Jayhawk Energy Inc. (OTCBB: JYHW)

JayHawk Energy Inc. (JYHW) engages in the acquisition, exploration, development, production and sale of natural gas, crude oil and natural gas liquids primarily from conventional reservoirs within North America. The Company’s key asset currently consists of 17,000 gross acres of mineral title on a light crude producing property in Candak, North Dakota, part of the Williston Basin. Its secondary property is located on 45,000 gross acres of mineral title with producing and non-producing coal-bed methane gas reserves and an 18 mile pipeline tied to sales located in the Bourbon and Crawford County, Kansas.

Founded in 2004, JYHW is based in Post Falls, Idaho, with field offices in North Dakota and Kansas.

Source: Reuters.com, SEC Filings.

Financial Summary

For the three months ending December 31, 2009, JYHW reported net cash provided by operating activities of $67,614, compared to $30,928 provided in operating activities for the three month period ending December 31, 2008. The Company attributed the increase to the significant reduction in the quarterly net operating loss, for the comparable quarters.

Net cash used in investing activities totaled $20,380 in the three months ending December 31, 2009, as compared to $29,812 in the same period ending December 31, 2008. Cash in the amount of $900,000 was provided by financing activities during the quarter ending December 31, 2009. There were no financing activities during the same period of 2008.

Generally, JYHW’s main sources of liquidity are cash and internally generated cash flow from the sale of crude oil and natural gas. For the quarter ending December 31, 2009, its cash position was significantly augmented by the issuance of the debentures in the amount of $900,000. The Company’s current assets at December 31, 2009, totaled $1,231,900 and its current liabilities totaled $1,350,747.

Source: Form 10-Q for JYHW

Source: http://www.reuters.com/finance/stocks/financialHighlights?symbol=JYHW.OB

Analyst Consensus

No analyst rates shares of JYHW at this time.

Investment Highlights

JYHW is an independent, managed risk, oil and gas exploration, development and production company. The Company’s strategy is to increase shareholder value through strategic acquisitions, drilling and development, and by prudently managing its balance sheets. Its investments to date have been concentrated in essentially coal bed methane gas properties, located in southeast Kansas, and oil producing properties in northwest North Dakota.

Oil and Gas Properties

Uniontown Properties: Located in southeast Kansas, these properties consist of the leased acreage and wells within the leased area drilled by previous operators. Mud logs and cores have been taken to identify coal properties and gas contents. There have been at least 11 gas bearing coals identified within the Cherokee Group from depths of 250 to 750 feet, with typical thicknesses of 1 to 4 feet, yielding total net coal thickness ranges from 20 to 38 feet. Gas contents have been measured between 22 – 124 standard cubic feet per ton. No production tests have yet been conducted.

Girard Properties (Southeast Kansas): Adjacent to the Uniontown Project is the Girard Project in Crawford County Kansas which the Company acquired on March 31, 2008. With this transaction JYHW acquired 34 wells, of which 7 were tied into a pipeline also acquired at this time. This acquisition provided the Company infrastructure necessary for future development of existing and acquired leased acreage. Its acreage position in both Bourbon and Crawford counties Kansas was enhanced again with the acquisition from Missouri Gas Partners of certain oil, gas and mineral rights to 11,462 leased acres in June of 2008. As at September 30, 2009, JYHW has 20 producing gas wells tied-in to the pipeline. At September 30, 2009, it had a total of 44,216 leased acres in Kansas, and are producing and selling an average of 105 MCF daily of coal bed methane gas. Since June of 2008 through September of 2009, the Company’s gas production and sales has contributed $200 thousand in gross revenues.

JayHawk Gas Transportation Company: Associated with the acquisition of the Girard properties in March of 2008, the Company acquired a 16-mile pipeline. Management anticipates that the pipeline will play a significant part in JYHW’s future development. In May of 2008, the Company established a 100% owned and controlled subsidiary, JayHawk Gas Transportation Corp. to hold and manage the assets associated with the pipeline. This pipeline is tied into a 2 million cubic foot sales pipeline and allows for substantial growth.

Candak Project (North Dakota): On January 16, 2008, JYHK acquired a 65% working interest in five producing oil wells, historically referred to as the Candak properties, located in the Williston Basin area, of North Dakota. In addition to the five producing wells, the Company acquired certain oil, gas and mineral rights in a 15,500-acre land position. The Candak properties provide stable production of approx. 65 Bbls of light crude oil daily from the five existing wells. Since their acquisition and through September 30, 2009, these five wells have produced and sold in excess of 40,000 Bbls. and generated net revenues to the Company of $1.6 million.

Early in January, JYHW President Marshall Diamond-Goldberg announced the closing of the second of four tranches of the Company’s $1.5 million debenture financing previously announced on December 14, 2009. According to the Company’s press release, this financing will allow it to proceed with its development program in its Crosby, Ratcliffe formation, oil pool located in northwestern North Dakota.

JYHW has conducted an extensive technical evaluation of the Crosby project, which reportedly appears to have abundant analogue pools across the border in Canada. With the recent increase in oil price and the Company’s strategy of selling its crude into the higher pricing environment of the Canadian market, the Company is confident that the proposed development program will achieve a high rate of return and significant incremental cash flow, while creating a short term payout of capital. Its large land position at Crosby is expected to yield more than 30 drilling locations. JYHW CEO Lindsay Gorrill believes the growth potential of the Crosby play could result in a long-term period of expansion for the Company.

JYHW continues to prepare for its upcoming drilling program on its Crosby North Dakota oil project, which should be ready for drilling to commence in the latter part of February. According to the Company, regulatory submissions and drilling contracts are in the works with a two well program initially being prepared.

Source: http://www.jayhawkenergy.com; FORM 10-K – December 21, 2009

Technical Analysis

Source: http://stockcharts.com/h-sc/ui?s=jyhw

JYHW is trading above its 13 day moving average. This is considered to be the sign of a bullish trend. There is added weight to this indication because the moving average is rising and suggests that there has been buying interest in this stock.

JYHW is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

The MACD for JYHW currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9day moving average. Second, the MACD is above 0 which implies that the underlying moving averages are trending higher.

Comparative Analysis

Source: Thomson Financial

Insider Trading Activity

Source: Yahoo Finance

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