Kansas Oil Play Grows to 175,000 Net Acres (OTC:CRCL)

Yesterday was a “Big Day” for CIRCLE STAR ENERGY CORP (OTC:CRCL) as the development and production through several recent acquisitions of 111,000 acres in Northwest Kansas increased its total contracted Northwest Kansas acreage position to approximately 175,000 net acres. CRCL also has substantial gas plays in Texas. 

The 111,000 acres are located in Decatur, Graham, Logan, Norton, Rawlins, Sheridan, and Thomas counties, Kansas. The leasehold interests include 100% working interest and an average net revenue interest of approximately 80%. 

The Company will receive, as part of these new acquisitions, approximately 40 square miles of 3D seismic and 100% operated working interest in an oil well producing from the Kansas City-Lansing formation, which sits above the Kansas Mississippian. 

Circle Star CEO Jeff Johnson said, "The contracting of over 175,000 net acres in Northwest Kansas is an important step towards fulfilling the Company's goal of leasing a meaningful acreage position in Northwest Kansas. Although there is much work to be done, this is an important step in realizing Circle Star's long term goals of maximizing shareholder value." 

Kansas has begun to see the benefits of technological advances that now allow producers to extract as much as five to 10 times more oil and gas from a horizontal well than a conventional vertical well via frac’ing.

Circle Star has agreements to lease 71,000 total acres of land in the "Original Mississippian" and "Mississippian Extension" plays, two of the most oil rich areas in the state.

Kansas sort of has a ‘gold-rush’ going which an AP story said has county courthouses across much of Kansas, filled with scores of researchers combing through dusty land records. Leases which just three years ago went for $30 an acre are now fetching $3,000 an acre in drilling hotspots. Kansas currently ranks among the top 10 States in crude oil production.

Just like the Dakota Bakken five years ago, small towns in certain Kansas counties are seeing a growth in population of oil workers, busier diners, more traffic, and rental rates for housing is surging.  

"We are excited about it and we are hopeful," said Ed Cross, president of the Kansas Independent Oil and Gas Association. "We just want to be cautious looking at the potential. We don't want to overstate it." 

One thing I like about CRCL is that management is keenly aware of the typical environmental concerns that go along with frac’ing and are dedicated to any production frac’ing being as clean and state of the art as is currently possible. Good. 

The March agreement to lease approximately 64,000 acres of lands prospective for oil development in Northwest Kansas both Trego and Gove counties in Kansas was structured to deliver effective Net Revenue Interests ("NRI") of approximately 81% to the Company. Circle Star plans to develop the shallow 4500' Kansas City-Lansing sub-formation at an estimated cost to drill and complete of approximately $500K per well. The Company’s NRI on its 7,500 acres located in southern Kansas is 93%.

CEO Johnson said, “We are very pleased to have been able to get this acreage position under contract given the highly competitive nature of the oil sector. It is truly an extraordinary opportunity for the Circle Star shareholders.

"The ownership position provides Circle Star with the ability to look at alternative sources of revenue including farm-outs for other forms of energy development such as solar and/or wind."

CRCL also retains the water and mineral rights on ‘owned’ acres. 

Let me drop some names…

The Company’s royalty, non-operated working interests and mineral interests in certain oil and gas properties in Texas producing areas include: Hilltop Bossier Field (Robertson County, Texas); Deep Bossier; Madisonville Woodbine Field (Madison/Grimes, County, Texas); Woodbine; Pearsall Field (Dimmit/Zavala County, Texas); Austin Chalk, Eagle Ford Shale; and the well known Permian Basin in Texas with asset operators that include big name publicly traded companies like: Apache Corp, Chesapeake Engery, EnCana, and Newfield Exploration.

Money…

CRCL has a market cap of only $78 million and even though the past three quarters have only generated revenue of $766,000 Circle Star is a development play with producing properties and acquisitions that will rise in asset value. 

To keep things going and provide operating capital, without diluting shareholder valuation, management has done what I think is very smart: Their using debt resources instead of equity resources. For example on March 14, 2012, the Company issued 10% convertible notes for cash in the aggregate principal amount of $500,000 with the notes due and payable on March 14, 2013.

In Jan 1 Circle Star a deal by selling its asset known as JHE Holdings for $9.35 million in cash. CEO Jeff Johnson said at the time, "The sale of JHE Holdings shows that we can generate solid returns for our shareholders through the acquisition and participation in the growth of quality assets. 

“We are focused on opportunities to capture real, tangible financial returns and will continue to execute our strategy to successfully identify and bring superior ventures into the Company. 

“By nurturing our interests in quality development stage projects into revenue positive assets, our portfolio grows into an attractive mix of saleable opportunities positioned to generate significant returns for the company and, in turn, value for our shareholders."  

You have to like the business-head of CEO Johnson; he’s constantly taking financial options that are in the best interests of the shareholder and present the least risk. 

For great maps of the properties owned, check out http://www.circlestarenergy.com 

Shares of CRCL are currently trading in the $2.57 range.

I haven’t, don’t, and do not intend on holding any of the companies mentioned in this article.