A Canadian oil and gas stock with outsized production upside

The Market Online

24-04-2025

Regardless of the business cycles to come, oil and gas will be integral parts of the global economy for decades to come, supporting commodity prices and requiring consistent investment in companies across the lifecycle from exploration to production.
While major oil and gas producers have most of their growth behind them, following decades of successful acquisitions and exploration, offering investors limited upside, small-cap operators can increase production exponentially, opening the door for significant returns. Coelacanth Energy (TSXV:CEI), market capitalization C$415.12 million, is a Canadian oil and gas stock built to put this thesis in play.
The British Columbia-based explorer and developer is focused on the Montney area – which is estimated to contain almost 500 trillion cubic feet of natural gas (mmcf) – and has a plan in place to increase production by about 16 times from 921 barrels of oil equivalent per day (boed) in Q3 2024 to over 15,000 boed by 2027. This should provide a strong trajectory that may continue adding value to Coelacanth, which has already seen a 40 per cent gain since inception in 2022. Production growth will be catalyzed by: Approximately 150 (net) Montney sections – collectively known as the Two Rivers Montney project – representing the largest land package in the Montney's light oil window.
Multi-year, multi-zone drilling inventory in place to pursue long-term expansion, with funding secured for development activities in 2025.
A leadership team with 17 per cent insider ownership stacked with oil and gas expertise in the field, as well as the C-suite, spanning exploration, engineering, geology, financing, marketing and energy project management, including tenures with significant Montney producers such as Canadian Natural Resources, ConocoPhillips, ARC Resources, Storm Resources and Leucrotta Exploration. Robert J. Zakresky, Coelacanth's president and chief executive officer (CEO), has built and sold six public companies in the space, representing an almost 100x return since 1993 (slide 11).
Let's break down Coelacanth's value proposition piece by piece to showcase why it holds the building blocks to generate robust value-accretive growth. The Two Rivers Montney project
Coelacanth drilled three Lower Montney wells on its flagship project's 5-19 Two Rivers East pad in 2023 averaging 1,338 boed (729 barrels per day of light oil and 3.7 mmcfd of gas) with a combined rate of 4,014 boed.
The company followed this work up with a four-well drilling program at Two Rivers East in October 2024, including three Lower Montney wells and one Upper Montney well. The program's goals were to grow production and drilling inventory, de-risking the stock for potential retail and/or institutional investors. Coelacanth released results for the four wells in December, delivering highly-encouraging results: The Lower Montney wells (F5-19, G5-19, H5-19) averaged 1,624 boed per well, including 989 barrels per day of 41 API light sweet oil and 3.8 mmcfd of liquids-rich gas. The rates are notably higher than wells drilled in 2023, exceeding management's expectations (see company advisories on slide 18).
The Upper Montney well (B5-19) achieved 1,136 boed (271 barrels per day of 40 API light oil and 5.2 mmcfd of liquids-rich gas), though it came in 20 per cent shorter in horizontal length and had 42 per cent less frac stages, leaving room for optimization (see company advisories on slide 18). The well is a 16-kilometre step-out from Coelacanth's Two Rivers West project and 8 kilometres from the nearest competing well, suggesting that the company may have stumbled upon a key to unlock the Upper Montney, which is thoroughly mapped across the Two Rivers project land package.
Management believes current drilling will boost production by up to 8 times to over 8,000 boed in late 2025, which includes a nearly finalized major infrastructure project and a multi-year, multi-zone drilling inventory set to propel production to over 15,000 boed by 2027, while elevating cash flow and reserves to unforeseen heights. The Two Rivers pipeline and processing facility
In Q3 2024, Coelacanth began building an C$80 million major infrastructure project, including over 35 kilometres of pipelines and a facility at Two Rivers East for gas compression/dehydration, oil treatment and water handling, in addition to connection lines from the 5-19 drilling pad through the facility to a mid-stream partner's gathering line. This work, now largely finalized, equips the company with 16,000 boed in processing capacity, plus room for expansion, allowing it to scale its way towards lower costs beginning with initial operations in May 2025.
Coelacanth has already secured gas processing and takeaway with up to 60 mmcfd of gas processing at a third-party plant and up to 100 mmcfd of long-term gas takeaway on major pipelines (slide 7).
Bankrolled by cash on hand and about C$52 million in liquidity from recent credit facilities – which Coelacanth expects to renegotiate as it ramps up production – plus C$23 million from the mid-stream partner mentioned above, the company is well-positioned to continue improving its income statements by breaking ground on new wells in 2025 and delineating targets to harvest its land package's demonstrated upside over the long term. A leadership team with holistic oil and gas experience
Coelacanth Energy's production ramp-up will be guided by a leadership team accomplished at evaluating, developing and bringing oil and gas resources to market. Let's meet key members of the team now: Management team Robert J. Zakresky, director, president and chief executive officer, is the former president and CEO of Leucrotta Exploration, Crocotta Energy, Chamaelo Exploration, Chamaelo Energy, Viracocha Energy and Bellator Exploration.
Bret Kimpton, vice president (VP) of operations and chief operating officer, is the former VP of production at Storm Resources, where he previously served as production manager. He was also senior operations engineer at Storm Exploration.
Nolan Chicoine, VP finance and chief financial officer (CFO), is the former CFO and VP finance at Leucrotta Exploration, Crocotta Energy and Chamaelo Exploration. He is also a former controller for Chamaelo Energy and Viracocha Energy.
Jody Denis, VP drilling and completions, is the former drilling, engineering and operations engineer at Leucrotta Exploration. He also served as senior operations advisor at Black Swan Energy, drilling manager at ARC Resources and drilling and completions manager at Birchcliff Energy.
John Fur, P. Geo., VP geosciences, served as manager of exploration at Leucrotta Exploration, in addition to senior geophysicist at Crocotta Energy, Chamaelo Energy, Chamaelo Exploration, Viracocha Energy, Canadian Natural Resources, Post Energy, Amber Energy and Husky Oil. Board of directors William Lancaster, P. Geo., chairman of the board, is the president and director of GMT Exploration Company LLC. He previously served as president at GMT Energy, where prior to that he also served as VP of exploration and production. Lancaster was also president of the Colorado Oil and Gas Association and a director of Pipestone Energy.
John A. Brussa, lead director, is the chairman of Burnet, Duckworth & Palmer, a Calgary-based energy law firm, and a director of numerous energy and energy-related companies.
Harvey Doerr, director, is the former executive VP of Murphy Oil, where he oversaw global refining, marketing operations and strategic planning.
Raymond Hyer, director, is the former president, CEO and chairman of Gardner-Gibson Inc. Prior to that he was senior partner of CPA firm, Raymond T. Hyer & Company, and also served as chairman of the board of directors of Sun Paints & Coatings Inc.
Tom Medvedic, director, is the CFO of NorthRiver Midstream. His track record includes tenures at Calfrac Well Services as CFO, president of its Canadian division and, prior to that, senior VP of corporate development.
Rob Zakresky, director, is president and CEO of Coelacanth Energy.
With Coelacanth's interests protected by a strategically specialized leadership team that is highly aligned with shareholders – insider ownership increases to 61 per cent across the entire company – the Canadian oil and gas stock is a standout candidate for investors to consider. Coelacanth has all the elements for value-accretive growth
In a market full of major players like oil and gas, the only way to stand out is by doing what these companies did in their earliest days and can no longer achieve, namely growing at an exponential rate without veering from a path to profitability.
As we've just delineated, Coelacanth Energy is rapidly differentiating itself in precisely this fashion, driven by a well-rounded leadership team, an expansive land package housing a robust resource and production expected to ramp up imminently thanks to a new processing facility and pipeline network.
Management captures this sentiment in the company's Q3 2024 news release, stating that 'although the construction and start-up of the Two Rivers East project is a huge step in Coelacanth's development, we believe we are just scratching the surface on what the potential of this large Montney asset base may ultimately be able to perform.'
Contingent on the prices of its target commodities remaining strong – which the ongoing global tariff war will support through supply chain disruptions – the Canadian oil and gas stock represents exposure to exponential, value-conscious production growth, offering a high probability of leveraged returns beyond investing in oil itself.
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(Top photo: Adobe Stock)