This little company caught my eye a while back because of their nice Goliath acreage position near Brigham’s Rough Rider area. So I bought a few share just to keep them in my window every day.

They are relatively small and not exactly prolific on press releases so getting information on them is a challenge. Finally the Tong Trust is being drilled in their Goliath field and all they tell us is that an unnamed investor is drilling the well under a participation agreement and the rig will be on site 30 to 40 days. Boy does that instill confidence. I even made a comment in an earlier post that if they’d partner with Brigham or someone respectable I’d be loading up on their stock.

American shows 2 project areas on their web page … 62,000 net acres in the Goliath project in ND and 86,000 net acres in the Powder River Basin in Wyoming. They also note a 170,000 acre shallow gas project in a mystery location. With only this much information and a lot of faith in their Goliath prospect the stock seemed to have potential but really $5 worth?

February 25 they announced the pending sale of the Powder Basin properties for roughly $44 million. I’m thinking that could drill 8 Goliath wells and I note the press release also says they have a rig under continuing contract. Now the math starts to seem interesting… 48 million shares (last 10Q), $44 million in cash and 62,000 net acres near Brigham’s Rough Rider play…. Leasehold +cash = nearly 50% of stock price!

So it’s digging time…. Back to SEC filings and I discover that that 12/23 AEZ filed an 8-K disclosing a Registered Direct Common Stock offering of 9 million shares at $3.50/share. And, a January Audio presentation disclosed that AEZ was then sitting on more than $40 million in cash… and no debt. But the surprise in that presentation was disclosure that the unnamed party in the participation agreement is Halliburton!

The presentation disclosed that the participation agreement gave Halliburton about 6500 net acres out of the 72,000 net Goliath acres in exchange for drilling and completion of the Tong Trust while AEZ retained a 30% WI in the well. I suddenly developed an appreciation for this management team preserving/accumulating cash, passing off the discovery risk to a third party while preparing for the big dance. I sense that these guys have been around the oil patch long enough to have learned a few things the hard way.

Now with my corrected share count of 57 million and cash in bank of $88 million after close of the Powder River Basin sale and an imputed value on the Halliburton 6,500 net acres of closer to $2,000 per acre applied against the remaining 65,000 net acres $5 a share starts to look like a bargain. Throw Halliburton into the mix managing the drill site and drill program, add comments from the January presentation about mirroring Brigham’s completion techniques that Halliburton also participated in and I smell a sleeper.

Next stop was back to their web page and read the management team bios. The lights start to come on. I know the founders from their days at Tower Drilling and Tower Energy. The VP of Exploration worked with my wife at EnCana where he mushroomed a $4 million a year drilling budget to $320 million a year in the PIceance Basin, Colorado.

Bottom line, this looks to be the whole package.
1) High probability acreage.
2) Strong experienced management.
3) Execution of a plan to build Cash reserves and avoid debt.
4) Stock that oozes opportunity selling for not much more than the value of quick assets.

It looks like a few others noticed this. February 24 it closed at $4.55 and today the close was $5.30.