By Steven Ralston, CFA

After the close yesterday, Dejour Energy (DEJ) reported results for the fourth quarter and full year of 2014 ending December 31, 2014. Quarterly earnings were a net loss of CDN $0.025 per diluted share versus a gain of $0.022 in the comparable quarter last year. Gross oil and gas revenues (before royalties) for the quarter declined 41.0% year-over-year to $1.20 million versus $2.36 million, primarily due to a 67.2% decrease in gas production and a 14.2% decline in gas price realizations; oil realizations also declined 9.8% YOY.

For the year, Dejour reported a loss of CDN $0.025 per diluted share versus a loss of $0.017 in 2013. Gross oil and gas revenues (before royalties) decreased 2.9% to $9.05 million versus $9.32 million, primarily due to the full year’s gas production from the four wells at Kokopelli almost offset the decline of gas production at Woodrush. For the year, the company enjoyed improved pricing (realized natural gas prices increased 36.3% and realized oil prices rose 2.0%) due to strong commodity pricing in the first half. Average gross production declined 10.5% to 449 BOEPD versus the 504 BOEPD reported in 2013. Operating & transportation expenses increased 20.6% to $4.10 million and G&A expenses increased 3.4%. As of December 31, 2013, Dejour Energy had a working capital deficiency of $4.48 million.

In March 2014, Dejour Energy acquired working interests in production leaseholds adjacent to the Woodrush oilfield (totaling 5,500 net acres), a sour gas processing facility (96.8% working interest) and 24 km of pipeline (96.8%+ working interests). The oil & gas lease included a 54% working interest in a producing well (from the Halfway formation) and a 74% working interest in two shut-in natural gas wells. The sales pipeline allows Dejour to eliminate paying a pipeline tariff to transport the gas from the company’s tank battery at Woodrush.

In July 2014, Dejour Energy acquired an additional 24% working interest in the Drake/Woodrush oil & gas project for 9.6 million shares of Dejour common stock at a price of $0.202 per share (or $1.939 million). The deal fulfilled two of management’s goals for 2014, namely increasing production in British Columbia and expanding the company’s Canadian assets through acquisition. Management successfully drilled two new wells at Woodrush/Hunter in December, and the wells were producing 350 BOEPD in January 2015.

In late June, Dejour Energy entered into a joint venture with a private, US-based Exploration and Production (E&P) company to develop Kokopelli. Dejour Energy received $3.75 million at closing, which was used to retire the 14% CDN$3.5 million loan facility from a Canadian institutional lender. The E&P company is earning a 65% working interest by drilling and completing eight new wells on the southern Kokopelli leasehold. Dejour Energy retained 25% of the Kokopelli project and is being carried through this $16 million tranche of development. The drilling program was conducted in the second half of 2014, and the completion (fracking) of the wells is scheduled to commence during the second quarter of 2015, with production expected in the third quarter. One of the eight wells tested the Mancos formation.

During 2014, Dejour completed two equity financings which provided $2.225 million in net proceeds. The company also issued shares through the exercise of warrants and options, which provided an additional $2.232 million.

We maintain an Outperform rating and target of $0.45 per share on Dejour Energy’s stock. The target is based upon a calculation of Net Asset Value (NAV) and uses the most recent 51-101-compliant Reserve Report, financial reports and company announcements. Any information derived from the eight-well drilling program at Kokopelli, including the Mancos test, has not yet been utilized in the independent assessment of the company’s reserves. It is expected that once the wells are in production, an updated assessment will be pursued.

SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR and to view our disclaimer.