Got this interesting post off the MF. Now, this is what I like to read. An analysis of SOLV, -good or bad- not personal attacks!
I know, the first post will be "How much did Asensio pay you to write this?"
Subj: Solv Ex fundamentals
Date: 05 May 1997 03:34:40 EDT
From: VREX
Message-ID: <19970505073401.DAA21066@ladder01.news.aol.com>
Dear Mr. Asensio:
Thank you for making me aware of this stock. I am ashamed to say that I have not followed this company in the past. From all the various allegations cast on this board, I can not say what is true and what isn't, but I am listening. Your stock fraud claims are most interesting, and I will await proof of this. For now, I make my decision based on the fundamentals of oil production.
I am a geologist, professionaly involved in the petroleum industry and first started working on heavy oil sands in 1978 (with AMOCO). Heavy oil sands are not my specialty, but every few years - when the price of oil spikes - oil sands become popular, and I am forced to follow them again. For the last 5 years I have been reviewing Heavy Oil Projects in California, representing buyers and sellers of oilfields.
Oil sands are bad business, and bitumen bearing sands are the worst of the worst. Total reserves are irrelevent in this situation, only operating margins matter. To make matters worse, those poor Canadians have such cold winters, it really compounds the extraction process. The cost breakdown for extracting the hydrocarbons really comes down to the energy costs to heat the stuff. Here in California, figure about 4 bbls of steam per bbl of 13
gravity crude, at a cost of $1 to $1.50 per bbl of steam. Of this cost, natural gas accounts for 80% of the cost. Now you can see why it takes $8 absolute minimu to operate a heavy oil field, and that is for 13 gravity oil, not the 8 gravity and heavier Canadian stuff, which is a few magnitudes more viscous.
You might think $8 per bbl OpEx isn't so bad, but keep in mind that that is when enegy costs are low - and produced oil is $8 per bbl, at the refinery. (This happens periodically, which is why this industry has been in such a bad mess for so many years.) When oil prices are higher, OpEx is higher too, but there is a good profit margin. In fact, prices hit $19 / bbl last winter, but overall, the average price of 13 gravity crude since
deregulation in 1986 is now $12.26/ bbl. I generally use $12 for my price forcasts, $11 if I am conservative. These are U.S. dollars, for 13 gravity oil, which flows through a pipeline to a nearby refinery.
Now, in the case of the heavy Canadian stuff, add bulldozer costs for mining it, in addition to the heating costs. There is just nothing to be done about these heating costs, period. No "new" technology is going to reduce the heating and transportation costs, which are 80% of the bill. You will always have better margins in better quality oil. Note these numbers are only for OpEx, but that production has to also support the very heavy Capital
Expenditures also (CapEx), which in Solv Ex's case, is a few hundred million for a plant? Wow, what a joke. This project will never reach payback.
I can't believe this stock price is at $10. There are so many good oil companies with excellent proven reserves, known technologies, no potential fraud/lawsuit/ bullsh*t, that I can't imagine anyone would waste their time here unless they were short. Again, I am not sure of the validity of the stock fraud allegations, I am negative on this company based on the fundamentals of the operation. See you at the open, if I ever find an uptick. This is
going to be fun.
One more thing - every time the price of oil gets high, like it did last winter, is seems like one or two of the big oil companies make motions to invest big in the heavy stuff. These fads quickly pass as the price comes back down to reasonable levels, as it does every summer. Shell paid 3.6 billion for a heavy oil field in 1986, so sometimes these things happen. However, I assure you that field won't reach payback either. The difference is,
they have thousands of other investments.
As always, this is just my opinion. Make up your own mind, but be careful.
Vincent Ramirez
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