Thursday, July 7, 2022

Supernova Energy Inc (OTCMKTS:SPRN) Offers an Interesting Case Study

Supernova Energy Inc (OTCMKTS:SPRN) is a penny play that’s started to spark some interest among players in the OTC marketplace as shares bounce up off recent lows. But the story is a familiar one, and we would urge caution and a “show-me” attitude where signs of real production are concerned. The gist of the narrative here is the leasing of oil wells and a process of press releases noting a series of steps being taken toward eventually “really ramping up oil production”.

The company is an energy player that has been accumulating a few leases on oil wells in “proven fields”. But one must be aware that wells do run dry over time. And after they do, or after they become nearly dry, they can be leased for very cheap, and hoisted up as “operationally controlled wells in a proven oil field”. We don’t know whether or not SPRN is playing that game. But the only evidence we have so far that they are holding leases to potentially truly productive wells is 2500 bbls pumped over the past year. That is the type of production typically scored from a single average well in about a week for most prime producers. We wouldn’t suggest waiting for more evidence of robust per-day well production levels. That would miss the bus. Instead: Wait for the company to be “about pumping”, rather than leasing, reworking, testing, or the like.

Supernova Energy Inc (OTCMKTS:SPRN) is a company that fancies itself “a highly focused, risk-averse oil and gas exploration company with a focused strategy of building a substantial portfolio of oil and gas assets in low-risk areas.”

According to company materials, “Supernova Energy Inc. will exploit projects which can deliver cash flows normally associated with higher risk projects, but without exposure to high-risk failure rates. Our Company will target existing production in known oil producing states and apply new exploration technologies to increase production.”

Supernova Energy Inc. holds working interests in leases located in Kansas and Kentucky. The Company has targeted these states due to the low cost of drilling and exploration as well as their oil-friendly state and local governments.

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As noted above, the company has been moving toward getting started producing oil. And that may well be exactly what happens. But rather than starting up the extraction in the already workable wells they have, they are instead taking another tact.

Kevin Malone, CEO of Supernova Energy, Inc., comments: “Our oil and gas producing Pratt County leases are an ideal project for Supernova to expand with a series of relatively low-risk well recompletions and workovers. The next step of this strategy is to have an engineering report commissioned to target the best recompletion candidates and to determine the best potential pay zones for each well. This same engineering report will also allow us to assess bringing gas production back online that could further add to our bottom line.”

According to company materials, “Supernova Energy, Inc. is an American-based oil and gas production and exploration company with key holdings in Kansas and Kentucky. The Company’s goal is to acquire economical leases in known oil and gas formations with low cost of recovery. The strategy is to specialize in well bore completion, re-completion and workovers on existing oil and gas production.”

Again, we don’t know that this isn’t a bona fide opportunity. The point of the message today is to think skeptically before you act as an investor. If we start to see the right signals from the company, then perhaps this is a great name to move on.

But, we’ve seen other stocks that look and feel quite a bit like this one right now. And what we have seen next – instead of headlines about barrels per day coming out of the ground – is another two or three months of press releases about how much oil has – in the past – been pumped from nearby acres (by other producers), and how they are having great success at reworking parts and equipment, and how they have found other leases and acquired them, and, etc, etc, etc.

At this point, the market cap is sitting at about $1.2M at the moment for SPRN. That’s a speck on dot for an oil play. The company has virtually no cash on hand at present. That outlines a tough picture against the shadow of about $694K in current liabilities to round out the balance sheet. One should also note that debt has been growing over recent quarters.

On the brighter side, SPRN has about $105K in trailing twelve-month revs from their prior year production of 2500 barrels. In addition, while that’s a small number, the company is at least able to post it now as a very strong y/y quarterly revenue jump of over 450%. While we may not be entirely sold on the excitement here, we will be sure to keep tabs on it. For continuing coverage on shares of $SPRN stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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