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THE BEARD COMPANY
301 NW 63rd, Suite 400
Oklahoma City, OK 73116
405.842.2333
www.beardco.com
Stock Quote
News Releases AUG / SEPT 2009The Beard Company (“Beard”, “BRCO” or “the Company”) is involved in a number of businesses related to natural resources that management believes have high growth or above-average profit potential and can enhance shareholder value. The Company is primarily focused on oil and gas activities, precious minerals exploration and development, and coal reclamation activities. We believe Beard’s combined interests in (1) the Dilworth Field enhanced oil recovery project in Oklahoma and (2) Geohedral LLC, which has discovered a potentially large precious and base metals deposit in southern Alaska, could be worth several times BRCO’s current stock price of $3.15 per share. The Company also has the potential to deliver significant value to shareholders from its coal reclamation technology and is currently in negotiations regarding the prospective clean-up of slurry ponds for a number of coal and/or utility companies. While other corporate initiatives could favorably impact shareholder value in coming years, this report will focus upon (1) the Dilworth enhanced oil recovery project, (2) precious and base metals exploration and development, and (3) pond fines reclamation projects utilizing the Company’s coal reclamation technology, which we consider likely to have the most significant impact upon BRCO’s share price over the next 12-24 months. |
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INVESTMENT DATA
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| Traded |
OTC
BB |
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Symbol |
"BRCO" |
| Recent Price |
$3.15 |
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52-Week
High: |
$7.90 |
| Fiscal Year
Ends |
Dec.
30st |
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52-Week
Low: |
$1.10 |
| Shares
Outstanding |
9,912,457* |
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Beneficial Insider
Ownership |
41% |
| Est. Float
(shs) |
4,100,000 |
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| Total Mkt.
Value |
$31.2 Mil. |
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Institutional
Ownership |
5% |
| Diluted EPS for 5 months ended 5/31/09 ....... $0.40**
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* As of March 31, 2009.
** Includes gains on sale of assets and gains on disposition of interests in subsidiaries.
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CONDENSED BALANCE SHEET (Unaudited)
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May 31, 2009
($000)
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Current
Assets |
$
2,684 |
|
Current
Liabilities |
$563 |
| Restricted
CD |
50 |
|
Long-Term
Debt |
413 |
| Investments and Others
Assets |
814 |
|
LT Debt Related
Entities |
2,165 |
| Property, Plant & Equip.
(net) |
979 |
|
Other LT
Liabilities |
168 |
| Net Intangible
Assets |
6 |
|
Shareholders’
Equity |
1,224 |
| TOTAL |
$4,533 |
|
TOTAL |
$4,533 |
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INVESTMENT HIGHLIGHTS:
& We believe the recent purchase of the Dilworth Field in Kay County, Oklahoma by a subsidiary of The Beard Company, represents an opportunity for the creation of significant shareholder value via an enhanced oil recovery project funded largely by outside investors. It has been estimated that the Dilworth Field has produced over 70 million barrels oil in the past century, and independent engineers project that the field should be capable of producing an additional 3.4 to 4.4 million barrels from the Arbuckle Formation using secondary recovery technology. If Beard Dilworth, LLC, the operator, achieves its expectations, we believe the Dilworth Field venture could deliver over $2.00 per share in cumulative earnings to BRCO over the next several years.
& In our opinion, The Beard Company’s September 2008 announcement that it owns 23.16% of privately-owned Geohedral LLC significantly changed the outlook for BRCO as an attractive investment opportunity. Geohedral has staked claims covering approximately 48,000 acres of Federal and State lands located near the town of Yakutat in southern Alaska. Geohedral estimates that the claims, which consist of black sand ridges covering more than 75 square miles along and inland from the Gulf of Alaska shoreline, contain significant amounts of precious metals (gold, silver, platinum), magnetite (iron ore) and ilmenite (iron titanium oxide ore).
& If drilling programs and sample analyses by independent mining engineering firms prove that Geohedral’s estimates of reserves are realistic, BRCO’s 23.16% ownership in the southern Alaska project alone could be worth several times the Company’s current “market cap” of $31.2 million to a potential strategic buyer in the mining industry.
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& Beard utilizes its proprietary coal reclamation technology for the recovery
of coal fines from the slurry ponds that have been used to dump residue from coal mining activities. Management estimates that 10% to 15% of the coal that has been mined for more than 100 years now resides in such slurry ponds (often called “black ponds”), creating environmental problems and resulting in lost revenues for the coal mining companies. We believe the potential exists for BRCO to generate significant revenues and earnings from the construction and operation of pond fines recovery facilities via joint ventures with coal companies, electric power generating companies, and/or other third parties.
& In March 2008, the Company sold 35% of its minority interest in the McElmo Dome carbon dioxide gas production unit, which is operated by Kinder Morgan CO2 Company, for approximately $3.5 million in cash. The Company sold the remaining 65% of its interest in McElmo Dome in May 2009 for approximately $5.2 million. We believe the Company sold its interests in the highly-profitable McElmo Dome venture in order to provide cash for Geohedral, Dilworth, and other opportunities that have the potential to generate higher returns on investment to BRCO shareholders.
& The Company has “cleaned up” its balance sheet significantly in the past year. The conversion of outstanding debentures into common stock, combined with the sale of the Company’s interest in a Chinese venture and the sale of its McElmo Dome interests, have allowed BRCO to reduce its total outstanding debt by more than 70% since the end of 2007, while increasing the liquidity of its balance sheet. Despite the debt-to-equity conversions, Beard has a relatively small share base (9.9 million shares outstanding; 10.5 million fully-diluted shares) relative to the potential value of its Dilworth Field enhanced oil recovery project, Geohedral investment, and coal reclamation opportunities.
& The Beard Company has a unique opportunity to significantly enhance shareholder value through its investments in (1) the Beard Dilworth LLC enhanced oil recovery project and (2) Geohedral LLC. Drilling is already underway at the Dilworth Field, which could begin contributing significantly to earnings sometime in 2010. We believe Geohedral has the potential to extract precious metals, magnetite, ilmenite and other valuable minerals in a politically stable part of the world (southern Alaska), with convenient access to ocean transportation and primary markets, without having to incur the costs and risks associated with traditional underground or open pit mining activities, and without the environmental costs associated with toxic tailings treatment and disposal. Meanwhile, the successful pursuit of coal reclamation projects could further enhance the value of BRCO shares, which we believe represent an outstanding speculative intermediate- and long-term investment opportunity with the potential to significantly outperform the overall stock market over the next 12-24 months.
“Nearly two-thirds of crude still gets left in the ground. With enhanced oil recovery, companies are determined to lower that number.”
“Squeeze that Sponge”
Guy Chazan
The Wall Street Journal
April 27, 2009
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Company Background
Over the past 40 years, The Beard Company, which was known as Beard Oil Company (BOC) prior to October 1993, has created, acquired and/or invested in a variety of businesses that management considered to have above-average potential to enhance shareholder value. Some of these businesses/investments have been successful, while others have been unsuccessful. The most significant venture in the Company’s history involved the 1968 formation of a hazardous waste management company, USPCI, Inc., which was partially spun off to shareholders in 1984, subsequently listed on the NYSE (1986), and acquired by Union Pacific Corporation in 1987-1988 for $396 million ($111 million to BRCO stockholders for their residual 28% interest, of which $60 million was distributed to shareholders).
The Company’s operations have been unprofitable in recent years, as several of its business initiatives did not achieve the success initially anticipated by management. During 2008 and 2009, the Company sold its minority equity stake in the McElmo Dome CO2 production unit for approximately $8.7 million in cash, along with its controlling interest in a Chinese fertilizer venture. These transactions allowed BRCO to report net income of $2.4 million ($0.23 per diluted share) for the year ended December 31, 2008, and earnings of $4.2 million ($0.40 per diluted share) for the five months ended 5/31/09.
The Beard Company is headquartered in Oklahoma City, Oklahoma, and its common stock (9.9 million shares outstanding) trades on the OTC Bulletin Board under the symbol “BRCO”. Management expects to seek a listing of its shares on a national exchange (The American Stock Exchange or The Nasdaq Capital Market) as soon as the Company meets the requirements for such listing.
We believe the Company’s fortunes have the potential to improve substantially in 2009 and future years, primarily due to prospects for creating substantial value for shareholders in its oil and gas, minerals exploration and development, and coal reclamation business segments. This report will focus upon the opportunities that we have identified in these three business segments.
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Oil and Gas Activities
As noted earlier, BRCO was initially formed under the name “Beard Oil Company”, and the Company’s oil and gas activities are currently conducted through its wholly-owned BOC and its partially-owned Beard Dilworth, LLC subsidiaries.
BOC’s historical strategy has been to acquire oil and gas leases and then encourage other operators to drill on or in close proximity to the Company’s acreage by supporting their exploratory wells with acreage contributions. BOC has also entered into arrangements with major and independent operators who make certain exploratory commitments relative to the Company’s acreage for an interest in one or more of BOC’s leaseholds, while BOC retains some form of reversionary working interest or overriding royalty interest and may also retain the right to participate in the drilling of development wells.
In 2008, BOC contributed $108,000, or approximately 7% of the Company’s consolidated revenues from continuing operations, primarily from the sale of natural gas production. However, recent price turmoil in the oil and gas industry has created the potential for BOC to expand the size of its oil and gas business segment by taking advantage of asset-disposal opportunities within the industry.
In April 2009, the Company announced that its Beard Dilworth, LLC (“BDLLC”) subsidiary had acquired the Dilworth Field in Kay County in north-central Oklahoma for approximately $1.7 million. We view this as a “watershed” development that has the potential to propel BRCO’s oil and gas revenues and earnings dramatically higher in 2011 and future years.
“Both Bill Beard and I believe that the Dilworth Field is the best, and has the most upside potential relative to theinvestment required, of any oil deal we’ve ever seen.”
Herb Mee, Jr., President
The Beard Company
News Release 4/20/2009
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 | It has been estimated that the relatively small (720 acres) Dilworth Field has produced over 70 million barrels of oil since the discovery well was completed in 1911. A reservoir study by one of America’s most highly respected engineering firms has estimated that the Dilworth Field should be capable of producing an additional 3.4 to 4.4 million barrels of recoverable oil from the Arbuckle Formation by utilizing secondary recovery technology. BDLLC recently raised $7 million from private investors (including $700,000 from BRCO) to finance the purchase of the Dilworth Field and complete its contemplated development program. BRCO will own a 10% interest in the Field until payout. Once the investors have received payout of $24.5 million on their investment, which is estimated to occur by the end of 2010, BRCO will own a 14% interest in the Dilworth Field.
In a news release dated April 20, 2009, The Beard Company stated that BDLLC’s targeted rate of fluid recovery for the project approximates 220,000 barrels of fluid per day, with an anticipated hydrocarbon yield of 1% to 2% (2,200 to 4,400 barrels of oil per day). Using an estimated oil price of $50 per barrel (bbl.) and assuming that the project is successful, we believe investors will receive their original investments, plus an agreed-upon return on their investments, before the end of 2010. We believe the Dilworth Field has the potential to contribute $0.40 to $0.80 per share annually to BRCO’s pre-tax earnings for several years, once the investors have received a 3.5-to-1.0 return on their investments.
The Beard Company may be able to take advantage of other opportunities as many exploration and production companies restructure their operations and balance sheets to reflect the rapid transformation of industry economics since the summer of 2008.
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Minerals Exploration and Development (Geohedral LLC)
In our opinion, Beard’s investment in privately-owned Geohedral LLC could present the Company with the most exciting opportunity to enhance shareholder value since its success with USPCI more than 20 years ago.
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In July 2006, Dr. P. Jan Cannon joined with two other individuals and BRCO to form Geohedral LLC, with the objective of raising sufficient funds to stake claims in an area of southern Alaska that is believed by Dr. Cannon to contain significant precious and other mineral deposits. Dr. Cannon is a Geologist and Remote Satellite Sensing Specialist who has spent more than 30 years working the area. He is also the second-largest owner of Geohedral.
In May and June of 2008, an offering of equity interests in Geohedral LLC raised $3.2 million from private investors, including $675,000 from affiliates of The Beard Company. This funding allowed Geohedral to stake the claims that are described below. Following this capital raise, BRCO owned a 23.16% equity interest in Geohedral. A second round of financing in October/November 2008 raised an additional $1.6 million to finance the drilling of a number of core holes, samples from which have been delivered to an independent engineering firm for analysis in order to provide a third-party estimate of the mineral reserves.
Geohedral’s management believes that it has discovered a rich deposit of precious metals (gold, silver, platinum), iron ore (magnetite) and iron titanium oxide ore (ilmenite) in southern Alaska near the town of Yakutat (see nearby map). In the summer of 2008, Geohedral completed the staking of claims covering approximately 48,000 acres of Federal and State lands, encompassing a 75-square-mile area consisting of black sand ridges that are believed to contain substantial amounts of the minerals described above. Additional claims are being staked this summer. Tests and assays conducted by Dr. Cannon indicate the existence of meaningful quantities of gold, silver, and other valuable minerals, along with substantial amounts of magnetite and ilmenite.
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 | Magnetite, or iron ore, is the raw material used to make pig iron, which is one of the primary raw materials used in the production of steel. According to the U.S. Geological Society (USGS), over 1.8 billion metric tons of iron ore are produced annually throughout the world. Key advantages of Geohedral’s deposit in southern Alaska involve estimated low extraction costs, access to ocean transportation routes, and a close geographic proximity to China, Japan and other Asian markets.
Ilmenite, or iron titanium oxide, is the most important ore in titanium, a metal that is highly resistant to corrosion and has the highest strength-to-weight ratio of any metal. Because of these characteristics, titanium is heavily used in the production of aircraft, missiles, armor plating, and spacecraft. Again, the geographic proximity of Geohedral’s deposit is quite fortunate, due to the heavy concentration of aerospace manufacturing (e.g., Boeing) in the northwestern U.S. Currently, Boeing imports most of its titanium from Russia, which is not considered the most politically stable source of critical materials for the U.S. aerospace industry
In addition to magnetite and ilmenite, Geohedral believes that gold, silver and other precious metals are present in the black sand ridges in amounts that may prove economic. We are most interested in the area’s potential as a gold resource, and Dr. Cannon’s work suggests that the deposits appear to include average grades that are economic for production using a low-cost dredge-type mining system. Given that this is “free” placer-type gold (not encased in other minerals), the costs of extraction should be quite low relative to most gold-mining projects.
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Geohedral believes that, in addition to the black sand ridges that rise 25 to 110 feet above the surrounding land surface, similar sedimentary deposits may exist beneath the ridges, to depths as great as 100 feet beneath the surface. If core drilling confirms this to be the case, the potential reserves of magnetite, ilmenite, gold and other minerals could be significantly greater than the amounts present in the ridges alone. In order to, hopefully, confirm Geohedral’s estimates of the precious and base metals present in the ridges and sub-surface areas, eleven (11) core holes were drilled (with samples taken at five-foot intervals) by an independent engineering contractor during the second half of 2008. The project manager/senior geologist of the independent engineering firm retained to supervise the exploration at the Yakutat project has confirmed that there were significant inaccuracies in the analytical results reported by an independent laboratory that performed the initial assays on the drill cores. This conclusion has subsequently been verified by two other independent laboratories. The engineering firm has since selected a new laboratory to perform the assays for Geohedral going forward. If the independent assay results confirm Geohedral’s internal estimates, we would expect the news to propel BRCO’s share price significantly higher than current levels within a relatively short period of time. More exploration drilling is being conducted this summer, in order to further delineate the grade, tonnage and extractability of the magnetite, ilmenite, gold and other minerals within the Geohedral project area. If independent confirmation of Geohedral’s reserve estimates is forthcoming, we believe the “intrinsic value” of the deposits could be realized in one of several ways. Geohedral could (1) attempt to raise the money to build a full-scale dredging/extraction/processing facility and go into the mining business, (2) joint venture with a larger mining company, or (3) sell all or part of the project to a larger company with the resources to extract and market the precious and/or base metals. The Geohedral deposits should appeal to major mining companies for several reasons:
& Extraction and processing of the magnetite, ilmenite, gold and other minerals will not involve the risks and/or expenses associated with underground or open-pit mining methods, but can instead can rely upon relatively inexpensive dredging operations;
& Toxic chemicals will not be required for leaching activities, so there
should be no environmental issues surrounding mine tailings;
& The black sand ridges are located in a politically stable country (the
U.S.A.);
& Transportation should not be a major issue, as extracted minerals can be
loaded onto oceangoing barges near the Geohedral project or at deep-water port in Yakutat; and
& The deposits are located near primary markets in China, Japan and the northwestern U.S.
Investors in BRCO will likely be most interested in the prospective value of the gold in the black sand ridges, since the potential value of the precious metals is likely to substantially exceed that of the magnetite and ilmenite. With less than 10.5 million fully-diluted shares outstanding, the implications for BRCO’s share price could be very significant. However, the author of this report must emphasize that the estimates of probable mineral reserves discussed above were made by Geohedral and have yet to be confirmed by independent laboratory analyses.
“As with oil, most of the biggest gold discoveries have already been made. There has been only one ‘world-class’gold discovery (e.g., a deposit of over five million ounces) in the past 15 years.”
Peak Oil...What About Peak Gold?”
Investor’s Daily Edge
January 23, 2009
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Coal Reclamation Technology
In the early 1990s, Beard entered the coal reclamation business via the acquisition of a majority interest in a research and development firm called Energy International Corporation (“EI”). The Company sold EI in 1994 but retained certain assets that were contributed to a wholly-owned subsidiary, Beard Technologies, Inc. (“BTI”).
Historically, an estimated 10%-15% of the coal produced in the U.S. – those particles that are very small in size and known as “coal fines” – has been disposed of in slurry ponds (often called “black ponds”), thereby resulting in lost revenue for the mining companies and creating environmental problems at about 1,000 pond locations in coal-producing areas, primarily throughout the eastern third of the U.S. BTI has developed considerable know-how and proprietary technology for cleaning up these slurry ponds by recovering 35% or more of the coal fines (also known as “pond fines”) from black ponds and converting them into briquettes that can be sold, thereby generating incremental revenue for coal-mining companies and/or reducing costs for electric utilities, while at the same time cleaning up environmental eyesores.
We believe BTI’s coal reclamation activities can play an important role in the quest for “clean coal technology” that has been much-discussed by regulators and politicians in recent years. Beginning in April 1998, BTI operated six pond recovery briquetting projects for a subsidiary of MCN Energy Group, Inc. Unfortunately, MCN terminated its contracts with BTI in early 1999, due to concerns regarding potential tax credits (which later proved unwarranted, as the contract later qualified for the tax credits). Nonetheless, the viability and effectiveness of BTI’s technology was proven through the successful operation of these projects. BTI has continued to enhance its technology in recent years, while awaiting a renewal of interest in pond recovery projects within the coal mining industry. In 2006, the Company completed the construction of a $15 million pond fines recovery facility owned jointly with Pinnacle Mining Company, LLC, a coal mining and energy resources company. While Beard no longer has an equity interest in this facility, the project has continued to operate and further validates the Company’s technology. Management believes that BTI is one of two leaders in the business of coal reclamation, and that most coal operators will contact BTI when they are interested in having pond fines recovered.
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With politicians and environmentalist now demanding new “clean coal” technologies, it appears that pond fines recovery can play an increasingly important role in the future of the U.S. coal industry in coming years.
A study by CQ Inc., funded by the Electric Power Research Institute, indicates that over two billion tons of bituminous waste coal fines are available for recovery east of the Mississippi River.
In recent years, growing pressure from regulatory agencies to more quickly reclaim or re-mine abandoned slurry impoundments, has sparked renewed interest among pond owners and coal operators to move forward with pond recovery projects. The Company is currently negotiating with a number of parties regarding pond fines recovery projects, and we believe the potential economics of such projects, combined with increased regulatory pressure to clean up slurry ponds and develop “clean coal” technologies that can result in higher-value, more marketable coal production, will present exciting new business opportunities for Beard in the future. In fact, in its Annual Report on Form 10-K for the year ended December 31, 2008, The Beard Company noted that “we have had more coal producers and utilities call us to discuss projects in the last five years than we had during the previous 14 years of BTI’s existence”. The Company is currently pursuing a number of projects, most of which are located in the Central Appalachian Coal Basin, and we believe one or more such projects are likely to come to fruition during 2009.
While the Coal Reclamation Segment of BRCO’s business accounted for less than 2% of the Company’s consolidated revenues in 2007 and 2008, we believe it has the potential to contribute substantially to revenues and earnings over the next several years.
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Summary and Conclusion
In summary, we believe the common stock of The Beard Company represents an attractive opportunity for speculative investors seeking to participate in market opportunities involving (1) enhanced oil recovery, (2) precious and base metals exploration and development, and (3) growing regulatory pressure and favorable economics for cleaning up coal fines ponds throughout the eastern U.S. Our interest in the ability of BRCO to deliver above-average value to investors in coming years is based upon the impressive potential economics of the enhanced oil recovery project underway in the Dilworth Field in Oklahoma, the small number of BRCO shares outstanding relative to the potential “intrinsic value” of the Company’s investment in the Geohedral, LLC minerals exploration and development venture, management’s experience and market opportunities involving coal reclamation, and the number of potential contracts currently being discussed with third parties and/or investors that could have a significant impact upon revenues, earnings and share price if successfully negotiated and executed.
In our opinion, BRCO shares have the potential to appreciate several hundred percent in price over the next several years and should significantly outperform the major stock market indices during the upcoming 12-24 months if (1) independent engineering assays confirm Geohedral’s estimates of the mineral content of its 48,000 acres of claims in southern Alaska, (2) the economics of the enhanced oil recovery project in the Dilworth Field meet expectations and/or (3) Beard enters into high-potential contracts for coal pond fines reclamation. The stock is considered appropriate for speculative investors who can accept the risks associated with companies whose operations are not yet profitable and that are traded on the OTC Bulletin Board.
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