How To Play Canada’s Oil Shale Companies, Part 2


As I explained in Part 1: Atlantic Canada Oil Shale Projects, we’re seeing a shale revolution all over the world right now… from the juniors to the seniors.

And we’re seeing this increasingly in all-but-forgotten plays. Take the Green Point play, for example. The management team at Shoal Point (SHP-CSNX) had been looking over historical data on Green Point — which has been around for years and nobody thought much of – when they realized something:

“Historically, people were looking for deep conventional targets here,” says George Langdon, President.  “So not much attention was paid to the shallow and intermediate hole data.  We had a thorough look at that data and we realized it had good source rock potential.”

In addition, Langdon says there was high TOC – Total Organic Content – in outcrop around the property.  Generally speaking you need 2% TOC to make an oil deposit commercial in shale.

Shoal Point’s exploration license is now roughly 250,000 acres, and they estimate that 60% of it is prospective for Green Point shale.  They are spending 100% of the current 3K39 well to earn 80.75% of Green Point on License 1070.

Unfortunately, there is precious little for investors to read or view about on this play so far – the website has a blank page on their website on REPORTS and PRESENTATIONS.  It does say on their website that in August 2010, AJM consultants of Calgary completed a report that estimated the discovered, in-place resource range from a P50 case of 1.5 billion barrels, up to a P10 case of 5.2 billion barrels.

But this lack of information didn’t stop the stock from rocketing from 30 to 60 cents recently ;0).

Management’s geological theory is that the rocks here have been piled over on top of each other so often that they have stayed in the “oil window” (a certain depth underground where the right amount of heat cooks the ancient marine organic matter into oil – if it’s too deep it turns to gas and too shallow it doesn’t cook at all).

The most recent drill hole has hit 1745 m depth (1194 m true vertical depth) but management did not say how much of that was shale – what was the shale thickness?

It’s an intriguing play because of the potential thickness – they believe the possibility exists for a productive formation hundreds of metres thick.

Logistics in the area are surprisingly good.  They are drilling right on the coast – the drill is on land but they are drilling out to sea.  Stephenville, a town of 6000 with an airport, is close and the Irving oil refinery is only 1-2 days by tanker away.

There are roughly 200 million shares out (fully diluted, i.e. including all the stock options and warrants) on Shoal Point already, and much more capital to be raised if the play is commercial. Another potential issue for management is that the stock is listed on the junior CSNX board in Canada – not the Venture Exchange of the TSX like most juniors.  That can make it hard for non-Canadians to buy the stock.

But that’s a problem that a productive shale formation several hundred metres thick could cure.

In another shale development in Atlantic Canada, Southwestern Energy (SWN-NYSE) announced in March 2010 that it would spend $47 million to explore 2.5 million acres in New Brunswick – its first big foray outside the US – searching for shale gas and shale oil. They spent $10.7 million in New Brunswick in 2010.  They expect to test their first well in the fall of 2012.

– Keith

Read Part 1 here: Atlantic Canada Oil Shale Projects