With $5 Million in New Financing, This Small Cap Oil Company Sees Opportunity in the Midst of a Pandemic-Induced Major Oil Downturn

Update: On June 23, investor Michael L. Graves announced that through Catlett Sands-II, LLC he had acquired additional 8.473 million units of Jericho Oil in the recent private placement, bringing his total ownership via Catlett Sands and Inter Vivos Trust to approximately 23.9% of the firm on a partially diluted basis. On the same day, investors Steve and Mette Hegna announced that they acquired more than 8.473 million units of Jericho Oil, bringing their ownership stake to around 17.1% on a partially diluted basis.

Technical Analyst Update: Technical analyst Clive Maund wrote on CliveMaund.com on June 25: "There has been news of insiders building big stakes in the company. . .The game plan appears to be that the company makes strategic acquisitions, which is what the recent successful $5 million funding was all about, and these combined with the efficiency of the company's operations make it an attractive takeover candidate for a larger company, and we can reasonably presume that these experienced investors know that. These recent actions by big investors of course increase the likelihood of a breakout by the stock soon."

With many small oil producers fighting for survival, Jericho Oil Corp. (JCO:TSX.V; JROOF:OTC) has taken the opposite tack and plans to go on the offensive and acquire assets, recently closing a $5 million non-brokered private placement with existing large shareholders.

"Recent actions by big investors of course increase the likelihood of a breakout by the stock soon." - Technical analyst Clive Maund

"Jericho sees opportunity in the present environment and will look to acquire what it perceives to be high-quality assets in special situations," the company stated. "While Jericho does not currently have any binding agreement to enter into any such transaction, having cash on hand will allow it to be nimble as market opportunities may present themselves."

Jericho benefits from a tight share structure with committed shareholders. "Insiders own around 27% of Jericho's shares, with another 50% or so owned by large shareholders and family offices. There were just a handful of investors in the private placement that closed on June 12, four of whom comprised the vast majority," Jericho CEO Brian Williamson told Streetwise Reports.

"Our shareholder base provides us not just capital, but also valuable access to some of the most knowledgeable and successful oil and gas families and great business leaders," Williamson said. "Having shareholders and access to incredibly successful leaders like Ed Breen, CEO of Dupont (DD:NYSE), a $38.5 billion market cap company, and others of his ilk, provides us with great resources to assist in navigating these markets. They believe that these are the times in which to act and we couldn't agree more. We have seen that it's not always the best price that wins in a market like this, it's speed and certainty of closing that are the most valuable assets."

Technical analyst Clive Maund has Jericho on his radar, writing on June 15, "The company is understood to have some powerful backers, which helps to explain why the financing was fully subscribed even in the current awful environment for the industry, which is thought to bode well. . .Jericho Oil is regarded as an interesting speculative play here for a possible reversal leading to a potentially sharp upleg."

Jericho has raised $47 million since 2014. "With all those raises we have never engaged a bank or paid a finder's fee," Williamson said. "Why is that important? With banking fees ranging from 6% to 8% that means we have not paid ~$3.5 million in fees. That money has gone 'into the ground.' "

"Our insiders and large shareholders is why we have closed every deal that we have been the successful bidder. Our shareholders are there for us when we need to close on a deal. I am confident that going forward we can continue to expect their support. History has shown that," Williamson stated.

Jericho is one of the few junior oil companies raising money in this market and credits the company's shareholder base. "We can call on our shareholders for financing and advice. We are unique in that regard and one of the reasons I believe this team will be the junior to capitalize on the distress in the market right now," Jericho Director Allen Wilson noted.

Steven Hegna, a longtime shareholder of Jericho, said, "Having owned and operated my business for 20+ years, I know what it takes to build and run a company through good and bad markets. And I've seen Jericho's management team react through good and bad markets as well. They are doing an excellent, responsible job and that is part of the reason I continue to support this oil company. They are driven to succeed."

"Never a company to waste a crisis and noticing the carnage in the marketplace, we decided to turn the situation to our advantage," Williamson said. "The oil market has had very little opportunity to realize any sizeable upside in the last five years, as the price of oil has stayed under or around $50 per barrel for most of that time with heavy bouts of volatility. Many companies began to drill wells only to see the forecasted revenue materially change to their detriment due to drastic price declines. With many of these wells drilled on debt, a downturns like this can create distress. This seems like a buyers' market but there is a lot of capital looking for 'cheap deals' and few sellers. We believe Jericho's ability to offer both cash and stock in a transaction provides optimism for potential upside and the company's capacity to act quickly could be the key to its success in this market."

The firm is focusing on major and mid-major oil companies that are selling non-core assets. "Those assets can be hundreds of barrels a day of production that we can make money on at these prices. Why? We have assembled a top tier team that can operate them and by default, our G&A will be lower. That couldn't be more evidenced by the team taking pay cuts now. We have incentivized our top tier team with options to keep that G&A down and align our team's success with the shareholders," Williamson stated.

"The idea is to look for a larger acreage position held by existing production, ultimately maintaining the resource upside in the ground so that as prices recover, we see the opportunity to develop those assets in a meaningful way," Shane Matson, Jericho's head of geology, said. "We see the opportunity in mid-to-large cap companies shedding non-core or smaller assets with a lot of development upside that a small company can turn into real value."

Jericho plans to use the funds as leverage to obtain larger projects. "We see the $5 million as a placeholder with the goal of doing something bigger. It also demonstrates to the market that our shareholders are there to push our advantaged position through this market turmoil. We want to be the minnow that swallows the whale," Williamson said.

"We will continue to do what we do best: stay nimble and look to capitalize," Williamson said. "Pursuing this equity raise leaves our balance sheet in a strong position. We see this as an opportunity to make Jericho bigger, stronger and more powerful in terms of the quality of the assets."

"The complete shock of the COVID pandemic and resulting oil price action has left the current marketplace for acquisitions limited, with many debt holders in the driver's seat for many of these stressed situations. Once the pandemic aftermath settles, we believe assets will make their way to the market over the next 60–120 days, where we will look to be opportunistic. We hope our shareholders will be rewarded for their patience and resolve," Williamson concluded.

Technical analyst Clive Maund wrote on June 15, "One of the remarkable attributes of Jericho Oil is that, despite being a junior oil company and therefore a member of one of the most out of favor sectors that you could find in the recent past, it has just managed to complete a $5 million financing that was fully subscribed and mostly bought by insiders and the money raised is not going to be used to keep the company limping along until it has to "pass the hat round again" but instead is to be earmarked for future strategic acquisitions. Its stock is very cheap here after a severe 2-year bear market and the reason that we have some interest in it now is that, in addition to the above mentioned positive fundamentals, there are subtle signs on its charts that it may be about to reverse to the upside."

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1) Patrice Fusillo compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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Clive Maund does not own shares of Jericho Oil, and neither he nor his company has a financial relationship with the company.