Why Synergy Resources Corp. Shares Vaulted Higher

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Synergy Resources (NYSEMKT: SYRG  ) , an oil and gas exploration and production company focused in the Denver-Julesburg Basin, spiked 10% after announcing its mid-year proved reserve update.

So what: According to its press release, Synergy Resources' proved reserves increased 43% to 19.7 million barrels of oil equivalent from 13.8 million BOE as of August 31, 2013. The PV10 value of these reserves also increased from $236 million to $326 million. CEO William Scaff attributed the huge increase in proved reserves to the company's successful horizontal drilling program, which currently sports 11 wells. Scaff announced that the company plans to drill an additional 20 to 25 horizontal wells before its fiscal year ends on Aug. 31.

Now what: Anytime we see an exploration and production company increase its proved reserves by 43% it's going to be a good day for shareholders. Given its success through just 11 wells it makes Wall Street estimates, which call for greater than 100% revenue growth in each of the next two years, quite achievable, Of course, investors should keep in mind that oil price fluctuations and higher-than-expected costs aren't uncommon when drilling this many new wells, so they should prepare for a possible volatile ride as well. However, based on what I've seen thus far Synergy Resources' future looks bright.

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