Rodney Dangerfield of the Oil Sand Stocks
There is one oil sand stock I have followed for the past eight months and until a huge 48% move on Thursday, it has simply been given "No Respect"; it is called CanWest Petroleum (CWPC). Although a new kid on the block, the company has a very unique structure. The company has three projects that will be discussed:
i) Firebag East Oil Sand Project
ii) Pasquia Hills Shale Oil Project
iii) Oil and Gas Exploration at Sylvan Lake/Barrhead Region
Firebag East Oil Sand Project
Everyone identifies the Canadian Oil Sands being located in Alberta. However, the Oil Sands region extends into North Western Saskatchewan. CanWest Petroleum owns 51% majority of Oil Sands Quest, a company that last year held 1.4 million acres in exploration rights over a 5 year period, decreasing 40% year over year. This translates into land holdings YOY until 2008 as described below:
|Year||Number of Acres under Permits|
The website at www.canwestpetroleum.com does an excellent presentation at summarizing all aspects of their business and separate business models. Data from preliminary drill results in the early 70's from 629 to 648 feet in Saskatchewan had average bitumen content of 11%. At this depth Steam Assisted Gravity Drainage (SAGD) would be the likely method of oil extraction. Due to uncertainty in logs from the 1970's, CWPC via Oil Sands Quest will be drilling 20 preliminary holes in the Firebag East region to identify key regions to delineate the resources (CIBC recently financed $5 million dollars in a private placement with Oil Sands Quest for the drilling). Currently, 14 of 15 signatures required on the require document are in place, including the Department of Fisheries and Native Affairs. Once the environmental minister of the Saskatchewan government signs on the dotted line, drilling can commence.
Oil Sands Quest has Chris Hopkins as Director, President and CEO. He formerly was Senior Vice President of Synenco Energy Corporation during its formative years. Synenco now plans to produce 100,000 barrels/day by 2009 alongside Sinopec (Sinopec made a private placement into Synenco). "The geology of the Athabascan Oil Sands suggest they are thick stacked channels that fill valleys eroded into the underlying limestone "basement". The mapping of valley trends indicates that the SunCor Firebag reservoir lies roughly in an east-west oriented valley. Forty kilometers north, the reservoir of Synenco's Northern Lights Project also appears to lie within a similar east-west valley trend." Oil Sands have been identified in North Western Saskatchewan and assuming the east-west channels are true, the oil extends into Saskatchewan. The fact the Alberta-Saskatchewan border is in place does not imply that the Athabascan Oil Sands region stops there; actually quite the contrary. The picture below shows the Athabasca Oil Sands region, with Oil Sands Quest land permits as of last year. Regardless of the land holdings being scaled back year over year until 2008, most of the oil sand targets will be identified and secured by that point in time.
The figure below shows a close-up of the Athabascan land claims.
The oil sand region of Saskatchewan is off the radar of practically everyone. All the press gives attention to the Athabascan region of Alberta, without mention of it extending it into Saskatchewan. Rightfully so, because back in 1970, Shell-Canada and Gulf-Canada did initial core samples with recovery costs of $30/barrel. Back then it was prohibitively expensive to even consider oil extraction, so the story faded into the background. Current technology has dropped the recovery price to $15-20/barrel, which is profitable at the current price of oil north of $60/barrel. There has NEVER been any commercial mining or removal of oil sands from Saskatchewan, so the government is moving at a glacial pace to make sure things are done properly. The thread below gives an excellent presentation of peak oil and why the Athabascan oil fields are important. http://www.canwestpetroleum.com/s/Presentations.asp?ReportID=111906&_Type=Presentations&_Title=CanWest-PowerPoint-Presentation
Canada is one of the most politically stable countries in the world and oil fields in this country will increasingly have a hefty premium attached to that. While most oil fields will be entering a decline phase, oil sand properties stand to have stable production for 40-60 years, pending the size of the property and extraction rates. More than 80% of the oil sands are too deep to mine profitably, which is where SAGD comes to play. Future oil production on the Firebag East region will likely be developed by SAGD, but mining remains a possibility, pending the results of drilling when it commences.
Mining oil reserves requires 1 billion barrels to minimally be financially viable, while SAGD requires at least 200 million to 300 million barrels.
Currently, there are three prospective areas for drilling on the FireBag East region. The 20 drill holes to occur in the next 2-4 months (once the Saskatchewan government signs on the dotted line) will be based upon locations near the 24 wells drilled in 1974-1976 by Shell-Canada and Gulf-Canada.
The spike in share price on Thursday was attributed to a "wake-up call" that CWPC is one of the few remaining cheap prospects to own a part in an oil sand company before prices reach a ridiculous level.
Currently, CWPC is working with Nova Chemicals on a feasibility study of the Pasquia Hills. Field drilling indicates a possible reserve of up to 7.8 billion barrels, with 2.4 billion fully risked. The shale oil has 59% aromatics content in the kerogen, which could be used in petrochemical feed stocks. Refer to the CWPC website for a full analysis of the property potential. If the feasibility study works out, Nova Chemicals would be the sole receiver of refined products for their business. The mine has a life of 34 years under the current business plan. There are approximately 1 million acres in permits for oil shale exploration held by CWPC. This one project alone could be huge, if the feasibility study yields a viable business plan. Due to the volume of information, refer to the thread below for a more detailed analysis of the project.
Sylvan Lake/Barrhead Oil and Gas Exploration
CanWest Petroleum has a 25% stake in wells that are drilled for oil and gas. Wells that yield oil could see further holes drilled in the surrounding area to delineate the resource. Wells that strike gas are likely to be tapped and have the contents piped for shipment. Wells obtained from this project will provide feed capital to continue further work on the Firebag East and Pasquia Hills to limit further share dilution. The thread below gives a full description of oil and gas exploration in the Sylvan Lake/Barrhead regions.
Given the initial public demand for oil sand stocks and future shale oil plays, CWPC offers significant value and upside potential once drilling commences in the Firebag East Oil Sand region. Reviewing market action of CLL.TO, UTS.TO, DCE.TO and Suncor Energy the past year is proof that once these things start to move, not holding a position will make entry that much more expensive.