Canadian Junior Oil Thread - new ideas and general comment

Wednesday, Jun 29 2011 by
10

At Mattybuoy's suggestion, here's a thread for discussing Canadian junior oil companies - this is a place for new ideas and general discussion. Stock-specific threads can be found here:

A number of Colombia-focused players can be found here

Ideas for new threads? 

  • Deathree Exploration (TSE:DTX)
  • Argosy Energy (TSE:GSY)
  • Tag Oil (TSE:TAO)
  • Gran Tierra?

Any other suggestions welcome and will be added to the header.


Filed Under: Canada, Energy,
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19 Posts on this Thread show/hide all

djpreston 29th Jun '11 1 of 19
4

Dont I look a fool now for replying to Matty's post without checking....

Anyway, probably good to link in the existing threads for the Canadian stocks. That way interested parties coudl go straight through to a specific thread, using this as a place to come up with new ideas then spin off to more complete threads?

The problem is, of course, what is the cut off market cap? Id suggest $1 billion (at time of initial comment) so that would include:

Coastal - http://www.stockopedia.com/content/coastal-energy-what-am-i-missing-54742/

Parex - http://www.stockopedia.com/content/parex-resources-cashflow-and-explo-56071/

C&C Energia - http://www.stockopedia.com/content/cc-energia-cashflow-and-explo-56083/

Rodinia - http://www.stockopedia.com/content/rodinia-oil-corp-roztsxv-100bn-bbls-56610/

Bankers Petroleum is possibly too big for a "junior" at $1.6bn but heres the thread - http://www.stockopedia.com/content/bankers-petroleum-bnk-oil-manufacturing-32158/

Likewise Nko is probably out at $3.1bn (though given the way its falling perhaps it wont be for too much longer).

Others worth considering for threads:

Gran Tierra?

Balst, got a meeting so will end there.

Fund Management: European Wealth
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Mattybuoy 29th Jun '11 2 of 19
6

I would prefer not to have a market cap limit. There are some great companies which behave like juniors yet are well over the $1bn mark.

For example, Peyto (T.PEY), the best (or at least most iconoclastic) nat gas company in the world.

http://www.peyto.com

This company is utterly focused on adding value per share, not just growing production or taking land positions for their own sake, and it is very good at it. Within the first 15 years of its life as a public company it managed to 400 bag in share price terms.

Obviously that won't happen again. However more recently, since converting late last year from an income trust to a "dividend paying growth stock" it has been able to resume highly profitable growth in production at an annualised rate of around 30%. Considering it is a 100% Canadian gas/NGLs producer that is no mean feat.

Anyway, take a look at the website. I find it an edifying and educational read on a general basis regardless of whether you are thinking of buying the stock or not.

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Mattybuoy 29th Jun '11 3 of 19
5

Another example of a big cap with prospects ...

Cenovus (T.CVE), with a market cap of $26bn, is not exactly a junior anything, but it plans to increase its production from a current 70,000 bpd to over 500,000 bpd within 10 years.

How? Well it's oil sands basically, and specifically the much less damaging underground SAGD where the company is acknowledged as being the world leader in these tricky operations.

The company has a total estimated resource base of around 100bn barrels of bitumen to chew through, so if you want a truly long-term investment it might be worth a look. There is a divi too (2.3% currently).

http://www.cenovus.com

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Mattybuoy 29th Jun '11 4 of 19
8

Now for an actual junior!

Tag Oil (V.TAO) - Stupendous New Zealand acreage

Since coming to market via a reverse takeover (or "recap" as the Canucks call them) in late 2009 the stock has gone from 20c to $6. That's already a 30 bagger, however the company is only just getting started really.

There are around 50m shares out, so the market cap is currently $300m in round numbers. Exit production for 2011 is planned to be about 6,000 boed, so it could be considered cheap if you look at typical "dollar per flowing barrel" valuations.

The company has a two pronged operation:-

First there is conventional oil and gas from the well established Taranaki basin on the west coast of the North Island. This is where all current and near-term production is located. There is a lot of gas involved (50% or so), but NZ is "gas hungry" and there is existing infrastructure so it's all very monetisable at around $7/GJ pricing.

Tag seems unable to hit a dry hole in the Taranaki, and by applying "North American" techniques is discovering and/or completing in formations that other operators in the area haven't previously produced from. This is leading to a growing inventory of potential near-term production.

I would say that based on the Taranaki alone, which is perhaps a similar story to Coastal Energy, the company is well worth having a look at. However it could just be the overture.

The second prong of the attack is the East Coast basin, also on the North Island. This is an enormous area (Tag now has around 1m acres) which is known geologically to contain vast quantities of oil in shale. An initial OOIP resource guesstimate came up with a figure of 40bn barrels based on 10% of the total area. The question is though, can you get the stuff out?

No-one has tried before, though there have been a couple of historical conventional vertical wells which produced at 50 bpd or so. Tag is looking to apply HzFrac to see if flow rates can be got up to more commercial levels. Bearing in mind that this side of the North Island has no infrastructure to speak of, except for sheep processing facilities.

The East Coast shale formation apparently (or at least to my ignorant eye) looks to possess similar characteristics to the Bakken formation in the US/Canada, which is now a prolific producer from its 500bn or so OOIP barrels, and where estimated total recoveries keep getting cranked up from 10% to 20% or even 30% as technology improves.

Basically, if Tag can make the East Coast work, then they will have a "Bakken equivalent" to themselves. A  broker report from GMP Securities reckons this would put a value of $225 on the stock.

If .... :-)

Anyway, worth a look IMO.

http://www.tagoil.com

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moniclub 30th Jun '11 5 of 19
3

I did a little write-up on Tethys (TPL.TO) back in late April in another place:

http://boards.fool.co.uk/tethys-petroleum-12243617.aspx

Since then TPL has:

- announced an oil find in Tajikistan

(http://www.youroilandgasnews.com/tethys+petroleum+announces+tajikistan+exploration+well+update_64450.html )

- updated on progress on the Kazakh wells: more testing/drilling

(http://www.oilandgasonline.com/article.mvc/Tethys-Petroleum-AKD03-Dione-Exploration-0001)

and the SP has dropped from $1.29 to $1.08 - though had reached $1.50

M.

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Mattybuoy 30th Jun '11 6 of 19
1

Yep TPL.

This is actually a British company.

Pros: Obviously great assets with large potential.

Cons: It's in the Stans, and most of the properties are remote so infrastructure is generally lacking. There are also 260m shares out already, with doubtless more to come. For some reason (perhaps being British?) the company seems unable to do the selling stock into a rising market thing which is essential to keep the old dilution down.

There are also a fair number of negative comments on Stockhouse about David Robson (the CEO) who apparently previously ran an unsuccessful company called CanArgo which was operating in Georgia but went bust. I don't know any details about that though.

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djpreston 30th Jun '11 7 of 19

CanArgo?

Isn't there a link to the Frontera Resources (LON:FRR) mob there somewhere?

Fund Management: European Wealth
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Mattybuoy 30th Jun '11 8 of 19

Not that I've seen but then I don't really follow it.

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thegreatgeraldo 30th Jun '11 9 of 19
2

Never mind juniors, how about infants? Newton Energy (NTN) has a decent acreage in the East Midlands, trades around cash, but has yet to drill a well. Last week's update suggests it should finally spin the bit towards the end of the year & is looking at farming in to further onshore UK licences

When I say infant, m/cap is currently c $2.5 mill..... (no position)

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Mattybuoy 1st Jul '11 10 of 19
2

Here's another infant ...

It's a very recent "re-cap" called Base Oil & Gas which sports the delightful ticker of BOG. There are 45m fully diluted shares so at today's price of 23c that gives a market cap of about $10m.

http://www.baseoilandgas.ca

They have land and some small production (125 boed) at various WIs in some lesser known areas of the WCSB. From the recent presentation it looks like their wells are small but very profitable. Cash at hand is enough to fund a few additional wells but there will undoubtedly be equity fund-raising required not too far into the future.

Most interesting is the calibre of the new management, again described in the presentation. They look like quality people with multiple blue chip associations, and the main executives have formed and built several successful junior oil companies previously.

Worth a look perhaps as it has yet to acquire the instant huge premium which many re-caps seem to.

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Mattybuoy 3rd Jul '11 11 of 19
4

FYI

Sprott Energy Fund top 10 holdings (most recent filing):-

1. Westfire Energy Ltd. (T.WFE) - WCSB resource plays
2. Bankers Petroleum, Inc. (T.BNK) - Albania heavy oil
3. Painted Pony Petroleum Ltd. (V.PPY.A) - WCSB resource plays
4. Novus Energy, Inc.  (V.NVS) - WCSB resource plays
5. Southern Pacific Resource Company (T.STP) - Oil sands
6. Cash and Cash Equivalents ($$$)
7. Connacher Oil and Gas Ltd. (T.CLL) - Oil sands
8. Open Range Energy Corp. (T.ONR) - WCSB resource plays
9. Delphi Energy Corp. (T.DEE) - WCSB resource plays
10. Arcan Resources Ltd. (V.ARN) - WCSB resource plays

Here is an interview with the fund manager Eric Nuttall:-

http://www.theenergyreport.com/pub/na/10098

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ohisay 4th Jul '11 12 of 19
2

In reply to Mattybuoy, post #11

Thanks for finding that link Matty.
I always like to watch Eric Nuttall on BNN - he was last there about a month ago with some of the stocks listed.
http://watch.bnn.ca/monday#clip481582

I was a tad surprised not to see Bankers Petroleum in the top 10 Sprott funds but I see he mentions the company in the article.
Reason being - back in March he thought they might be bought out early next year at 14$ - current price 7$ as he believes its been shorted as a hedge on a lower oil price.

http://www.stockchase.com/Expert-sl--slq-ID-slv-Eric--Nuttall.php

Wonder if he's going to recommend SLG after the new CPR's out in the next few weeks?

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Mattybuoy 4th Jul '11 13 of 19
6

Bankers Petroleum is in the Sprott list at position 2 ...

-----

Meanwhile, there were a couple of news releases today from "Mattybuoy Specials".

1. Argosy Energy (GSY) has raised $5.9m in a bought deal. The money will be used in the Claresholm/Pearce area which is the "Alberta Bakken" play. Note the premium to current price and lack of warrants.

http://www.marketwire.com/press-release/argosy-energy-inc-announces-59-million-bought-deal-financing-tsx-gsy-1534147.htm

2. Base Oil & Gas (BOG) has made a "strategic" acquisition of Montney lands in the Ante Creek area.

http://www.newswire.ca/en/releases/archive/July2011/04/c2952.html

If you interpret the hint in there about the price paid for the land it is apparent that this is an absolute steal of a deal. The 3,663 acres were purchased at a price of $82 per acre, as opposed to recent transactions in the area which have been for up to $6,500 per acre. This suggests to me that it's a vend in rather than a commercial transaction.

No re-rating for BOG yet though. I shall be watching closely.

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Mattybuoy 5th Jul '11 14 of 19
4

If you're wondering what the "Alberta Bakken" is then this 70 page report from Scotia Capital dated 10th March 2011 may help.

http://www.primarypetroleum.com/pdf/PIE_Industry_News_2011-03-10.pdf

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ohisay 5th Jul '11 15 of 19

In reply to Mattybuoy, post #13

Bankers Petroleum is in the Sprott list at position 2

Thanks Matty  - time to double my omega 3 capsule intake  I think.


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Mattybuoy 5th Jul '11 16 of 19
5

Here's another junior targeting a potentially enormous shale resource.

Petrolia (V.PEA) - A Utica Shale play with 17% of Québec's total oil and gas acreage.

The company has no production, around 90m fully diluted shares and a market cap of over $200m. So it's not cheap.

However, this is probably why the market has bid it up:-

Petrolia: First Resource Assessment of Macasty Shale, Anticosti Island, Quebec

Based on data available at this time, Sproule's best estimate of the Total Petroleum Initially-In-Place is 30.9 billions barrels of oil for the Petrolia land interest holdings. The probability that the Total Petroleum Initially-In-Place exceeds 19.8 billions of barrels is 90% (low estimate) and the probability that the Total Petroleum Initially-In-Place exceeds 48.2 Bboe is 10% (high estimate).

Anticosti Island in Québec is a strange island just outside the mouth of the Gulf of St Lawrence which has the distinction of being (formerly) the largest privately owned island on Earth.

http://en.wikipedia.org/wiki/Anticosti_Island

Petrolia has substantial land on the Québec mainland too. I haven't really looked to see what their plans are in any detail, but this is a good illustration of how the Canadian market will buy IGV, especially if it's domestically located.

Note: Québec has a 2 year moratorium on shale gas production, but this does not apply to oil and exploration of both shale oil and gas is permitted.

http://www.petroliagaz.com/index_en.php

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Mattybuoy 6th Jul '11 17 of 19
2

This one (another recent re-cap) has a a lot of potential.

I'll let you DYOR but the company's edge is in gaining access to First Nations lands, which where not actually impossible is at best rather difficult and time-consuming.

Other than that, the nearest comparator company in the "Slave Point/Red Earth deep carbonates resource play" where BOR mostly intends to be operating is Pinecrest Energy (V.PRY), which sports a $500m market cap based on 3,000 boed of production.

BOR has between 70-100m shares out (hard to tell exactly) so is valued at somewhere around $25-30m.

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Mattybuoy 8th Jul '11 18 of 19
2

120m shares at 70c for $84m market cap

This is an interesting company, and might attract some here more than the "boring" domestic Canadian jobbies, which just grow rapidly in a low risk and predictable manner ;-)

The company has loads of emerging market acreage in countries like Russia, Ukraine, Romania, Yemen, Egypt & India, alongside some serious partners. Such as Gazprom's Romanian subsidiary NIS, Kuwait Energy (which is not the NOC but a private co.) and various of the state-owned Indian oil outfits.

East West's strategy is to get these local partners to pay for drilling while they just provide technical input and take a free carry in some form. Sounds like a great business plan to me ...

http://www.eastwestpetroleum.ca

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Mattybuoy 14th Jul '11 19 of 19
1

Looks like this company hit a 100,000 bpd gusher. Or maybe not. In fact this movement was caused by a 60 bpd discovery.

http://www.marketwire.com/press-release/petro-one-discovers-new-oil-pool-tsx-venture-pop-1537089.htm

The point is, it's a new oil pool, which in the WCSB is virtually unheard of.

I didn't have any shares, as usual, except indirectly and unknowingly via FNR (49 North).

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