ROK announced Q4 results this morning, but I need more details before I can update my forecast/valuation model.
Best news is that Q4 funds flow from operations beat my forecast and their production guidance for 1H 2024 is higher than my forecast.
Looking forward:
REGINA, SK / ACCESSWIRE / April 18, 2024 / ROK Resources Inc. ("ROK" or the "Company") (TSXV:ROK)(OTCQB:ROKRF) announces revised first-half 2024 guidance, and has filed its Annual Financial Results and Management Discussion & Analysis for the year ended December 31, 2023.
First-Half 2024 Revised Guidance < They are going to accelerate Phase One of this year's drilling program, which should add a lot of production by mid-Q3.
With the recent stability of WTI pricing, the Company anticipates commencing its drilling program after spring break-up in late Q2 2024. Key initiatives for 2024 include reducing corporate finding and development costs and expanding core operating areas in Southeast Saskatchewan. The six well program, which will target Frobisher light oil prospects, will begin with prospects offsetting the best oil well in Saskatchewan in December 2023. To support these endeavors, the first-half 2024 capital budget has been revised from $4.0 - $4.5 million to $10.0 - 10.5 million. This acceleration of development is contingent on various factors, including favorable weather and road conditions following spring break-up. < Operating cash flow during 1H 2024 should be $16 to $18 Cdn million; more than enough to fund this phase of the 2024 capex program.
The Company intends to provide second-half 2024 guidance in late Q2 2024.
Highlights of Revised First-Half 2024 Guidance < ROK's revenues are heavily weight to oil, so the recent improvement in Western Canada's oil prices is a big boost for this small-cap.
Stability in WTI: Company will increase its capital budget in first-half 2024 to $10.0 - $10.5 million, with an expected benefit to Net Operating income through second-half 2024 as new unhedged production comes on-stream. The Company expects to average ~4,000 boepd in first-half 2024 (61% liquids);
Net Debt: Estimated $16.0 - $16.5 million in Adjusted Net Debt at the end of first-half 2024;
Expedited Drill Program: Addition of 6 gross (5.4 net) Frobisher wells in late Q2, weather permitting; and < Frobisher zone is oil prone. They are not going to drill any new wells at Kaybob, which is primarily a natural gas play. These first six gross wells with D&C costs of approximately $1.3Cdn million each, should push ROK's production up to 4,600 Boepd by end of Q3. My guess is that if oil prices remain elevated, they will add 8 or 10 more wells in late Q3, so an exit rate of more than 5,500 Boepd (59% oil, 11% NGLs and 30% natural gas) is possible this year.I like ROK's strategy of completing each year's capex program before winter weather sets in. Much cheaper that way.
Efficient Use of Capital: $1.0 million allocated to reactivations and recompletions, expected to yield average capital efficiencies of $5,000 to $10,000 per boepd.
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Bottomline: ROK has a lot of "Running Room" in SE Saskatchewan; over 100 horizontal Frobisher drilling locations. At current oil & gas prices, ROK estimates that their Frobisher wells will payout in 8 months after being completed to sales. Based on my preliminary 2024 forecast, ROK's operating cash flow should be close to $45Cdn million this year.
ROK Resources (ROKRF) Q4 Results - Apr 18
ROK Resources (ROKRF) Q4 Results - Apr 18
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: ROK Resources (ROKRF) Q4 Results - Apr 18
ROK has an ongoing lithium project that has significant upside potential for shareholders of ROK. The Preliminary Economic Assessment completed in early 2024 estimated the potential of the project to be Pre‐tax $1.49 billion USD NPV, at an 8% discount rate.
ROK owns 25% of the equity.
My current valuation of ROK does not include any value for this high potential resource.
LITHIUM EXPLORATION PROJECT
In July 2021, the Company entered into an Exploration Management Agreement (the “Lithium Agreement”) wherein
the Company was issued a 25% interest in a private entity (the “Investee”) which currently holds certain Subsurface
Mineral Dispositions in Saskatchewan, with a focus on potential lithium resource prospects. Under the terms of the
agreement, the Company earns its beneficial interest as ROK personnel will manage the following objectives of the
project:
Identify additional strategic lithium land prospects
Complete multi‐layer perforation and flow testing of a wellbore
Obtain samples and conduct test for lithium concentrations
Identify a location for a pilot project
Identify a strategic partner to negotiate a lithium extraction technology pilot project
Obtain a third party NI43‐101 resource report
Facilitate the completion of a preliminary economic assessment
The initial activities of this project will be wholly funded by the Company’s partner (who holds the remaining 75%
interest), up to $1.5 million. Any costs that exceed this financial threshold will then be proportionally financed by
each partner based on their interest in the private entity. Alternatively, either partner may elect to proportionally
reduce their interest in the private entity for any portion of additional costs above the threshold. These additional
costs beyond the initial $1.5 million may be voluntarily paid for by the other partner who elects to participate in
additional project activities, earning a proportionally increased interest in the private entity. The Company has since
satisfied all the objectives of the Lithium Agreement, and the Lithium Agreement has since terminated.
Effective January 1, 2024, the Company entered into a Management Agreement (“Lithium Management
Agreement”) wherein the Company is paid $46,250 per month, plus GST, to provide certain services (outlined
below). The Lithium Management Agreement expires in twelve (12) months.
Services include the following:
Investigate the lithium potential of those areas, including but not limited to the property, that are
considered likely to be suited to the occurrence of such resource;
Recommend and target additional properties that are considered likely to be suited to the occurrence of
lithium;
Make recommendations with respect to the exploration, drilling, and testing of wells or wellbores and
conduct, manage and administer such exploration, drilling, testing and development activities;
Identify a location for a pilot project;
Identify a joint venture partner to negotiate a lithium extraction technology pilot project; and
Include the services of those persons set forth in the Lithium Management Agreement.
In Q1 2023, the Investee drilled a new vertical test well on the Viewfield property, with resulting lithium
concentrations reaching up to 259 mg/l, the highest test results of lithium concentrations in a brine ever recorded
in Canada, according to public record. In Q2 2023, a follow‐up vertical well was drilled on the Viewfield property,
with resulting lithium concentrations reaching up to 237 mg/l.
The Company, alongside our partners, released a Preliminary Economic Assessment in early 2024, with highlights
summarized below:
Pre‐tax $1.49 billion USD NPV, at an 8% discount rate;
Pre‐tax IRR of 55% which represents a payout duration of 2.1 years;
Total capital expenditures ("CAPEX") of $571 million USD inclusive of both direct and indirect capital costs,
including $52 million USD in contingency;
All‐in operating costs ("OPEX") of $3,319 USD per tonne Lithium Carbonate Equivalent (LCE), $40 million
USD annually, including all direct and indirect costs;
23‐year project‐life producing a total of 282,090 tonnes of battery‐grade lithium carbonate, an average of
12,175 tonnes LCE per year;
Weighted average lithium concentrations of 128 mg/L from 7 target zones over the project life (range of 84
mg/L to 259 mg/L); and
PEA encompasses approximately 11,000 net hectares, or 14% of Hub City Lithium's lands in Southern
Saskatchewan.
The Investee continues to test brine with numerous direct lithium extractors and downstream refiners and, in 2023,
successfully produced battery‐grade Lithium Carbonate Equivalent (LCE) from the Viewfield project. Future
operations include the drilling of additional test and development wells as part of its continued evaluation. A field
pilot on the Viewfield property is also underway and expected to be completed in Q3 2024.
Currently, the Investee holds approximately 200,000 acres of leased land in Saskatchewan for the project. The
Company’s interest in the Investee is accounted for using the equity method. As of December 31, 2023, total
expenditures since inception had reached a total of $9.4 million. The Company’s financial contribution towards
project activities has equated to approximately $2.0 million
ROK owns 25% of the equity.
My current valuation of ROK does not include any value for this high potential resource.
LITHIUM EXPLORATION PROJECT
In July 2021, the Company entered into an Exploration Management Agreement (the “Lithium Agreement”) wherein
the Company was issued a 25% interest in a private entity (the “Investee”) which currently holds certain Subsurface
Mineral Dispositions in Saskatchewan, with a focus on potential lithium resource prospects. Under the terms of the
agreement, the Company earns its beneficial interest as ROK personnel will manage the following objectives of the
project:
Identify additional strategic lithium land prospects
Complete multi‐layer perforation and flow testing of a wellbore
Obtain samples and conduct test for lithium concentrations
Identify a location for a pilot project
Identify a strategic partner to negotiate a lithium extraction technology pilot project
Obtain a third party NI43‐101 resource report
Facilitate the completion of a preliminary economic assessment
The initial activities of this project will be wholly funded by the Company’s partner (who holds the remaining 75%
interest), up to $1.5 million. Any costs that exceed this financial threshold will then be proportionally financed by
each partner based on their interest in the private entity. Alternatively, either partner may elect to proportionally
reduce their interest in the private entity for any portion of additional costs above the threshold. These additional
costs beyond the initial $1.5 million may be voluntarily paid for by the other partner who elects to participate in
additional project activities, earning a proportionally increased interest in the private entity. The Company has since
satisfied all the objectives of the Lithium Agreement, and the Lithium Agreement has since terminated.
Effective January 1, 2024, the Company entered into a Management Agreement (“Lithium Management
Agreement”) wherein the Company is paid $46,250 per month, plus GST, to provide certain services (outlined
below). The Lithium Management Agreement expires in twelve (12) months.
Services include the following:
Investigate the lithium potential of those areas, including but not limited to the property, that are
considered likely to be suited to the occurrence of such resource;
Recommend and target additional properties that are considered likely to be suited to the occurrence of
lithium;
Make recommendations with respect to the exploration, drilling, and testing of wells or wellbores and
conduct, manage and administer such exploration, drilling, testing and development activities;
Identify a location for a pilot project;
Identify a joint venture partner to negotiate a lithium extraction technology pilot project; and
Include the services of those persons set forth in the Lithium Management Agreement.
In Q1 2023, the Investee drilled a new vertical test well on the Viewfield property, with resulting lithium
concentrations reaching up to 259 mg/l, the highest test results of lithium concentrations in a brine ever recorded
in Canada, according to public record. In Q2 2023, a follow‐up vertical well was drilled on the Viewfield property,
with resulting lithium concentrations reaching up to 237 mg/l.
The Company, alongside our partners, released a Preliminary Economic Assessment in early 2024, with highlights
summarized below:
Pre‐tax $1.49 billion USD NPV, at an 8% discount rate;
Pre‐tax IRR of 55% which represents a payout duration of 2.1 years;
Total capital expenditures ("CAPEX") of $571 million USD inclusive of both direct and indirect capital costs,
including $52 million USD in contingency;
All‐in operating costs ("OPEX") of $3,319 USD per tonne Lithium Carbonate Equivalent (LCE), $40 million
USD annually, including all direct and indirect costs;
23‐year project‐life producing a total of 282,090 tonnes of battery‐grade lithium carbonate, an average of
12,175 tonnes LCE per year;
Weighted average lithium concentrations of 128 mg/L from 7 target zones over the project life (range of 84
mg/L to 259 mg/L); and
PEA encompasses approximately 11,000 net hectares, or 14% of Hub City Lithium's lands in Southern
Saskatchewan.
The Investee continues to test brine with numerous direct lithium extractors and downstream refiners and, in 2023,
successfully produced battery‐grade Lithium Carbonate Equivalent (LCE) from the Viewfield project. Future
operations include the drilling of additional test and development wells as part of its continued evaluation. A field
pilot on the Viewfield property is also underway and expected to be completed in Q3 2024.
Currently, the Investee holds approximately 200,000 acres of leased land in Saskatchewan for the project. The
Company’s interest in the Investee is accounted for using the equity method. As of December 31, 2023, total
expenditures since inception had reached a total of $9.4 million. The Company’s financial contribution towards
project activities has equated to approximately $2.0 million
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group