ROK Resources (ROKRF) Webinar Preview - Mar 20

[dan_s]

I have reviewed the slides that ROK will speak from during tomorrow's webinar. Here are some highlights that jump out at me.

> ROK is a Canadian Junior Upstream Oil & Gas company that was co-founded by Cam Taylor (Chairman) and Bryden Wright (President) in 2019. Their team has a strong track record.

> ROK had little production until 2022 (thanks to the Pandemic) when they close two strategic acquisitions in March 2022 and January 2023 that push production to over 4,000 Boepd. Since the deal terms were negotiated during the pandemic, ROK was able to acquire good assets at a very low prices.

> After oil prices rebounded, ROK sold Non-Core assets producing ~800 Boepd in April 2023 at a GREAT PRICE. Cash proceeds from the sale paid off ALL of the company's senior term debt. < One of the most incredible deals I've seen. ROK's net debt at December 31, 2023 is $18.5Cdn million.

> December 31, 2023 ROK's 3rd Party Reserve Report shows PV10 of just Proved Reserves (1P) of $130Cdn million and PV10 of 2P of $238Cdn million. So, the PV10 Net Asset Value based on just 1P reserves is approximately $0.51Cd, which compares to today's share price of $0.26Cdn. < No profitable upstream company with free cash flow and lots of Running Room should trade for 50% of 1P PV10 Net Asset Value.

> ROK's 2023 drilling program generated strong production growth from 3,297 Boepd in Q2 to 4,650 Boepd in Q4 2023. < They replaced double the production they sold in April 2023, all paid for with operating cash flow, in 8 months.

> ROK's Q4 production came from two core areas: Kaybob 1,450 Boepd (28% liquids) and 3,200 Boepd in SE Sack (76% liquids). No more wells planned for Kaybob until natural gas prices move over $3.00.

> To save money, ROK's drilling programs start in June and end in early December. This lowers completed well costs.

> No more well completions in 1H 2024, so production will drift lower and average ~4,000 Boepd in the first half of the year. With very little capex spending the Company will generate a lot of free cash flow in Q1 and Q2 each year, using it to pay down debt and build up cash to fully fund the summer/fall drilling program. < This is a wise strategy in Canada.

> My guess is that 2024 production will ramp up like it did in 2H 2023 to a 2024 exit rate over 5,000 Boepd. < The Company has not provided details of this year's drilling program except that it will all be in SE Sack, focused on oil-prone areas. They should have operating cash flow of $35 to $40Cdn million to fund this year's drilling program.

> They are going to update us on their Hub City Lithium Project that looks very promising. The Preliminary Economic Assessment (PEA) says they have a lot of battery grade lithium within their acreage. < There is nothing in my ROK stock valuation for this.

Conclusion: ROK has more production today than Hemisphere Energy, which has been a BIG WINNER for us (over 500% return since I added it to the Small-Cap Portfolio). ROK has a lot of RUNNING ROOM in SE Sack with 95 booked development drilling locations and 30 probable locations. At $80 WTI, they have 25 drill ready Frobisher wells that have pre-drilled IRRs of 175% that should payout in less than 10 months.

[dan_s]

Joining me tomorrow will be
Bryden Wright, the Company’s President and Chief Operating Officer.
Jarod Lukomski, the SVP of Land & Business Development

You will be able to post questions to the chat box tomorrow or you can post them here.

My updated forecast/valuation model for ROK has been posted to the EPG website.

[Fraser921]

I can't wait. I share your enthusiasm.

[mitchl]

I share the enthusiasm as well. I hope the Canadians are nearing an inflection point.

[dan_s]

Note from Research Capital Corp. based in Canada:
"ROK issued an operational update in February, released year-end reserves, and provided
first-half 2024 guidance. ROK finished 2023 strong with record average production in
December of 4,650 boe/d, surpassing the upper limit of the projected exit 2023 range
of 4,300 boe/d to 4,500 boe/d. Estimated reserves were relatively unchanged despite
a significantly lower commodity price deck. Given the recent weakness in commodity
prices, ROK has set a modest H1/24 capital budget of $4.0mm to $4.5mm, focused on
low risk well reactivations and recompletions. The lower capital budget should allow the
Company to reduce its relatively small amount of debt further, positioning the Company
for an active drilling program in H2/24. We are maintaining our BUY recommendation
and have adjusted our target price to $0.60Cdn (from $0.75) equivalent to a 4.0x multiple of
our new 2024 debt-adjusted cash flow forecast."

"Significant H2/23 Production Growth: ROK completed two transactions in Q1/23 that
substantially reduced debt, and lowered production to ~2,950 boe/d. However, over the
last six months of 2023, ROK achieved substantial production growth, reaching an average
of 4,650 boe/d (60% liquids) in December 2023, representing an impressive increase of
approximately 58%. The December 2023 average included the Company’s 6-25 Glen Ewen
Frobisher well which averaged 392 bbl/d, which was the highest daily average oil well
drilled in Saskatchewan that month. Estimated funds flow in Q4/23 of US$10mm was
higher than our estimate of $8.7mm ($0.04/sh)."

"Relatively Low Net Debt: ROK exited 2023 with net debt of ~$14.5mm. Adjusted net debt,
which includes leaseholds and hedges, was ~$18.5 million. The adjusted net debt to our
2023 forecasted funds flow of $28.4mm remained modest at 0.6x. The company anticipates
a further decrease in adjusted net debt to between $13mm and $15mm by the end of H1/24."

[dan_s]

Note from Echlon Capital Markets:
"There is substantial unrecognized value in the stock for the lithium potential, which could be crystalized near-term. With that, we continue to have a Buy rating on ROK and a $0.55 PT based on a ~3.5x 2024 EV/DACF multiple adjusted for 20% of the NPV of the Hub City’s Viewfield project."

[Fraser921]

Dan, Great opportunity here, good presentation. FYI:

The warrants are trading .065-.07 Canadian with the common at .27 x .275 cad. The exercise price of 25 cents is CAD dollars or about 18.5 cents US

They traded over 20 cents last October. If crude stays up, the stock could be a double and the warrants would be worth 30 cents CAD 3 - 4 x. its also traded US dollars around 20.5 cents