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Research Report Update

NAGP: 3Q12 results in line with expectations. Litigation settled. Focus is now on production.

11/20/2012
By Ian Gilson, CFA

Native American Energy Group (OTC Markets:NAGP) has reported its third quarter results. No oil sales occurred in the quarter and the EPS was -$0.01, which is what we had estimated. As discussed below there are two producing oil wells and the production is being stored in tanks ready to be shipped to Shell US Trading. The cold weather in Montana is having an impact on the viscosity of the oil and certain operation will require heating so that the oil will flow more easily.

The focus now shifts from well work-over to oil production. Oil prices have declined slightly to below $90 but are still above $85, which is our estimate for the current quarter.

The Native American Energy Group has agreed to a settlement of the litigation on the loans from High Capital Funding LLC. The amount of loans on the third quarter balance sheet was close to $1.3 million, which we assume is the amount in question. The settlement adds interest and legal fees, which, in our opinion, is between $0.3 and $0.5 million and also includes a combination of shares and warrants equal to 2.2 million shares. The loans will be paid back using 35% of net revenue from the sales of oil to Shell from any well operated by NAGP.

This payment is not onerous and should be paid down by the end of 2013. We are treating this as an expense and not as a reduction in revenue.  

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