Granite Oil: Still Bullish

Temporary operational setbacks have sent the stock to the cave.

Tighter well spacing wasn’t optimal after all.

In 2017, the Company tested further down‐spacing, with infill drilling on 100 and 133 meter intervals (see May 9, 2017 press release). These wells initially tested at rates comparable to wells drilled on 200  meter spacing, and while economic, have proved to be less productive over time.

Granite Oil Press Release, November 9, 2017

Well spacing will be 200 meters from now on.

Despite these setbacks, Granite is still one of my favorite oil stocks.

  • The company will spend over C$10M in growth capital in 2018. This will grow production 600 barrels per day year-over-year.
  • Cash netbacks are high.
  • The dividend is safe at current WTI prices.
  • Some of the decrease in production is due to conversion of producing wells to gas injectors.

Plus there are still 80 drilling opportunities to further grow production and oil recovery. The next area of focus is delimited in purple, with approximately 10 drilling locations

Drilling Development GXO December 03

Source: Corporate presentations and my own work

I added to my position on November 15, 2017.

Disclosure: I am long GXO. Not for republication on Seeking Alpha.