.V and SDX.V).
Ikkuma Resources (IKM.V)
Ikkuma reported results this morning from the second well into its yet unnamed Foothills Cardium light oil discovery. After one week on mechanical lift (pump), the reported flow rate is in the 230-300 bopd range with 50-70 boepd of associated gas. The reported fluid rate apparently represents the limit of the capacity of the temporary production equipment and IKM mentions that it will consider other forms of artificial lift to improve returns (I assume that means flow rates). While it's disappointing to have this well limited by equipment capacity, it does appear to represent a second oil pool in the company's Foothills Cardium play and I have a hard time believing that the company is worth less today than it was on Friday (though it did have an anomalously strong close on Friday... hmmmm).
The third well into the play is already underway and Ikkuma seems committed to driving well costs down while optimizing wellbore and production design. At some point IKM is expected to need more capital, so that might keep a bit of a lid on the stock, but given that the company still trades well below its last reported PDP NAV this story still represents an interesting (and arguably asymmetric) speculation in the Canadian small cap energy space. Canadian E&P stocks have been mostly for sale recently, so IKM is fighting a falling tide, but IKM seems to have found a decent amount of oil here which should embolden true oil bulls. In the meantime, the market waits for per-well productivity numbers that show 300 bopd can be the lower limit as opposed to the upper limit. The stock is off 4 cents as I type this at C$0.93. Third time's a charm?
SDX Energy (SDX.V)
Last week, SDX reported that it had inked a deal to acquire some of Circle Oil's assets in Egypt and Morocco, taking combined pro forma production to 4,700 boepd and reserves to 12 mmboe. The details are laid out in a press release on the company's website that you can link to here. SDX is expected to have 186.9 million shares outstanding after the transaction is completed and the company reports that it successfully gathered US$40 million in share subscriptions to fund the acquisition which is impressive for a relatively unknown junior oil company. The company's numbers suggest "free cash flow" of US$30 million in 2017 and US$40 million in 2018. If you believe those numbers that means SDX's C$120 million market cap (at C$0.64/share) represents ~3x free cash flow. Some companies have looser definitions of free cash flow than others, but these numbers appear to represent operating cash flow in excess of capex (but no mention of G&A and other expenses).
SDX appears to be well on its way to executing a regional roll-up strategy as it successfully morphs from a tiny company offering exposure to a big exploration target into something that more resembles a proper regional energy company. That will likely be a welcome transition for a wider audience as the company takes on a less-binary risk profile... and if oil runs, who knows where this could go...