The Stocks Likely To Benefit from the Emerging Duvernay Play

By
1940bkg
-
0

Last week, Encana Corp. (TSX-ECA) came out and revealed itself as the huge mystery buyer of Duvernay rights in Alberta, spending $300 million on land acquisition in the first quarter alone.

It’s a big number considering there are only two published drill holes into the Duvernay – and neither one belongs to Encana.

The Duvernay is the hot new play in western Canada – it’s early stage, but Encana’s big purchase shows they believe it will be a highly profitable play – so profitable in fact, the big dog of Canadian gas could become a take-over target itself.  The Duvernay is the “source rock” where much of the oil in the Western Canadian Sedimentary Basin was formed – and then migrated upwards into the pools and traps that have been the discovered since the first Leduc well in Alberta in 1947.

The good news for investors is that there is also a swath of intermediate and (cheap) junior gas companies that already have Duvernay rights – these players have had land staked in the area for other formations.  Let’s outline some of the stocks that investors could look at for exposure to the latest big shale play in western Canada:

On April 19, Trilogy Energy Corp. (TSX-TET), along with partners Celtic Exploration Ltd. (TSX-CLT) and Yoho Resources Inc. (TSX-YO) announced test results from their second Duvernay joint venture well – 7.5 million cubic feet per day of gas plus – and this is the important part – the well yielded 75 barrels of liquid condensates and 56-degree API oil for every million cubic feet of gas, for some 1,250 barrels of oil equivalent per day.

That condensate is now getting 10% MORE in price than light oil, and has a fast growing local market, as it is used to dilute down the heavy oil from the oilsands to bring it up to pipeline specification so it can flow into the pipeline system.

Ironically, Encana quoted Trilogy’s test numbers as a benchmark of success even though it hasn’t drilled a single horizontal well into the play. In fact, it only has one vertical penetration to date, which it described as “encouraging.” Assuming of course, a company like Encana has enough clout to create “the economies of scale” needed to drive down costs. Indeed, it has shown it has plenty of muscle, even in a weak gas price environment, to do just that.

On a conference call to discuss its disappointing first quarter results, company officials raved that the Duvernay has the potential to be a “top quartile” shale play in North America.

Confidence or cockiness? Given Encana’s reputation as a low cost producer that has become a victim of its own success by unlocking tens of trillions of cubic feet of reserves, we’re going to say both. Let’s face it, they ARE a big part of the reason there’s so much gas around these days.

But what happens next is an investor’s dream. This could be a HUGE new play, like the Horn River in remote northeast B.C., but on a larger scale.

Except Duvernay isn’t northeast B.C.  In the Duvernay area, we’re talking about good roads capable of carrying good crews and equipment to work each day. You can even get a good cup of coffee on the way there, and drive back home at night – no camps with extended absences from family. It’s a virtuous circle.

So let’s add this up –

1.       the Duvernay has an abundant and highly profitable natural gas liquids, to the point where Encana says it can give the regular dry gas away for free and still make money.

2.      There is lots of infrastructure in the area – pipelines, gas processing centres etc.

3.      Several junior and intermediate producers already own dozens of sections each of Duvernay rights that haven’t been priced into their stocks yet (this is exactly what happened in the Cardium play in late 2009 and Alberta Bakken plays in mid-late 2010).

So which companies/stocks will likely benefit the most from the emerging Duvernay play?

Companies like Trilogy have been playing Kaybob and another area called Simonette for almost two decades. Almost by accident, it’s now the largest Duvernay land holder after Encana.

Trilogy is either going to become a big fish in a small pond or its going to get swallowed fast. Ditto for Celtic and Yoho, which might as well hang out the for sale sign and get it over with.

Other junior companies that could be ripe for the picking include Donnybrook Energy (DEI-TSXv) and Cequence Energy (CQE-TSX).  Both juniors own more than three dozen net sections near where Encana bought a large acreage position for the Duvernay – Donnybrook is on both sides of Encana’s new package – Simonette to the west and BigStone to the east.

Even Encana has been rumored to be a takeover target for a super major like Shell, and its shares must look pretty cheap right at $30 or so, especially if it’s sitting on another Marcellus or Eagleford. Unlike Exxon, Shell has been sitting on the shale gas sidelines and it could be looking to make a move. Taking out Encana would probably be a $40-billion bite and undoubtedly one of the biggest corporate deals in Canadian history (hypothetically speaking, of course).

But it’s not just producers that stand to gain from a big shale discovery in Alberta. Considering this first well cost nearly $18 million to drill and complete, it’s a trickle down economy with all the attendant drilling, completion and transportation stocks having nowhere to go but up.

Even if producers can get the all-in well cost down to $15 million or even $10 million, all your favorite drilling stocks, Precision Drilling Corp. (TSX-PD), Trinidad Drilling (TSX-TDG), and Ensign Energy Services (TSX-TSI), are going to reap the benefits of this next drilling boom.

Along with all your pressure pumpers and frack masters, the Calfracs (TSX-CFW) and Flints (TSX-FES) of the world, whose pumper trucks are the key to making unconventional gas a viable proposition.

And unlike Quebec or New York, even the politicos will get on board this train.

Given that the Alberta government had the scare of its life when its ill-conceived royalty changes just about scared every rig out of the province three years ago, it isn’t eager to make the same mistake twice. The bean counters in Edmonton are probably toasting their good luck about the Duvernay now, because this is the kind of tide that raises all boats, including theirs.

The Duvernay is the gift that keeps on giving.  Only now, it’s going to be giving directly to investor’s wallets.

Read Part 1 here: The Duvernay Shale Gas Play

 

 

The Duvernay Shale Gas Play

By
1940bkg
-
0

Old oil fields never die. They just get better with age.

It’s a time-worn cliche, but in the case of Alberta’s Duvernay shale, it may be the best example yet.

By now everybody has heard about the “shale revolution” and how it’s set to dramatically change the energy landscape.

And beyond a doubt, that much is true. Large volumes of natural gas are being found in the least likely of places: Quebec, Michigan, even countries like Poland and Latvia.

That’s all well and good — the world is finally cueing into the fact that cheap abundant natural gas will drive the global economy for decades to come.

Alberta has been a latecomer to the shale gas game, but that’s about to change in a big way — thanks to the emergence of the liquids-rich Duvernay play.

For weeks, speculation has been building that unknown buyers have been staking out a new shale play in Wild Rose Country, driving land prices at Crown mineral auctions to new heights.  In fact the Alberta government took in $2.6 billion in the fiscal year ended March 31, which was an all-time high (but still far short of liquor, tobacco and video lottery).

Since last summer unknown bidders have paid as much as $35,000 a hectare for land (2.5 acres=1 hectare) in an area called Kaybob that normally sells for only a tenth as much. At an Alberta land sale in March unknown buyers put up the ridiculous sum of $107 million for a single parcel near Fox Creek, 260 km northwest of Edmonton, a sure sign that something is afoot in the hinterland.

This is Montney country, to be sure. But the sheer scale of the bids was enough to turn heads and set tongues wagging in the high skyscrapers of downtown Calgary. All that money for deeper rights down to the Devonian — it could only be the Duvernay.

For the geologically inclined, the Duvernay is noteworthy because it’s the source rock for the original Leduc oil discovery in 1947. In fact, it’s a high quality source rock for most of the crown jewel oil discoveries in Alberta over the decades, from the Swan Hills to the Keg River reefs.

This is the same rock that built an industry… a gift that keeps giving to this day.

The Duvernay is, in fact, a perfect example of a well-known play that could never be developed without the technologies we have today: the dynamic duo of hydraulic fracturing and horizontal drilling.

On April 19, Trilogy Energy Corp. (TSX-TET), along with partners Celtic Exploration Ltd. (TSX-CLT) and Yoho Resources Inc. (TSX-YO) announced test results from their second Duvernay joint venture well.

The results were quite strong — 7.5 million cubic feet per day of gas.  More important, the well yielded 75 barrels of liquid condensates and 56-degree API oil for every million cubic feet of gas, for some 1,250 barrels of oil equivalent per day.

Although the crew at Canadian brokerage firm Peters & Co. were disappointed with the cost of the well — $17.5 million including the fracs — it was clearly impressed with the production numbers, especially the liquids content which amounts to more than 500 barrels a day alone (multiplied by $100 a barrel and you can do the math). Peters thinks there are cost savings to be realized with full scale development, which is usually the case with these early stage plays.

In some ways, it could be the most important well drilled in Western Canada since the first Leduc discovery well in 1947. That’s because the liquids, which are priced on an oil equivalent basis, are more than enough to make up for the relatively weak gas price.

“There’s always a bull market somewhere.” There is more truth to this than most investors realize. And right now one of the biggest — if not THE biggest — bull markets in the entire Energy Patch is quietly taking shape. I’m referring to the technological revolution in oil & gas — the technologies, for example, that can increase yields by 4 to 7 times… launch huge new “discovery” fields… or even “extend the lives” of older fields. It is exactly these kinds of innovations that are creating triple-digit profit opportunities in the Oil & Gas Investments Bulletin portfolio. To learn more about what’s driving these opportunities in my OGIB personal portfolio — and how it all works, keep reading here.

 

According to Wellington West Capital Markets, the addition of those liquids effectively pushes the realized gas price up to $8 per mcf equivalent (mcfe), which is not bad at all, especially in the current market.

These are the kinds of numbers that draw attention of major players and perhaps it was no surprise that Encana Corp. (TSX-ECA) came out the very next day and revealed itself as the mystery buyer of all those Duvernay rights, spending $300 million on land acquisition in the first quarter alone.

For a company like Encana — North America’s second-largest gas producer, the shift into liquids is a no-brainer after the haircut they took in the first quarter. As one of the most gas-levered companies on the planet, they have to do SOMETHING.

And one look at the company’s first quarter results tells the story: it barely broke even in the first three months of the year (thanks to effective hedging) compared to a $1.5 billion profit in the same period a year ago. They’re basically giving the gas away for free.

Encana CEO Randy Eresman admitted as much at the company’s annual meeting in Calgary last week when he suggested the company could give away the gas and still make money on the liquids.

In that sense Duvernay is manna from heaven, and some serious good fortune for a trouble gas sector.

Plus, Alberta has a ready-made market for those liquids, which are used to dilute bitumen and heavy oil and make it flow through pipelines like the Keystone XL to the U.S. Those liquids have been in short supply in recent years, and there was even talk of importing them from offshore for use in the oil sands.

NEXT STORY:  the Duvernay Stocks – Which companies – junior, intermediate and senior – will benefit the most from this new play.

– The OGIB Research Team

Editor’s Note:  As mentioned above, the shale revolution is monumentally altering today’s energy landscape. What’s more – there’s a new technology that’s actually empowering this revolution. That’s why I’ve put together a video that lays out the entire situation, including how investors like you can capitalize on it. Follow this link to watch it.

 

Want to learn more about investing in junior oil and natural gas stocks? If you have a Facebook account, just “like” this article and a hidden link to Keith’s 10 page how-to on oil and gas investing will appear:

[facebook-like id=”1″ ]

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

By
1940bkg
-
0

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

 

Atlantic Canada Oil Shale Projects

By
1940bkg
-
0

Analysis on Petrolia, Corridor Resources, and Shoal Point Energy

Dear OGIB Reader,

When I say “Atlantic Canada,” I bet that shale oil is not the first thing that comes to mind.

But as the global shale revolution continues in the energy patch, prospective shale targets – once written off as a waste of time and money – are being dusted off and re-tested everywhere – including Atlantic Canada.

The stock of Petrolia (PEA-TSXv) jumped from 50 cents to $2 in a week in early February 2011, when they announced the results from an analysis of their and Corridor Resources (CDH-TSXv). They’re looking for a partner to develop the Macasty shale on 250 km long Anticosti Island in the Gulf of St. Lawrence.  It looks huge – covering almost 75% of the island.

And Shoal Point Energy (SHP-CNSX) is testing the Green Point oil in shale play at Port Au Port Bay on the west coast of Newfoundland.  What intrigues me about Shoal Point is the potential thickness of the shale formation here.

The Macasty shale on Anticosti Island has been known for years or decades – it is basically the same as the Utica Shale in Quebec, except the shale wasn’t buried as deep.  The deeper shales are in the “gas window,” and the shallower ones are in the “oil window.”

The Macasty shale also sits on top of another formation that has been produced from before – the Trenton Black River (TBR). So the industry has drilled through the Macasty many times to get to the TBR.

“We always knew it was organic rich,” says Tom Martel, Ph.D and Chief Geologist for Corridor.

“We took a core of the Macasty as we drilled for the TBR.  Since last summer we have been having that core analyzed by Weatherford.”

Martel says they take samples of the shale and put it in canister, and see how much gas is coming off rock.  They test the porosity and permeability, and they extract the fluids in the rock – oil gas and water, and do a rock analysis, checking the Total Organic Content (TOC) and the “vitrinite reflectance.”

All these numbers came back with values that suggest the Macasty shale could be a productive zone for oil.

Martel says they took it to Winter NAPE (the North American Prospect Expo, an industry conference in Houston each February) and to London England, and people are excited about the play.

“We have very good results and there is a lot of oil in place on that island,” says Martel.

“You can see that there’s oil in the rock,” he adds, and says the shale is quite brittle which is good for fracking.

“Our next stage is getting a partner.  (This play) is going to take some evaluation and some heavy lifting.  We have to do some testing on these rocks; drill a horizontal well.”  About 20 historical wells have intersected the Macasty on the island, so Corridor and Petrolia have a “fair idea” of what’s there, Martel says.

It has good aerial extent, and is only 1000 m depth.  It varies but is roughly 40 m thick.

“There are no red flags yet, that’s why we’re excited,” Martel says.  “For a piece of land that big and have no red flags is quite exciting.”

Petrolia has 50 million shares out and owns 50% of most of the 35 oil and gas exploration licenses, but only 25% on 6 of them.  Corridor has 88 million shares out.

Corridor was/is the leader in shale plays in Atlantic Canada – but for gas, not oil.  Their Frederick Brook Shale in New Brunswick has been independently assessed by GLJ Consultants to have a best estimate of 67 TCF (trillion cubic feet) of gas – a number so large it is off the charts for anything else discovered (that I’m aware of) in North America in such a small area.  It is roughly 1100 metres thick between the upper and lower shales.

Apache Corp (APA-NYSE) has an option to earn 50% net working interest in the heart of the play – 58,000 acres – but it must commit the next $100 million in less than two months – June 1, 2011.  Given the mediocre results in the second hole, that is not a sure bet.

There are several issues here – the first well was fracked with propane vs. water on the second, and used ceramic as proppant vs. sand on the second, and the first well was vertical vs. the second one as horizontal.

So – like any new shale play – it is taking several wells to run down the checklist of variables to find the optimum fracking method.

At Shoal Point, the management team there was looking over historical data on the Green Point play, which has been around for years and nobody thought much of – and 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.”

Readers, this is what is happening all over the world right now.

All the oil companies – the juniors, intermediates and seniors – are dusting off all their old files and scouring them for any mention of data that could now be interpreted to be shale or tight sand oil formations.

Follow this link for Part 2: How to play Canada’s Oil Shale Companies, where I share more insights into Shoal Point, along with another company’s developing play in New Brunswick.

– Keith

 

What I Learned at the Calgary Resource Investment Conference – 2011

By
1940bkg
-
0

I love speaking at investment conferences.  I learn so much from the subscribers and investors that I meet there.

One of my subscribers is a landman from Wyoming, a former professional rodeo rider who flew up to see me at the Calgary Resource Investment Conference last weekend.  I sat wide eyed across the table as he regaled me with stories of what happens during a highly competitive land rush in a new shale play.  When the Big City Money comes into Small Town Oilville, people get creative – but always above board.

These conferences are a treasure trove of information and contacts.  I’m surprised more people don’t show up – especially the dedicated investors who play the junior markets, either energy or metals.  I’m always trying to educate investors about how the game is played in junior stocks and one thing I can say with certainty after attending these things for 20 years is this:

If you want to be included in the cheap rounds of financing, the non-brokered financings, you have to develop those relationships with the management teams of the companies face-to-face.  It’s very difficult to create that rapport over the phone.

This is much more true of junior mining stocks than oil and gas stocks – mining companies issue a lot more early-round financings to that next ring of investors – let’s call them semi-professional retail investors — than energy management teams do.  (One of the main reasons there aren’t many oil and gas newsletters ;0)).

I love being the only oil and gas guy at these conferences, which are 97% junior mining stocks.  And my message to the (packed) crowd listening to me is two-fold:

1. Investing in junior energy stocks is very similar to that of junior mining stocks—invest with the teams that have a track record in finding big deposits, and don’t have a billion shares out (believe it or not, a couple of them do…)

2. We can now get oil and gas out of rock – shale in particular — for the very first time ever.  Well, it has been happening now since the Barnett Shale in Texas was developed in the late 1990s, but it’s still recent.  And this is creating many new discoveries every year that are making speculators and investors alike very wealthy.

The informal subscribers-only session was the highlight for me.  I never know what will come up in these half-hour sessions, as they control the agenda – they can ask me whatever they want.

One thing I realized is that a lot of people didn’t understand the opportunity that comes along to buy these junior stocks at cheap prices on a regular basis – when they finance, or issue shares to raise money.  Junior companies always have to raise money, to either buy new assets or drill faster to keep the market happy.

When the institutional crowd says ‘yes, we’ll give you money Mr. Oil Company President,’ they generally get to set the price. It’s a dance, or tug-of-war, that brokerage firms do with the management teams to decide on the price at which they issue stock – but almost always, the broker wins. And the market often sells down a stock they think is about to raise money. Even if retail investors are not allowed to buy the stock on the financing, those times and prices are often very good entry points on the stock chart.

Until last Christmas, almost 40% of my subscribers were from the oilpatch – drillers, roughnecks, lawyers and engineers who knew their slice of the energy pie, but didn’t know the market… and didn’t have time to research the juniors.

These people have been a wealth of information for me, and this is the only place I really get to meet them, hear their stories and get some personal feedback. (It’s clear that most people are more apt to give me any negative feedback in an email.) Many of them are very active investors and call up the management teams of the companies in my portfolio, and share their own take on things.

The conferences have turned out to be the most fun part of my business.  Other than these highly interactive days, it’s just me and my laptop and phone (and a small hardworking team) so I LOVE these shows. (Not only that, I discovered that ham is my middle name and that I really enjoy a crowd.)  I will be posting my upcoming conference schedule to the website in the next couple days – and I have three next month in May alone – so I hope you’ll come by and share.

P.S. We’ll be hosting another workshop for OGIB paid subscribers at one or more of these upcoming conferences, so stay tuned for your exclusive invitation.

The Future of Fracking: The “Recovery Factor”

By
1940bkg
-
0

A new development in “fracking” will mean lower costs and higher oil and gas recoveries, says Dan Themig, President of Packers Plus, a privately owned completions (fracking) company based in Calgary, Alberta.  This would mean higher profits for energy producers.

Themig’s new product – QuickFRAC® – is part of a new trend in fracking that is moving away from using more horsepower and taking a smarter approach to increasing the amount of oil and gas recovered from a well, i.e. the Recovery Factor (RF). Most wells only recover 5%-20% of the Original Oil in Place (OOIP).

“We don’t believe the sledgehammer approach to fracturing is the way of the future,” says Themig.

“Fracking,” or hydraulic fracturing, involves pumping a mix of sand (proppant) and fluid (water) down a well and into the reservoir at ultra-high pressure to create fractures in tightly packed sand formations, or shale rock formations, to free up the oil and gas to flow up the well.

Fracking has allowed billions of barrels of oil previously thought to be uneconomic to become not only produce-able, but highly profitable.  It has become a global game changer in the oilpatch, and has created hundreds of billions of dollars in capital gains for investors. (And we’re still in the early stages of this growing industry!)

The size of individual fracking operations has increased 10 times in the last decade, as the industry has grown and learned how to more effectively apply the technology.

Themig says the “sledgehammer approach” of more horsepower (in the form of pumping trucks at surface), more fluid and more proppant has been the industry norm for the last five years, but now the industry is getting smarter in order to increase production from wells.

“We want to reduce the amount of fluid used and maybe the amount of proppant. We can reduce the time and number of stages and get a more effective Recovery Factor.”

frack job 2004
CAPTION: This is the size of a frack job in 2004.

frack job 2008
CAPTION: This is the size of a frack job in 2008.

In the new, ever-longer horizontal wells being drilled, fracking is done in multiple stages – often every 100 metres.  Each stage of fracking takes a certain amount of time, from roughly 30 minutes to four hours, depending on how hard the surrounding rock is (the harder the rock or tighter the sand, the more time it takes).

Themig says the new “QuickFRAC” technology is able to frack two to eight of those 100 metre stages at the same time, using the same amount of fluid and proppant.

“We can evenly distribute the fluid and divide it by the number of stages set to open,” he says.

production flowback
CAPTION: QuickFrac can do multiple stages of fracks at the same time

Themig says that completing several fracking stages at once saves so much time, QuickFRAC can save 10% on overall well costs for a producer – often a $500,000 saving per well.

Having several fracks go into the formation at the same time also increases the amount of oil recovered from the well, Themig says.  That’s because the rock holding the oil is being hit by huge pressures and vibrations on different sides at the same time, which creates more fractures in the rock.

“We drilled a $5 million well and decreased costs 10% by doing 24 stages in 10 hours,” Themig says.  “Previously that would have taken 4-5 days using cement liners in the wellbore, and two days with our regular StackFRAC® technology.”

“And we increased the Recovery Factor by 30%-40%.”

Rene Laprade is Senior Vice President Operations of Petrobakken Ltd. (PBN-TSX), and they have used QuickFrac in the Horn River gas play and Montney gas play, both in western Canada.

“We save at least two days over a conventional stack frac system and up to 5 days over a plug and perf system,” he told me in an interview. “This results in a costs saving to PetroBakken of up to 30% over other fracture stimulation methods.”

Themig says they are able to do all this with only a minor increase in horsepower, but also use up to 30% less water per well.

Themig says The Future is using longer horizontal wells, and doing more frack stages per well, and QuickFRAC is positioned to help the industry make the evolution easy and profitable.

“The number of fracks are now far more than we ever thought it was going to be.  In 2001 we thought 5-6 fracks be enough to frack a well. Then the industry moved to 12-15 per well now to over 30.  Some customers want 40-60 fracks – consider how long it would take to do 60 fracks that are 4 hours each.  The future looks like 60-100 stages in a lot of wells, depending on geologic needs.”

The goal, he says, is to increase the Recovery Factor – get more oil or gas out of the ground per well. “You look at the Haynesville (shale gas formation in Louisiana) and they have big initial production (IP) rates but high declines, sometimes a 90% reduction in production in the first year.  We think we can significantly improve on those numbers using QuickFRAC.”

A side benefit of QuickFRAC is that the frack companies like TriCan, Calfrac etc. will be able to do a job in shorter time, so they will be able to do more jobs in a year than previously.  Producers save time and money while increasing cash flow from more oil, and frack companies have less downtime and more revenue days per rig.  It makes the whole industry more efficient.
– Keith

Companies in the Canadian Oil Sands: Steady Investment Profits for Decades

By
1940bkg
-
0

Sector Diversification: Target Oil Sands

Just about everybody on Earth ought to know by now about the oil sands are a vast and virtually limitless supply that’s going to backstop North American energy security for a century or more.

But for all the hype and hoopla, surprisingly few investors know how to play the full oil sands value chain.

The thing to remember about a massive development undertaking — a mega, mega project — is that it’s not a single homogenous entity, there’s a whole support network that has to be built around it.

Oil and gas producers are basically procurement houses that go out and buy what they need. Everything from drilling wells to building and operating pipelines — even the catering — is contracted to third parties. By entering specific points in the supply chain, it’s possible to create a surprisingly resilient portfolio that’s diversified while still taking advantage of big growth opportunities in the many, many years ahead.

The first link is the producers. For almost half a century oil sands have traditionally been a game for Majors, Everyone thinks of trucks and shovels, but more than 80 per cent of the resource is actually too deep to be mined. Most of the new production over the decade will come from specialized steam injection schemes.

The past 18 months there have been some high profile IPOs, backed with foreign capital from China. Names like Athabasca Oil Sands and MEG Energy are but two. Given China’s voracious appetite for overseas investment, there will inevitably be more IPOs to come.

On that front, the first half of this year also promises to be active, with Laricina Energy and OSUM Oil Sands hitting the street this spring. Calgary-based Peters and Co. recently did a valuation on both companies and says that they’re going to be popular issues. Laracina could fetch $37/share and OSUM $16/share on their respective IPOs. Call it informed speculation considering they’ll probably be in the underwriting syndicate, at which point they’ll be restricted.

Another bright light is Black Pearl (TSX-PXX) headed by former Black Rock Ventures guru John Festival. You might recall he sold his predecessor company to Shell a couple of years back for a few billion, little wonder the shares have tripled in less than a year.

The real key to this oil sands renaissance is horizontal drilling and steam injection. By now SAGD (Steam Assisted Gravity Drainage) is a relatively mature technology that sees pairs of parallel horizontal wells work in tandem to inject steam and bring oil back up to the surface. This is a sophisticated undertaking that requires the skills of a surgeon and some heavy iron. Enter the drillers.

The coldest winter in a decade means all of Canada’s contract drillers are really hot right now. Precision Drilling (TSX-PD) (NYSE: PDS) is up almost 20 per cent in the past two weeks alone and rivals like Trinidad Drilling (TSX-TDG) (OTC: TDGCF.PK)and Murray Edwards’ Ensign Resource Services (TSX-ESI) (OTC: ESVIF.PK) have had a good run this winter. Both have good exposure to the oilseeds, with Ensign running nearly 300 coring rigs that are used to prove up reserves, while Precision has the heavy iron need to drill the new steam assisted thermal wells.

The best performer of all is Stoneham Drilling Trust (TSX-STG.UN) (STHMF/STHMF.PK)which is fast becoming a player with its share price quadrupling since last October. It’s one of the last remaining oil and gas trusts, but that will change around Canada Day when it converts to a corp. One of the company’s biggest customers is Cenovus Energy (TSX-CVE) (NYSE: CVE)which is the industry leader in the thermal oil sands space.

——————————————————————————————————————————————-

They Don’t Make Fracking. They Make Fracking Better (and More Profitable)

This small energy services company’s patent-pending fracking technology is changing EVERYTHING.

Rest assured, it is a profit opportunity not to be missed. (It’s my # 1 trade of the year.)

Get every last detail on this company, its revolutionary fracking process, and what it could mean for your portfolio… here in my new video.

——————————————————————————————————————————————-

Keeping those rigs turning requires a whole support network of its own — where do you go when a reamer or a winch goes down in the middle of the night? That’s where CE Franklin comes in. (TSX-CFT) (NASDAQ: CFK) is the Canadian Tire of the oil patch, supplying literally thousands of products like valves, flanges and drill pipe that are essential to support field operations. The company’s web site boasts that it can fix everything from quads and pick-up trucks to full blown drilling rigs.

In February, the company reported that oil sands accounts for about 15 per cent, or $11.5 million of its fourth quarter sales revenue and the company said it is committed to leveraging its presence in the Fort McMurray area to capture a bigger slice of this pie.

Although it’s firmly rooted in the oil and gas industry, the company’s operating metrics have a retail character, like the oil patch version of Walmart. IROC (TSX-ISC) is another new entrant that has managed to post impressive share price gains while remaining affordable. Higher drilling levels will inevitably translate to higher sales revenue for everybody in the space and IROC is positioned for growth.

In its most recent operational update, the company said its Canada Tech division hopes to start realizing positive returns from a series of products and solutions designed specifically for steam assisted gravity drainage projects in the oil sands.

Up until now we’ve been talking about upstream production. But selling all that oil to American — and possibly Asian — markets is the key to true diversification for investors and oil companies alike. The downstream is the one area where your interests are truly aligned with industry.

Led by pipelines, it’s a whole parallel universe of support services that connect producers with refineries and trading hubs. Canada’s pipes are in an exciting growth period, and we’re talking about some extremely ambitious projects: namely Enbridge’s proposed Gateway to the West Coast and TransCanada’s Keystone to the Gulf of Mexico. When completed, the projects will move more than 1.5 million barrels of oil sands crude for export. To put it in perspective, Libya — an OPEC member — was only exporting 1.5 million barrels a day before it came unhinged.

TransCanada’s (TSX-TRP) (NYSE: TRP) Keystone is banking on the U.S. to get over its fixation with “dirty” oil, but rival Enbridge (TSX-ENB) (NYSE: ENB) has been looking to the West Coast and threatening to break-out to Asia. Both are taking bold steps that will allow Canadian production to get the full world price and open new markets.

Both have had good share price appreciation and it’s hard not to like the steady returns offered by owning a high-yielding dividend. They are also a lot less exposed to volatile commodity prices. Due to the way they’re financed, pipelines are considered lower risk lower reward, but both companies have been showing good near and long-term growth.

Either one is a good hold or place to park when the market turns south. Enbridge will be splitting its shares later this spring, which will make them more affordable to own.

Finally, it’s one thing to throw a bunch of steel into the ground but quite another to keep it up and running. Sometime in the next year or two, the amount of money required to maintain all these pots and pans is going to surpass the amount of new capital investment, which is estimated at around $18 billion this year, according to the Oilsands Review magazine.

Put another way that means almost half of all the spending in the oil patch will go to keeping these oil sands projects going — it’s a staggering sum.

On that front, Flint Energy Services (TSX-FES) (OTC: FESVF.PK)is probably the best positioned to capitalize. Last November it announced a $450-million contract with Suncor to keep its oil sands projects — some of which have been operating for 40 years — in tip-top shape.

Company representatives told the OSR it expects revenue from its oilsands maintenance unit to equal and surpass its oil sands construction division in the next five years.

There you have it, a long and rather exhaustive look at the oil sands value chain. By picking spots along each length of the chain it’s possible to actually diversify within the sector and profit on what will likely prove to be the last big oil rush on Earth, providing even the humblest investor with a steady stream of profits for decades to come.

– The OGIB Research Team

Is This Company Pushing the Bakken Boundary Further?

By
Keith Schaefer
-
0

Editor’s Note:  My subscribers often suggest junior oil and gas stocks to me, to which I reply – convince me.  Write me a story about why I should care about that stock, and use my regular format.

Two subscribers mentioned – and wrote up – Reliable Energy (REL-TSXv). Reliable Energy is NOT an official OGIB stock pick and  I do not own Reliable, but two aspects of the company intrigued me.  One is the high profitability of their Manitoba wells.  While not big producers, they are shallow, low cost and highly profitable wells.

The second item that caught my eye is their new exploration play in Montana – which, if successful, would push-out the known western boundary of the main Bakken area.  This play – already the biggest onshore discovery in North America in decades – keeps getting bigger.  It’s possible Reliable could make some mention of it in  April when they announce their  2010 year end financials.

Their Montana play is a 45% working interest on the Fort Belknap Indian Reserve, just west of the Elm Coulee, oil-producing area. Montana Exploration (MTZ-TSXv) is a partner in the project.

This OGIB report was written by Richard Steed, with a contribution by my colleague and friend Michel Massaad, who writes his own oil and gas trading blog at www.beatingtheindex.com.

Reliable Energy

By Richard Steed
Michel Massaad contributed

Trading Symbol:                      REL-TSXv
Share Price:                             $0.47
Current Production:                600 boe/d (100% oil)
Shares Outstanding:                236.1 million
Market Cap:                            $115 million
Net Debt:                                 $2 million
Enterprise Value (EV)            $118.5 million
Insider Ownership:                  12.4%
EV per flowing barrel:            $193,000/boe/d

POSITIVES

  • Large continuous undeveloped land position prospective for Bakken oil in SW Manitoba, SE Saskatchewan and potentially in Montana.
  • Large development horizontal drilling inventory being accumulated: 250 gross locations to date
  • Most Bakken land is joint ventured with Crescent Point Energy (TSE:CPG) on a 75%-Reliable and 25%-Crescent Point partnership.
  • CPG owns about 19% of Reliable Energy.  As a JV partner, CPG’s technical expertise will benefit REL in the future with secondary recovery techniques (water flood) which has resulted in twice the recovered oil per well for CPG in some cases.
  • Reliable recently acquired 100 000 net exploratory acres in Blaine County, Montana – expect results on the first well in this play by  April or early May

NEGATIVES

–           Lots of shares outstanding reduces leverage

PROPERTIES

Reliable’s Bakken Property


These Saskatchewan/Manitoba Bakken lands (Kirkella Lands) were acquired in 2008 through a farm in with Enerplus Energy for 75 sections. In 2009 Reliable did a joint venture deal with Crescent point Energy; of which both parties pooled their lands for a 75%-Reliable and 25%- Crescent Point partnership. Crescent Point owns 32 million shares of Reliable and Reliable is the operator of the area.

Reliable then acquired Element Energy in October 2009 to further consolidate land in the region. To date Reliable Energy has roughly 77 000 net acres of potential Bakken lands.  Reliable’s Murray Swanson (President and CEO) says that 90% of this land (Saskatchewan/Manitoba Bakken) was purchased for an average of $50 an acre.

Swanson also mentioned at a conference in late 2010 that the Kirkella area is Reliable’s primary focus and there is no intention to be drilling land that Reliable has in Alberta in the Trochu basin (19 200 acres of light oil potential).

Initially, vertical drilling was used by Reliable in Kirkella, with some wells coming on stream at over 100 boe/d.  However beginning in August 2010 horizontal drilling started and 5 of the 6 horizontal wells that were planned were completed by the end of 2010.

Acumen Capital Research has stated that they believe the oil is there (in the Kirkella region) and the only concern in the area will be completion and engineering of these wells… aka: trial and error.

There is really three focus areas in Reliable’s Saskatchewan/Manitoba lands; Kirkella, East Manson and Elkhorn (as illustrated above). The formations that are being targeted here are the Bakken, Lodgepole, Three forks, and Torquay, which all have potential for light oil (38-41 API).

Reliable believes that the primary recovery from this area could be in the neighborhood of 90 000 – 100 000 barrels per horizontal well.  And Reliable has alluded to the fact that secondary recovery (water flooding-which is working well in the area) could result in doubling of reserves.

And while large IP rates (Initial Production) impress the market for a day or two, the big money in the oilpatch wants greater reserves – more oil.  Surprisingly, the market will pay more for greater reserves that get produced over a long period than it will for the much more profitable big gushers that pay out quickly, but also deplete quickly.

Reliable has identified 142 potential horizontal well locations at Kirkella, East Manson and Elkhorn. As of the end of 2010, 2 horizontal wells have been drilled in the Kirkella South pool, 1 horizontal well was drilled in the North pool with 1 more just being completed and 1 more horizontal well in Elkhorn (See map above).

Most recently Reliable’s 5-34 horizontal well was placed on production December 3, 2010 and stabilized at 133 bopd. A Raymond James report in late January stated that this 133 bopd after 6 weeks on production was considerably stronger than the company expected – and the stock showed it as it went from 33-52 cents that month.

Their 6-15 well, which only received 8 or 20 fracs, due to technical issues, produced 75 bbl/d for the month of December (which is encouraging considering the completion was only half done and will be completed in 2011).

Bakken wells in the area cost roughly $1.5 million, but with $75 oil, initial production rates of 100 boe/d and 90 000 barrels recover per well the net backs are $52. With these assumptions the break-even price for Reliable is said to be about $40 a barrel. Reliable will spend $18.7 million in 2011 on drilling 15 (12 net) horizontal wells and 2 (1.5 net) exploration wells on their Kirkella lands.

The market is expecting results soon from five more wells in this play – likely when they report their year end financials they will include an operational update.

At current oil prices Reliable has a recycle ratio of at least 2.5:1.  The recycle ratio is the profit per barrel (the netback) over cost per barrel.  So for every dollar they spend finding and extracting the oil, they get $2.50 back.

Blaine County, Montana

This play is not yet priced into the stock to any meaningful degree.  In October of 2010, REL announced the acquisition of a large tract of land in Blaine County Montana. The company was able to secure 100,000 net acres from a US company in financial difficulties for $10 an acre.  Management believes this land to be prospective for multi zone opportunities including the Bakken. Prior to closing the deal, they drilled an exploratory well which produced similar log characteristics to Elm Coulee (Middle Bakken Play, 350+ wells producing currently at ~150 boe/d). As the Bakken play expands west, this large land package can potentially turn out to be VERY valuable if drilling is successful.

Along with a JV partner and a farmee (REL is a 45% JV partner), 3 more vertical exploratory wells are planned for H1 2011 as part of the delineation process. The first well was spud in March of 2011.

Even though this is still a very early exploration play, the downside is limited because the company picked up the land for such a low cost, and could get their money back by selling it for its Eagle Gas potential. On the other hand, if the play is confirmed for Bakken oil, land in the area might witness the same mania that the Alberta Bakken went through in late 2010.

If the current well being drilled is successful, land prices will increase substantially and one of REL’s options would be to simply sell out their land for a much higher price per acre and walk out with a significant payout.

Proceeds would be reinvested in REL’s core area of SW Manitoba where it has accumulated a horizontal drilling inventory of at least 190 net locations to date.

Or they could develop this large new play.  Reliable said they will be reporting year end financials on April 11, and an operational update at that time may give a 24 or 72 hour test rate.  However, management may decide to wait for a 30 day test rate, meaning no news for investors until early May.

Trochu Basin, Alberta

The Trochu Basin is located approximately 150 kilometres northeast of Calgary between Red Deer and Drumheller, Alberta. In 2007, REL acquired 19,200 acres prospective for Nisku light oil based on a private company’s discovery, TAQA. This land is officially up for sale as REL wishes to keep its primary focus on its high netback low risk operations in Saskatchewan/Manitoba.

Potential Catalysts For Reliable Energy

  • As of the last operational update in December, REL exited 2010 with 600 barrels of oil per day. However, Q1 exit production is expected to come out at about 900 barrels of oil per day since the company completed at least 4 of its 5 Q1 2011 wells. The year-end report due in Aprilwill almost certainly divulge a higher production figure. Update on exploratory vertical well in Blaine County, Montana—possible announcement with the year-end report in early April.

Analyst Coverage

  • Canaccord Adams May 6, 2010 – Speculative Buy (12 month target of $0.55)
  • Acumen Capital Research November 30, 2010 – Speculative Buy (target price of $0.50)
  • Raymond James January 21, 2011 – Strong Buy 1 (6-12 month target price of $0.60)

Conclusion

Reliable is systematically building up an inventory of horizontal drilling locations on their Bakken lands in Saskatchewan/Manitoba; which can make a small oil/gas producer a nice takeout target for a larger player.

In 2011, Reliable expects to increase average production to 1100 bopd an increase of 229% over 2010 and exit the year with production at 1500 bopd. Reliable Energy has roughly 200 000 net acres in Alberta (Trochu Basin), Saskatchewan/Manitoba (Bakken), and Montana (Bakken). Reliable is a small cap oil weighted (100%) energy company that has the ability to produce significant production growth for shareholders on Kirkella alone — and if Blaine County, Montana has Bakken oil like North Dakota, Saskatchewan and Manitoba — then Reliable Energy is just scratching the surface for light oil growth.

DISCLOSURE

Richard Steed owns 5000 shares of Reliable.
Michel Massaad owns 25000 shares of Reliable. (www.beatingtheindex.com)
Keith Schaefer owns no stock in Reliable, and it is not in the OGIB portfolio.

 

1...106107108...118Page 107 of 118
© Copyright 2023 - Profit Prospects