In a June 18 research note, analyst John White reported that ROTH Capital Partners initiated coverage with a Buy rating on Torchlight Energy Resources Inc. (TRCH:NASDAQ), which "offers very significant upside." ROTH's price target of $1.75 per share compares to where the company is currently trading, at $1.37 per share.
White noted that Torchlight has three oil and gas projects, one in the Orogrande Basin, Hazel in the Midland Basin and Winkler in the Delaware Basin. Due to the "scope of the Orogrande and results to date," the company has shifted its primary focus to that West Texas asset from Hazel, indicated White.
As for the Orogrande, Torchlight has about a 68% interest in 133,000 adjoining net acres of oil and gas leases, a "position comparable to many, much larger exploration and production companies," described White. The company has drilled two wells and is working on another, all in the Pennsylvanian Formation. Results from the third well are expected "in the near term."
To fund exploration in the Orogrande initially, Torchlight plans to use the $6 million generated from a public offering earlier in the year. Additionally, management has indicated it is willing to divest of Hazel to yield further capital to support efforts at Orogrande. "The rationale for the divestiture hinges on liquidity and the potential capital needs at the Orogrande project," the analyst wrote.
About the Orogrande project, White concluded, "While we stress Torchlight's Orogrande efforts are in the very early stages, the very large acreage position poses the potential for significant upside in terms of reserve and production growth."
As for the Hazel project, Torchlight, the operator, owns an 80% interest in 12,000 mostly contiguous gross acres on which it has drilled a handful of wells. "The results from this drilling activity have confirmed the Lower Wolfcamp A, Upper Wolfcamp B as well as the Upper Wolfcamp A, the Dean Formation and the Leonard Formation," reported White.
With respect to the Winkler project, Torchlight, a nonoperating partner, has a 12.5% interest in 1,080 gross acres. Drilling has begun there with the UL 21 War-Wink 47 #2H well. White explained that "the plan is to evaluate the various potential zones for a lateral horizontal well bore to be drilled once logging is completed."
White highlighted that inside ownership of Torchlight indicates the management team is "strongly aligned with shareholders." Directors and officers cumulatively own 27% of the common stock. Gregory McCabe, chairman of the board of directors, owns 23%, individually or through affiliates.
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Disclosures from ROTH Capital Partners, Torchlight Energy Resources Inc., Company Note, June 18, 2018
Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Within the last twelve months, ROTH has received compensation for investment banking services from Torchlight Energy Resources, Inc., Earthstone Energy, Inc., Halcón Resources Corporation and Ring Energy, Inc.
ROTH makes a market in shares of Torchlight Energy Resources, Inc., Callon Petroleum Company, Earthstone Energy, Inc., Diamondback Energy, Inc., Halcón Resources Corporation, Ring Energy, Inc. and RSP Permian, Inc. and as such, buys and sells from customers on a principal basis.
A Research Analyst and/or a member of the Analyst's household own(s) debt or equity securities of Torchlight Energy Resources, Inc. stock.
Shares of Torchlight Energy Resources, Inc. may be subject to the Securities and Exchange Commission's Penny Stock Rules, which may set forth sales practice requirements for certain low-priced securities.
Within the last twelve months, ROTH has managed or co-managed a public offering for Torchlight Energy Resources, Inc., Earthstone Energy, Inc., Halcón Resources Corporation and Ring Energy, Inc.
ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months.
