Estevan– When prices are low, that can be a good time to buy. That’s exactly what Fire Sky Energy Inc. did recently, closing a private acquisition on Feb. 1.
Fire Sky Energy Inc. was a spin off from T. Bird Oil, a privately-held Estevan-based junior oil producer owned by Ron Wanner. The president and CEO of Fire Sky is Warren Waldegger, who had been the first full-time employee of T. Bird Oil Ltd.
He explained, “The inception of Fire Sky came about with T. Bird being a one-shareholder company. How do you attract professional, top-quality staff, competing against companies with stock options?”
Fire Sky was a new vehicle which allowed Waldegger to attract the people needed, providing incentives for them to take part. It was also something of an exit strategy for Wanner, allowing T. Bird to eventually be sold, but providing a home for its staff in a new entity. Fire Sky would be an opportunity for the staff to grow and participate.
“All our employees have a stake in the business,” Waldegger said.
It’s privately held, with about 70 shareholders, including some investors.
Regina-based PFM Capital has also made investments through two of its funds, SaskWorks Venture Fund and Apex Investment Fund.
“We’re over 1,000 boe per day, and we just acquired the assets of Highmark Exploration in Manitoba,” Waldegger said. That company was based in White City.
The newly acquired production is primarily in the Elkhorn area, roughly 180 bpd in total.
“We’ve grown steadily, focussing on conventional Mississippian horizontal development projects,” he said.
Fire Sky purchased its first assets from Daylight in 2011. In 2012 they acquired Bryant production undeveloped lands and partner interests from T. Bird.
The following year Fire Sky acquired Tyvan Oils Ltd., K&S Investments Ltd. and Black Rider Resources Inc. All corporate and asset acquisitions focused on Elcott, including proprietary seismic. This created a new 100 per cent operated area at Elcott. Fire Sky also successfully developed Macoun properties and tied in production to its 100 per cent owned Bryant facility.
In 2014 it purchased Phase Energy Ltd. for cash and shares. That property is in the Manor area. They successfully developed View Hill and initiated an acquisition strategy in the area.
Bryant North was developed as a new field in 2015 within the Bryant/Macoun core area. Other land and wells were also acquired.
Most recently they’ve drilled a successful development well in their new area of Willmar. Fire Sky is also now substantially compliant with new industry regulations.
Life at $30 oil
As for the current industry environment, now over a year-and-a-half into the downturn, Waldegger said, “Most of us are trying to figure out how to retain what we have. It is difficult at these prices generate enough cash flow to retain your best pieces of land.”
He added Fire Sky has “fairly significant undeveloped land,” at over 65,000 net acres. That is mostly in southeast Saskatchewan and southwest Manitoba. Their main production area is the Bryant and Macoun areas north of Estevan. They also have production north of Elkhorn, Manitoba, and at Elcott and Willmar, Saskatchewan.
“We’ve drilled four wells in the fall and winter, the end of 2014 and 2015,” he said. As of early February, they were considering some more drilling before this year’s breakup.
As for those 18-plus months of downturn, he said, “It hasn’t been a whole bunch of fun. The key for any business is the balance sheet. Ours is pretty strong. Overhead is another concern. We don’t have to add one person to add those 180 barrels per day.”
Fire Sky has 14 full-time employees, all in Estevan and a handful of contractors.
Working under the current price structure, with oil hovering around US$30 per barrel, Waldegger said, “We’re definitely doing less. Everything we do is being quoted. The pricing is competitive.
“It all depends on long-term pricing. I don’t think our industry is going away. How do you make money on $30 oil?”
The impacts are felt from oil producers to housing, he noted. “Can we go back 10 years? I don’t know.”
As for Fire Sky, he said, “I think we’re always looking for ways to grow. It’s shareholder value. It’s not just growth for growth’s sake. We want to grow our core areas, use existing infrastructure, batteries and flowlines as much as possible.
“We look at all the land sales. We’re constantly scouring around our assets for a good fit.”
Waldegger said, “We’re an industry that recycles cash flow. There’s simply a fraction of the cash flow we are used to.”
That means prioritizing the best projects.
“No one wants to sell in this environment,” he said.
But will there be opportunities, perhaps from liquidations or land returned from expired leases?
Waldegger replied, “I think the banks have been reluctant to pull the pin. If you flood the market with assets (for sale), they’re hardly worth anything.”
T. Bird Oil was sold to Crescent Point Energy Corp. in August 2014, before the slide really took hold.
“That was good timing,” he said. By that point, T. Bird was a separate entity but with a common management group.
Despite the hard times in the industry, Fire Sky is still active in supporting the community. Recently it made a $12,525 donation to the Saskatchewan Summer Games to be held in Estevan this July. In 2014, it donated $22,000, matched by Ron Wanner, to Smile Services, a local group which provides transportation to the disabled.
“We do promote community involvement,” Waldegger said, adding many of their staff members serve on boards or are coaches. “We very much encourage our staff to be involved in the community.”