The International Resource Journal: Cinch Energy Corp.

Cinch Energy Corp.
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admin on 31 July, 2009 03:20:00
 
Expansion through Exploration
Alberta-based Cinch Energy is a company named appropriately for its approach to
its business. Listed on the TSX under CNH, Cinch is a company backed by founders
with sound business acumen and a method for success – and they take
changes in the market in stride. The company focuses its growth through
exploration, and has an excellent land position in the Alberta Deep Basin and
British Columbia Dawson Montney Play with upside in Kiskatinaw/Wabamun.
Cinch has increased its 2008 capital budget three times to approx. $36 MM. In
2008 the Company will have increased its production base by almost 100%. The
company has 55.6 MM shares outstanding, and 4.7 MM shares are under option.
Although the economy is tough, George Ongyerth, President and co-founder
doesn’t shake easily. He’s been in the business a long time and is
in it with a partner he’s known for decades. “We lived in the same
area, belonged to the same golf course, and took our kids to play sports on the
same teams. The history we have professionally reflects how long we’ve
known each other personally.”
Ongyerth’s business partner and CEO of the company, John W. Elick, is a
“landman by trade”, and he has led the company making sizeable land
deals – staying away from small play types. Elick was with Amoco Canada
Petroleum Company Limited for 23 years, and advanced to be Division Landman of
the Northern Division. Ongyerth was former President of Hunt Oil Company of
Canada, Inc. Ongyerth’s technical expertise and geology knowledge combined
with Elick’s business savvy set them apart as a seasoned management team
– both are over 50 and credit much of their success to honed instincts.
Sometimes a risky business
Elick invited Ongyerth into the business at a time when he was eager for a
career change. With his experience helping a private company go public, Ongyerth
knew it was time. “I was ready to move on, and with Cinch looking to go
public I knew the right step was in front of me.”
Cinch went public in 2004, and in 2005 started expanding its exploration into
B.C. – making it a two-area company with a significant land spread. By
nature of the geological reservoirs in the B.C. areas Cinch investigates, the
risk for exploration is notable. The area is multi-zoned and the geology of the
reservoirs is difficult to correlate. However, the reservoirs are prolific
producers and Cinch will take on this risk to maximize the company’s
productivity.“As a junior, the risk is palpable – at $3 to $4.5
million in total for drilling costs in such an unstable environment, we have to
be very careful.”
The B.C. perspective
In 2005 the company decided to mitigate those risks by looking into shallower
areas in British Columbia. Cinch is very optimistic with respect to its future
in B.C., especially because of the current royalty regime in Alberta. Although
not entirely against the royalty system in place in the province, Ongyerth knows
that the effects of royalties in Alberta will continue to hit juniors’
bottom lines in the province until the process is improved.
“Do the royalties mean we won’t do business in Alberta? Of course
not. But for smaller companies, if royalties are maximized before they recover
their capital investments, it could be seen as punitive and cools the investment
climate. For example: if we have a well in Alberta and it produces 10 million
cubic feet per day, in January of 2009 when the new royalties are imposed that
well will only see 50% of what it is worth. In B.C. that same well, and the
Company has one on its Dawson property, would be maxed at 27% royalties.
That’s a big impact, especially for juniors. I am an optimist, but for now
we’ll focus the bulk of our energy in B.C.”
The oil and gas market has, without a question, been impacted by many
significant circumstances. Lower prices for natural gas have spurred from
several years with warmer winters and wet summers, and this has not helped the
industry. It’s no wonder Ongyerth and Elick express the excitement they do
about work in B.C., especially the prospective potential of the Dawson acreage
in the Montney, Kiskatinaw, and Wabamun zones. The Dawson area in particular has
witnessed very significant expenditures by industry for Montney potential
acreage. This zone is exploited through new horizontal techniques for drilling,
and completion fracing procedures, which previously were not available.
"Cinch is a self-sustaining company."
Despite the recent unstable economic state in North America, Ongyerth remains
unfazed. “From a financial standpoint we don’t need to raise money.
We’re living off cash flow and our bank lines, which is good because of
the financial turmoil that is affecting the nation currently. We are a
self-sustaining company.”
Ongyerth also states that current trends toward cleaning up the environmental
impacts of the oil and gas business are positive, but that overall, the industry
is extremely sensitive to environmental issues -despite what the media may
report. “The rules are fairly onerous on us to make sure that we’re
being environmentally friendly. I know that in our conventional drilling
we’re very cognizant about where the pipelines go, how we cross rivers,
how we reclaim lands, and we never get approvals until an inspector signs off on
our work. Cinch belongs to the Canadian Association of Petroleum Producers, and
as such we could not join unless we proved that our business is environmentally
sound. The industry is not as “dirty” as many may believe it
is.”
Cinch celebrated a good year in 2007 and has plans for more expansion in the
Dawson area. Its founders have an optimistic approach to business overall, but a
very ambitious management team means Cinch will undoubtedly not rest on its
laurels anytime soon.
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