• Cohen Price Target $ 1.02

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GRASS ROOTS RESEARCH* AND DISTRIBUTION, INC.
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October 05, 2010
American Petro-Hunter, Inc.
Symbol AAPH
Exchange OTC BB
Current Price 0.34
52 Week High/ Low 1.14/ 0.22
Avg. volume (3 mo.) 151,329
Shares Outstanding (Mn) 27.1
Current Market Value ($ Mn) 9.5
Float (% of Shares Outstanding) 99.1%
Cohen Price Target $ 1.02
INVESTMENT THESIS & RECOMMENDATION
American Petro-Hunter, Inc. (OTC BB: AAPH) is a rapidly growing, expertly managed exploration and
production (E&P) company. The Company intends to become an intermediate level oil and gas producer within
the next 12 months. AAPH‟s business strategy is based on acquiring and developing high quality projects with
existing and expansion potential. The Company is currently focused on expanding its acreages/ leases at its North
Oklahoma Project and building a strong, balanced and diversified portfolio of oil and gas assets. American Petro is
revenue positive and is in production at its Poston Project.
American Petro-Hunter intends to become a 500-1000 BOE producer in the next 12-36 months by aggressively
developing its Poston and North Oklahoma Oil Project as well as continuing to engage in exploratory drilling
opportunities on its Colby Prospect and Sacramento Gas Prospect. The Company further intends to expand its
acreages across North America.
Key corporate value drivers include: discovery of a new oil field, existing production capabilities, a balanced
portfolio of assets, favorable industry economics, recent funding arrangement and a strong management team.
Providing the Company raises approximately $5.0 million of total capital, we forecast significant top line growth.
Revenues are expected to grow from $0.5 million FYE December 31, 2010 to more than $11.8 million by FYE
2014. AAPH is potentially a lucrative investment opportunity in the oil and gas E&P space and provides an upside
potential of 191.3% in the short term and long term.
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Sales, Earnings Margin Forecast – Base Case
all figures in $ 000s; unless otherwise 2010E 2011E 2012E 2013E 2014E
Revenues 465 7,579 9,920 10,278 10,589
% growth NM 1528.4% 30.9% 3.6% 3.0%
EBIT 284 7,967 10,464 10,697 10,922
EBIT Margin 60.9% 105.1% 105.5% 104.1% 103.1%
Net Profit (314) 5,103 6,767 6,922 7,070
Net Profit Margin -67.4% 67.3% 68.2% 67.3% 66.8%
Earnings Per Share - Diluted (0.01) 0.14 0.18 0.18 0.19
Free Cash Flow to Firm (6,276) 304 6,616 7,005 7,160
Cohen Price Target Summary
The Cohen Price Target is calculated by 25% equal weighting of four different valuation methodologies. We use
an industry average PE, an industry average price/capital employed (P/CE), a Cohen Performance Index, and the
fundamentally driven Cohen DCF.
The Cohen Price TargetTM Formula
Price-to-Earnings (P/E) in US$
AAPH - Earnings Per Share - 2011 Forecasts 0.14
Industry Average P/E Ratio 10.53
Price based on P/E Ratio 1.43
Price-to-Capital Employed (P/CE) in US$
AAPH - Capital Employed 0.16
Industry Average P/CE Ratio 6.20
Price based on P/CE Ratio 1.00
Cohen Discounted Cash Flow Model in US$
Cohen DCF Value - Base Case 0.97
Cohen Performance Index in US$
Cohen Price Performance Index Value 98.2%
AAPH - Current Stock Price 0.34
Price based on Cohen Performance Index 0.67
Cohen Price Index Target 1.02
Current Price 0.35
Upside/ (Downside) Potential 191.3%
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EXECUTIVE SUMMARY
 American Petro-Hunter, Inc. (OTC BB: AAPH), founded in January 1996, is a development stage company engaged
in the development, exploration and production of oil and gas in North America. The Company is currently focused on
expanding its in-production assets, commercialization of other acquired assets and further expanding its lease
positions.
 Larger E&P companies are divesting many production and exploration assets to become more cost efficient. American
Petro-Hunter is focusing on such properties that no longer fit the portfolios of larger energy companies. The
Company‟s portfolio of projects includes a mix of higher risk - higher reward targets as well as stable, low risk targets.
 American Petro-Hunter has a diversified and balanced portfolio of assets with properties in Kansas, Texas and
California. The Company has acquired a 25% to 50% working interest agreement in 10 exploration and development
projects. The properties include 1 oil projects in Kansas, 7 oil projects in Oklahoma and 1 gas project in California.
 All these assets are located in prolific oil and gas producing regions and cover 11,250+ acres and reserves estimates of
over 3.5 million barrels of oil and 45 BCF gas. American Petro-Hunter plans on building the Company into a 500-
1000 BOE producer in the intermediate term.
 Since May 2010, AAPH has been increasing its holdings in the prolific North Oklahoma region as it considers this
acreage to be a „core‟ land holding. During the past few months, the Company has acquired seven lease blocks in this
region which is analogous to the well known North Dakota Bakken Shale formation. AAPH has commenced drilling
and production activities at its North Oklahoma Project and plans to drill four new wells over the next six months
including 3 horizontal wells.
 The Company‟s Poston Prospect has been in-production since July 2009. The Company is now cash flow positive
with production from this field. American Petro-Hunter plans to increase production from 60 to 100 BPD in the Poston
Field and drill 2-3 new wells over the next six months.
 The US government is interested in increasing domestic production of natural gas to break the dependence on foreign
oil and reach clean energy goals. Emerging markets such as China and India, poor geopolitics in key oil producing
areas, and economic slowdown in developed nations are likely to place continued pressure on the demand-supply of
oil and natural gas.
 A recent funding agreement for $1.5 million will enable the Company to expedite its growth plans. American Petro-
Hunter‟s experienced management team, underdeveloped and unexploited reserves, cutting edge well technology,
knowledge and capable engineers provide the Company with a significant competitive advantage.
 As with any small Company, Capital access and competition from larger companies are risks associated with
American Petro-Hunter. The Company will require an additional $3.5 million (total funding: $5.0 million) in funding
to achieve its long term plans. Its inability to raise this additional capital may significantly impact its growth plans.
Financial Forecasts and Valuation
 We expect revenues of $0.5 million for FYE 2010 and more than $11.8 million by 2014. The Company is also
expected to efficiently manage operations and command significantly higher operating margins and net profit margins.
 The Cohen Price Index Target is calculated using 2011 Price-to-Earnings ratio (P/E), Cohen Price-to-Capital
Employed ratio (P/CE), Cohen Discounted Cash Flow (DCF) method and Cohen Price Performance Index. The P/E
and P/CE are based on market multiples and representative of the broader industry in which the Company operates.
The Cohen Price Performance Index is a representative of the post coverage performance of all stocks covered by us.
The last component in calculating the Cohen Price Index Target is the value derived using the long-term DCF
valuation approach.
 Based on an average of these methods, AAPH common stock is valued at $1.02 per share, 191.3% higher than current
market price of $0.34.
 We believe our valuation is conservative, and assuming the Company raises equity capital and is able to explore over
2000 barrels of oil, the stock could trade at much higher levels in the long run.
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INVESTMENT SUMMARY
American Petro-Hunter Inc. (OTCBB: AAPH), is a development-stage oil and gas Company. The Company is
engaged in the exploration (development projects and secondary recovery) and production of oil and gas,
primarily within the United States and Canada. The Company‟s vision is based on its belief that alternative
sources of energy will not become a significant or practical solution for years to come and that the country must
support increased domestic drilling. In order to assist the country in reducing its dependence on foreign oil,
AAPH intends to explore, develop and produce oil and gas targeting production from smaller, under-utilized
fields via farm-ins, acquisitions, partnerships and outright purchases. The Company is currently in-production at
two of its existing leases and revenue-positive and the number of near term projects is steadily growing.
The Company has developed a well defined growth plan to achieve its near, intermediate and long term growth
targets. In the short-term, AAPH plans to develop its resource base through the acquisition of exciting exploration
prospects. Thereafter, the Company will aggressively drill multiple oil & gas projects in its portfolio to achieve
strong revenue growth. The Company‟s long-term goal is to increase the per day production to 1000 BOE through
a planned exploration and development program.
Figure 1: Company’s Short, Intermediate and Long Term Goals
Source: Cohen Research
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American Petro-Hunter was formed in January 1996. The Company was incorporated in the State of Nevada with
a focus to acquire properties for precious metal exploration in the Western United States. Thereafter, the
Company changed its business plan and diversified. It sold chemical products to the oil and gas industry;
manufactured and marketed devices for color matching of dentures; and sold travel and media. This occurred
prior to changing its name to American Petro-Hunter and focusing on exploration and production of oil and gas.
As of September 2010, AAPH had two established in-production properties and begin the production at one of the
leases at North Oklahoma Project. The Company has had success with the production of oil from North
Oklahoma Project coupled with the in-production and cash flow positive operations at Poston Prospect. AAPH is
likely to become an intermediate level oil and gas producer with an annual production capacity of 1000 BOE
within the next 12-36 months.
Figure 2: Company’s Corporate Strategy
Focus on expansion through investing in commercialization of
current asset base and acquiring additional properties.
Complement this growth strategy by strategic and timely
acquisitions of attractive assets.
Acquire or partner with companies or experts to expedite growth
and increase shareholder value.
Understand the importance of the company’s social responsibility
both at the corporate and operational levels.
American Petro-Hunter is building a strong, balanced and diversified portfolio of oil and gas assets that will result
in significant reserve growth, production revenue and value for shareholders. The Company is well positioned to
benefit from a current strong increase in oil prices. AAPH will need to raise the necessary initial capital to initiate
drilling activities and expand its property base. As previously mentioned, the Company plans to invest up to $5.0
million in the next 24-months for exploration and development of its projects. The recent funding of $1.5 million
from Maxum Overseas Funds shall enable AAPH to continue the development of its oil and gas projects,
specifically in the near term in Kansas and the North Oklahoma Project, land leasing and for general
administration going forward. We expect long term upside revenue opportunities from the Company‟s portfolio of
assets, highly scalable business model, and new acquisition deals as oil and gas prices continue to rise. American
Petro-Hunter is an exciting oil and gas exploration and production company providing significant short term and
long term investment opportunity for risk-averse investors.
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COHEN GROWTH DRIVER ANALYSIS
Figure 3: Cohen Growth Driver Analysis – Base Case
all figures in $ 000s 2010E 2011E 2012E 2013E 2014E
Units of Production
Kansas 2,195 4,220 4,085 3,951 3,816
Oklahoma - Myers 696 4,220 2,591 2,505 2,420
Oklahona - No.J26 4,615 26,762 25,908 25,054 24,200
Oklahoma - No.H24 - 87,324 116,585 112,741 108,898
Net Oil Production (Barrels) 7,507 122,526 149,169 144,251 139,333
Crude Oil Prices 70.00 70.00 75.00 80.00 85.00
Total Revenue 525 8,577 11,188 11,540 11,843
% Growth 1532.2% 30.4% 3.2% 2.6%
Annual Revenues, Margins, Assets, Turns
all figures in $ 000s 2010E 2011E 2012E 2013E 2014E
Net Revenue 465 7,579 9,920 10,278 10,589
Operating Margin 60.9% 105.1% 105.5% 104.1% 103.1%
Net Margin -67.4% 102.0% 103.4% 102.0% 101.2%
EPS - Diluted (0.01) 0.14 0.18 0.18 0.19
EBITDA 284 7,967 10,464 10,697 10,922
Free Cash Flow (6,276) 304 6,616 7,005 7,160
Cash 13 1,374 8,026 15,067 19,783
Working Capital (16) 899 1,189 1,244 1,293
Long Term Debt 1,430.1 2,480.1 2,480.1 2,480.1 -
Total Debt 1,430.1 2,480.1 2,480.1 2,480.1 -
Total Assets 6,806 13,539 20,508 27,449 32,056
DSO - 77 77 77 77
Percentage Change in Annual Revenues, Margins, Assets, Turns
2010E 2011E 2012E 2013E 2014E
Revenues NM 1528.4% 30.9% 3.6% 3.0%
Operating Margin NM 44.2% 0.4% -1.4% -0.9%
Net Margin NM 169.5% 1.3% -1.3% -0.9%
EPS - Diluted NM -1702.5% 32.6% 2.3% 2.1%
EBITDA -334.6% 2710.0% 31.3% 2.2% 2.1%
Free Cash Flow NM NM 2078.0% 5.9% 2.2%
Cash -66.9% 10820.7% 484.3% 87.7% 31.3%
Working Capital -94.7% -5892.7% 32.3% 4.6% 3.9%
Total Debt NM 73.4% 0.0% 0.0% -100.0%
Total Assets 787.7% 98.9% 51.5% 33.8% 16.8%
DSO NM NM 0.0% 0.0% 0.0%
Source: Cohen Research
The Cohen Growth Drivers Model is an intelligent road map used by many securities analysts to analyze the
forecasted growth of a given company. American Petro-Hunter is expected to generate revenue from sale of Oil
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and Natural Gas. The Company expects to cater to the large and growing market for natural gas as a clean
transportation fuel. The Company is expected to continue acquiring unique assets that fit the investment strategy
of the firm.
We expect significant revenues as the Company continues to bring more wells into production.
Commercialization of reserves in Oklahoma and Poston Kansas Oil using superior technology and potential
commercial production of North Oklahoma Project will result in gross revenues of $0.52 million for FYE 2010
(net revenue1 of $0.46) and $8.5 million in FYE 2011. We expect revenues to grow thereafter to $11.8 million by
FYE 2014. The key driver for this growth is continued demand for oil and gas. The Company has acquired
working interests in quality oil and gas projects currently focused in Kansas, Oklahoma and California. The
Company‟s acquisitions are an intelligent mix of acceptable risk, high profit and short return in historically
successful and productive regions. There are a number of established companies in the industry and the available
equipment and infrastructure is excellent. As a result AAPH is likely to ensure higher operating margins
throughout our forecast period (Management Guidance).
The Company plans to spend approximately $5.0 million in capital expenditures in the next 24 months. These
expenditures will be directed toward developing existing proved and probable reserves on the Kansas, Texas and
California acreage, drilling and evaluating new project areas.
The robust industry demand together with focus on cost effective and efficient exploration will drive AAPH‟s
operations. Our estimates are conservative, and we assume maximum production only from the current in-
production prospects and the expected Oklahoma Project. Other assets are expected to add a very low percentage
to the Company‟s total production. Any significant rise in the production activities from other assets will further
strengthen the Company‟s top-line and enhance shareholder value. Growth prospects are impressive. We believe
management will be able to achieve our forecasts, provided it receives $5 million in funding.
1
Gross Revenues are calculated as total production multiplied by sales while net revenues are gross revenues less the direct
production costs.
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COMPANY PROJECT DESCRIPTION
The Company has a diversified and balanced a portfolio of assets with two production and one field development
properties in Kansas, seven oil projects in Oklahoma and one gas prospect in California. American Petro-Hunter‟s
Poston Project, Trego County, Kansas is already in-production. The Company has also recently initiated
production at one of its seven leases in North Oklahoma. Other prospects include: Colby Prospect, Thomas
County, Kansas; and Sacramento Gas Prospect, Central Valley, California. The exhibits below provide a
geographical map and overview of the Company‟s various projects.
Figure 4: Geographical Location of Company’s Projects
Source: Cohen Research
Figure 5: Overview of Company’s Oil and Gas Projects
Project North Poston Oil Colby Sacramento
Oklahoma Project Prospect Gas Prospect
Location Northern Trego County, Thomas County, Central Valley,
Oklahoma Kansas State Kansas State California
Overview Analog Prod.: In-production Analog Prod.: 30- Analog Prod.: 63-
2000 BOPD 200 BOPD 271 BCF
Land 7-lease blocks 750 gross acres 500 gross acres 1,000+ gross
acres
Interest Varied 20-50% WI 25% WI 25% WI 25% WI
Varied 75-80% NRI 20.4% NRI 20.4% NRI
Depth 3800 – 4200 Ft 5,000 Ft 4,900 Ft 7,400 Ft
Reserve Est. N.A. 240,000 BO 200,000 BO 47 BCF
Source: Company Website and Cohen Research
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North Oklahoma Oil Project, Oklahoma2
American Petro Hunter has acquired a working interest in an exciting oil play located in the northern part of the
state. The Project targets regional shale formations rich in oil. Currently, the Company is drilling shallow, vertical
wells with future plans to exploit the shale productive horizon with horizontal drilling. Individual wells at the
analogous Bakken formation in North Dakota are producing over 2,000 barrels per day from staged fracture
stimulation programs.
The North Oklahoma Project pursues production of high gravity light oil above 3800 feet with estimated oil
production in the 150 to 550 BPD range as anticipated Initial Production Rates.
NOJ26 is a 4000 foot vertical well targeting multiple objectives including our 48 foot shale target plus both the
Simpson and Wilcox formations one of the most prolific producers in Payne County Nearby existing analog
production has produced a cumulative 80,000 barrels of oil per well with 7 years of commercial activity to date.
Wilcox wells often deliver initial production rates in excess of 100-120 BOPD with 200 MCF of gas. Multiple
objectives minimize risk given the three potentially productive horizons. No. 1 well returned rates in the 75-85
BPD rates on acidization and a similar technique may prove to be the most cost effective path to R.O.I and
payback. Fracture stimulation at a later date may be indicated. NOJ26 is anticipated as a 200 plus BPD producer.
A horizontal well drilled laterally down and along the Woodford shale will expose over 1,500 feet of rock that
upon stimulation should produce large quantities of oil. Engineering estimates of the potential of a successful
horizontal well at the North Oklahoma Project could be 500 BPD per well. The oil from the Woodford shale is
light, high quality crude and we have big plans in the future for more horizontals. The southern part of our lease
block has room to drill up to 5 horizontals in the shale and also up to 25 conventional vertical wells if our
program successfully finds oil from previously identified and prolific formations such as the Simpson and
Wilcox.
2
The description of all the Company‟s Assets are taken from the Company‟s website.
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Figure 6: Location Map – North Oklahoma Project
Source: Company Corporate Overview, September 2010
Figure 7: Project Highlights – North Oklahoma Project
Source: Company Website
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Poston Prospect, Kansas
The Poston Project is located in Trego County, Kansas. The #1 Lutters well began production as a commercially
viable oil well on June 18, 2009. The well produces oil in the Mississippi Dolomite. The location showed a
significant 3D Seismic anomaly pinpointing the oil bearing zone. In addition, the 750 acre lease block has the
potential for a multi-well program with 2 to 3 offset locations possible to fully exploit the acreage. Shipments of
oil began in June2009 to the buyer N.C.R.A. (National Co-op Refinery Assoc.) of McPherson Kansas, the oil
purchaser, is regularly shipping oil for sale from the Lutters lease.
In July of 2010, #3 Lutters well commenced commercial oil production. The well is the second producer at the
Project. The #3 Lutters is offset to the #1 Lutters well and is part of an ongoing program designed to increase
overall production from the reservoir. Oil production rates from the #3 Lutters are anticipated in the 20 to 40 BPD
range and the Company and engineers believe that the lease is capable of producing over 110 BPD once the wells
reach stable production rates.
Oil production for July 2010 at the #1 and #3 wells totaled 8 loads shipped to the purchaser (N.C.R.A. of
McPherson, KS totaling 1,280 barrels. The Company anticipates nearly double the production for the month of
August with a full month‟s production at both wells. Ultimately, oil production rates from the Poston project is
expected to reach the 100 BPD range and the Company and engineers believe that the project will shortly be
producing at this level once the #3 Lutters well reaches stable production rates.
American Petro-Hunter owns a 25% Working Interest and 20.4% Net Revenue Interest in the Poston Prospect
Figure 8: Location Map – Poston Prospect
Source: Company Corporate Overview, January 2010
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Figure 9: Project Highlights – Poston Prospect
Source: Company Website
Colby Prospect, Kansas
American Petro-Hunter has acquired a 25% Working Interest and 20.4% Net Revenue Interest in the Colby
Prospect, located in Thomas County, Kansas. The 500 acre block owned by AAPH is a viable location with a well
defined 3D seismic anomaly that includes seven potential zones for testing.
The Colby Prospect remains a viable prospect as light oil was discovered in the Kansas City formation and may
be present in other locations on the lease. The main objectives had shown good results of oil in the Cherokee and
Johnson formation. Although the first well drilled did not show very positive results, the Company remains
hopeful that the Colby will be brought into future production by the second offset well. Further work and analysis
is required to develop the Colby lease.
Management expects to drill an additional test well in the immediate term. Current estimates place the potential
production from the indicated pay zones for a successful well at between 75 and 100 barrels per day. Full
development of the field from two or three offset well locations on the structure could produce between 200 and
400 BOPD.
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Figure 10: Location Map – Colby Prospect
Source: Company Corporate Overview, January 2010
Figure 11: Project Highlights – Colby Prospect
Source: Company Website
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Sacramento Gas Prospect, California
American Petro-Hunter has acquired a 25% working interest in the Sacramento Gas Project, located west of
Modesto in the Central Valley of California, near Sacramento. Potential Recoverable Reserves have been
calculated to be 42 BCF at a depth of 7,400 feet within sands. Third party engineering results show that if the pay
zone is 100% gas filled and the well is brought into commercial production, an IPR (initial production rate) of
5,000 Mcf per day can be easily achieved. Based on the analog field‟s production rate, the Company targets daily
commercial production rates between 2,000 to 4,000 Mcf per day.
Figure 12: Location Map – Sacramento Gas Prospect
Source: Company Corporate Overview, January 2010
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Figure 13: Project Highlights – Sacramento Gas Prospect
Source: Company Website
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LOCATION OVERVIEW
Kansas State
Kansas ranks among the top ten States in crude oil production. The Anadarko Shelf in southwestern Kansas
contains the Hugoton Gas Area, one of the top producing natural gas fields in the United States. The Mid-
Continent Center, located in Wichita, is a key natural gas supply hub. It merges production from several States in
the region before piping it east toward major consumption markets. Natural gas production from coal-bed
methane is rapidly expanding in the Cherokee Platform, where reserves have become economically recoverable.
The Kansas oil and gas industry is nearly a $6.3 billion industry with over 2,100 licensed oil and natural gas
producers producing nearly 40 million barrels of oil annually and over 383 billion cubic feet of natural gas
annually in Kansas.
Oklahoma
Oklahoma is United States second-largest producer of natural gas and fifth-largest producer of crude oil. With the
second-greatest number of active drilling rigs, the State of Oklahoma ranks fifth in crude oil reserves. As a whole,
the oil energy industry contributes $23 billion to Oklahoma's gross domestic product with over 83,750
commercial oil wells and as many as 750,000 total wells. In 2004, these oil well churned out 178 thousand barrels
of crude oil a day.
Oklahoma is the home to some of the largest private oil-related companies including Devon Energy Corporation,
Chesapeake Energy Corporation, and SandRidge Energy Corporation.
California
California is rich in both conventional and renewable energy resources. It has large crude oil and substantial
natural gas deposits in six geological basins, located in the Central Valley and along the Pacific coast. Most of
those reserves are concentrated in the southern San Joaquin Basin. Seventeen of the Nation‟s 100 largest oil fields
are located in California, including the Belridge South oil field, the third largest oil field in the contiguous United
States.
California ranks third in the United States in petroleum refining capacity and accounts for more than one-tenth of
total U.S. capacity. California‟s largest refineries are highly sophisticated. They are capable of processing a wide
variety of crude oil types designed to yield a high percentage of light products like motor gasoline.
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COMPANY VALUE PROPOSITION
Figure 14: American Petro-Hunter’s Growth and Value Drivers
Balanced Portfolio of Assets Favorable Industry Economics
- Company’s projects are located in areas - Demand for oil & gas is likely to grow
which are highly prolific and produce large significantly driven by demand from
quantities of oil and gas. developing nations
- The Company’s proposed projects will - Existing infrastructure makes it easier for
explore and develop oil & gas, from the Company to market its products.
conventional resources primarily
in United States and Canada.
American
Petro-Hunter
Use of Modern Technology Strong Management Team
- Using modern technology in the exploration - AAPH has consistently built a team of
and production activities will help the geologists and executives who are experts in
Company improve productivity and this field.
profitability. - Management equipped with ability to drive
growth and rapidly evolve the Company.
Source: Cohen Research
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