Energy Prospectus

An updated Net Income & Cash Flow Forecast model has been posted under the Watch List Tab.

If you take the time to read their SEC filing you will see that they have some balance sheet issues and need some capital to keep up with Slawson's aggressive drilling program in Logan County. This can happen to a small-cap when they get in a joint venture with an operator that has very deep pockets like Slawson.

They say their production has doubled to over 400 bopd in Logan county and it should be heading a lot higher between now and year-end. Slawson should bring on a 3rd rig in a couple months and really get after it. There are several hundred low risk drilling locations and facilities are now in place to complete wells to sales quickly.

The problem is funding. There should be someone out there willing to pump in the $5 million Osage needs but an equity offering will be dilutive for shareholders.

I do think they will make it and First Call's price target of $2.25 is reasonable.

Great update Dan, thanks for sharing it.

The PR on Thursday saying that for the Logan County play they are now producing at double the average rate that they produced last quarter is tremendous news and I'm surprised it didn't have more effect to the stock price. If you take the $1.5M in pre-interest cash flow they generated last quarter (adjusted to remove the big Colombian Equity Tax refund they received then) and layer on another $0.8M of cash flow that would come if they were to produce at their current rate for a full quarter, that $2.3M of quarterly cash flow should be enough to support a reserve-based debt facility of something on order of $23M (this assumes the interest rate would be 5% and the lender would require an interest coverage ratio of 8:1). Considering that Osage had only borrowed $15.5M as of the end of last quarter, if they got a new loan for $23M this should be enough to not only fully pay off the Apollo loan (including the 5% early payment penalty**) but also should provide enough additional capital for Osage to make it to the point where their Logan County play would be self-funding out of cash flow.

For E&P companies, banks used to want to see 6 full months of cash flow from recently completed wells before lending on that cash flow, but I believe that with all the money that is chasing E&P companies now, that time period has shrank somewhat, especially for companies that are drilling in resource plays where the type curves for the wells are pretty well established (thank you Devon & SandRidge). So I'm expecting Osage to refinance the Apollo loan by February at the very latest and most likely several months before that.

The reason I believe that Osage will get a reserve-based loan before February is that I expect them to continue to ramp up their production dramatically in the current quarter. The recent PR did not mention how many wells they had drilled and fracked and started flowback, but which had not been put on artificial lift yet as of the end of last quarter. With any amount of luck we will get this info in the next version of their presentation, which I understand is expected to come out shortly. I believe they still have a significant # of wells that fit into this category and can be put online with just a modicum of effort and expenditure. This additional ramp in production ought to induce a potential lender to further loosen their underwriting requirements on making a reserve-based loan to Osage.

** Interestingly, the prepayment penalty gets reduced from 5% to 2.5% on 10/27/13, which is a day after they need to cure their current default on the Apollo loan or else issue more penny warrants to them. To get around this problem, hopefully Osage can issue some sort of redeemable convertible PIK preferred stock that could get redeemed as soon as, say, 3 months after it was issued, to act as a financial bridge to get Osage past the 10/26/13 cure date.

Osage Exploration and Development Announces Initial Production of 705 Barrels of Oil Per Day on Horizontal Mississippian Well 08/19 08:00 AM

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SAN DIEGO--(BUSINESS WIRE)-- Osage Exploration and Development, Inc. (OEDV:$1.17,00$0.04,003.54%) , an independent exploration and production company focused on the Horizontal Mississippian and Woodford plays in Oklahoma, today announced preliminary production results on the Mallard 1-16H Horizontal Mississippian well in Logan County, Oklahoma. The well, located in Section 16-17N-3W, achieved a 24-hour peak initial production rate of 705 barrels of oil plus associated natural gas on an electric submersible pump and a 48/64” choke.

Management Comments

“Further to our most recent press release, this well is a prime example of the progress in field operations that we are currently experiencing,” stated Mr. Kim Bradford, Chairman and CEO of Osage Exploration and Development (OEDV:$1.17,00$0.04,003.54%) . “Our new production superintendent and his expert consultants are having an immediate impact on every well that we have drilled so far, and have to be given credit for our recent advances. Under their tenure, the Mallard 1-16H, which did not produce at a high level early on, has now made more oil in the last week than it did in its first two months of production. The well has just begun operating at its full potential. We firmly believe that our team's experience with the Mallard will be the rule and not the exception, and that the quality of this reservoir is not to be denied.”

Good work guys. This is why I urge our members to check the Forum on a daily basis. Hang tough with Osage. I think it will look much stronger by year-end.