Hi Vulcan Shareholders,
I found this article in the latest edition of the Investors Digest. The author, Mr. D. Mason, speaks to the
opportunities that exist in the
oil sector, and singles out Vulcan Minerals as a great junior oil exploration company in today's heady oil
market.
Here is Mr. Mason's Article:
What ingredients would you put in the perfect petroleum speculation in the wake of high oil prices and
stock market volatility?
No immediate answer comes to mind.
The “seven sisters” (now a euphemism for the major oil companies) have not only fully discounted
currently buoyant petroleum prices
in their stock market capitalization, but this has filtered down to the solid, Alberta-based companies
with adequate reserves to
assure survival even in a “leaner” environment.
Premiums are the rule of the day, which carry with them the burden of failure in the event of a
commodity-price collapse.
On the other side of the spectrum are the “rank” junior speculations, which have the potential to create
reserves and the entailed
production, but now rely on the drill bit to validate their future.
Investors have avoided the latter of late, and share prices have reflected this dearth of purchasing.
Where are we in the cycle? Investing in a senior is now a shaky speculation on the commodity price.
Investing in a junior calls into
question the ability to create tangible results.
In southwestern Ontario, there are many smaller production fields with low risk and limited speculator
interest. Off shore, the prize is
high and so are the risks.
In our research at Augen Capital, we have discovered a company called Vulcan Minerals (VUL-CDNX,
$0.25, 709-754-3186), which
represents a unique combination of projects.
For instance, there are areas of Newfoundland where this company is based that exhibits a similar
history as southwestern Ontario,
such as Petrolia, where the first oil wells were discovered in Canada from seeps that were obvious at
the surface. Vulcan has a drill
program to test several such shallow targets.
<em>Question of dilution</em>
The question then becomes, “what share dilution is involved?” Patrick Laracy, the CEO of Vulcan,
answers this quite amicably -
“We will bring in a major oil company which will not only share our vision of potential
off-shore reserves, but spend the
necessary funds to bring it to fruition. By joint venture, this can be accomplished without
dilution to the shareholder.”
Investors should be cautioned that VUL may well languish in the $0.15 - $0.20 per share range for some
time. It could also raise
financing to provide on-shore drill programs and might achieve success in venture.
With good fortune, it could also strike a deal with a major company, to invest in the off-shore
prospects.
VUL has a 100-per-cent working interest in Flat Bay petroleum permit 96-105 in western Newfoundland,
subject to royalties. The Flat
Bay permit covers about 70,000 acres of under explored northern Bay St. George Basin.
In September 1999, Vulcan drilled a test well 286 metres deep to investigate a shallow oil occurrence in
a previous mining hole. This
well encountered significant oil shows over a gross interval exceeding 100 metres.
A seismically-defined structure has been located about four kilometers from the test well and presents
an excellent target for drilling.
VUL plans to drill this target, preferably with a multi-well program in early 2001.
On shore exploration activity in western Newfoundland by other operators has resumed recently on
several fronts. A private American
has commenced a multi-well drilling program in the permit immediately adjacent to VUL’s Flat Bay
96-105.
The first well has commenced drilling within 100 metres of the boundary of permit 96-105.
Furthermore, a recent well in the Deer Lake Basin by a private Newfoundland company encountered
undisclosed amounts of natural
gas and condensate.
The operator is preparing to re-enter and deepen the well. The Deer Lake Basin contains rocks of similar
age to the Flat Bay permit
area and is about 100 kilometers north of Flat Bay.
The Port au Port discovery originally made by Hunt Oil about 45 kilometers to the west of Flat Bay
permit is slated to go
into production in early 2001 and will usher in a new era for petroleum production in western
Newfoundland.
VUL also owns a 100-per-cent interest in three off-shore licenses in western Newfoundland
covering about 1.2 million
acres. The company is continuing its efforts to advance exploration on its western
Newfoundland properties by seeking
joint ventures and financing.
The market is only putting a value of about $2 million on these assets, which includes a chance at
modest to substantial low-cost,
on-shore oil and gas production, a significant off-shore target with the possibility of funding by a major
oil company (and hence no
cost to VUL), and some interesting mineral claims.
The downside in Vulcan, as with other emerging resource companies, is the potential for low liquidity,
but we believe this is a great
speculation in today’s heady oil market.
Regards,
Len |
