Steven Ralston, CFA
Dejour announces initial drilling program at South Rangely in Colorado
Dejour (DEJ) today announced that the drilling program at South Rangely will begin with an initial vertical well next month. This announcement is important for several reasons. First, this is exploratory drilling outside of the company’s producing acreage at Woodrush in Canada, potentially providing additional producing acreage for Dejour in the United States. Secondly, the drilling program has been financed already by a stock and warrant offering last January. Thirdly, insiders are obviously confident in this project, since they acquired 20% of the offering. The area has been analyzed by two deep seismic soundings, and a private company has previously drilled nearby, which resulted in a producing oil well. Fourthly, the drilling will begin in May, exactly on the time table indicated by management in January.
The vertical well at South Rangely will test both the upper and lower Niobrara sections of the Mancos Shale on the company’s 7,000 acre leasehold on the western flank of the Douglas Arch, which is directly south of the Rangely Oil field that has been operated by Chevron since the 1960’s. If the test well is successful, Dejour plans to continue development with a horizontal well program.
We reiterate our Outperform rating based upon the attractive valuation level of the stock, the company’s improving production profile at the company’s Woodrush property in British Columbia, and now the initial vertical drilling program at South Rangely in Colorado.
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