₪ David Pescod's Late Edition March 27, 2006
FALCON OIL & GAS (V-FO) $2.30 +0.06
One thing we have to admit about the Falcon Oil and Gas
story right about now…it’s scary. Frankly, we think it’s
about the scariest exploration story you can find on the
entire planet today.
You almost have to be insane to pay these prices for a
stock in a company currently being valued at almost a billion
dollars in market capitalization for a company that has
no cash flow, no revenue, and hasn’t even completed their
first well yet. Absolute insanity.
On the other hand, you have the people that put the land
package together that became Ultra Petroleum, one of the
most successful oil and gas stories of the last decade led
by the prominent personalities of Marc Bruner and Allan
Laird et al, as well as the leadership of Ben Law, the former
U.S. Geologist who first came up with the concept of basin
centered gas.
If he’s right and this play in Hungary has the potential
100 TCF of gas that he is suggesting, then this price could
prove to be dirt-cheap.
If… Either way, it’s going to be story you won’t be able
to ignore. We do an interview with Allan Laird, the engineer
that helped develop some of the processes to make
the gas in the Pinedale Anticline possible.
An informal interview with his thoughts on the story so
far. If you would like a copy, e-mail Sandra at sandra_
wicks@canaccord.com.
WAVEFRONT ENERGY (V-WEE) $3.15 +0.15
If President Brett Davidson is to be believed, Wavefront Energy
owes all of their success to a certain little beer
bash….and no this isn’t an advertisement for Sleemans, the
best beer in the world, it’s just that maybe beer can provide
the inspiration, that’s at times necessary, in a company’s
history.
Davidson suggests that it was a little brain storming session
at the University of Waterloo, more than a decade ago,
that was the foundation for building the technology that has
since become the cornerstone of Wavefront’s future.
They were all sitting around discussing different
ways to extract more oil from old oil plays and needless
to say many different ideas were bounced around at
that time. It wasn’t just a thought applicable to the oil
patch, though, but also associated in environmental
concerns and also affecting other potential mining operations…...
But some of the ideas ran the gamut to and
including trying to create artificial earth quakes to encourage
further oil and gas production. Like we suggest,
there might have been an awful lot of beer involved…….
Over the years, the original thoughts lead to the development
of a technology that has taken a decade to
develop and recently Wavefront has become, after all that
work, an overnight success in the stock markets.
We featured this story a while ago and it certainly did
create quite a buzz, but now we feature the company as
it is in another phase of its development.
Earlier we saw the early-excitement of a theory and
technology that could revolutionize the oil and gas
business and create a lot of pizzazz. Now we are to that
phase in the company’s development where people
start looking for real numbers—like cash flow, revenue
and that kind of stuff. Suggestions that the theory can
be applied in practice.
The cornerstone to Wavefront is the method to a new
technology of enabling water floods to operate more
efficiently. Usually water is forced down some wells
under great pressure and as that water floods the area
and forces additional oil or gas in the area up through
the surrounding oil wells to enhance recovery. But, you
are still left with an awful lot of oil and gas using current
technology that is simply not recovered.
Wavefront’s new technology has a pulse to it and
Davidson compares it to the human heart, with its dynamic
pulse is a more efficient method of getting the
blood to the body. He suggests that the current usage
of water flood is not as efficient as a pulse method
might be. To see a quick and easy demonstration of
how they feel it works, go to their website at
www.onthewavefront.com and click on DeepWave 101.
On the right hand side you will see Movie Presentation.
Click on that to see how it all works.
His suggestion is that their technology is 10% and
possibly in some cases as high as 20% or 25% more
efficient at recovering the oil and gas from all the
known oil and gas fields out there.
With 600,000 active oil and gas wells in the United
States and so many mature fields that have been abandoned
that might be amendable to the use of new technology.
The potential market for this new technology is needless
to say enormous and it couldn’t happen at a better
time—with oil prices at these lofty levels, which made for
the pizzazzy entry of this stock on to the markets relatively
recently.
One thing that is pretty attractive about this company
is their board, which is featured on their web site, but a
few names do stand out.
Dennis Minano was the chief Environmental Officer
for General Motors and shows you that there are potentially
other applications for this technology. They range
from potential leaching for uranium mining operations to
other industrial uses.
You also see who you would expect on the board and
that is Steve Percy, who is the former Chairman of BP
America, a veteran oil and gas player.
Recently Walter Stelmaschuk formerly the President
of NQL Drilling Tools Inc, the Edmonton based service
company, has also joined their firm and he was at our
meeting and is a big believer in the significance of the
new technology.
They have relationships with industry biggie Halliburton
who uses their technology on a royalty basis. They
are also going out and developing some of their own projects
and in Rogers County, Oklahoma they currently
own 1,360 acres of a play where they believe up to 25
million barrels could be recovered, as well as a similar
type play in Ontario with GreenTree Oil & Gas, which consists
of 800 acres with 3.3 million barrels in place.
The attractiveness of plays like this, as well as many
others, is that it is estimated that of all the oil and gas
plays in North America roughly 66% of the oil remains in
place in all those plays. If one could recover 10% to 20%
more the numbers are enormous.
In the meantime, people are starting to look for harder
numbers. Davidson tells us, their hope is this year to get
from their own projects up to 1,000 barrels a day giving
them some significant cash flow. They don’t expect to
go cash flow positive until the fourth quarter, but they’re
also starting to look at bigger deals.
All of a sudden people are offering them, for a price of
course, oil fields that they would love to try and develop
themselves, but if you are looking to buy an old oil field
that might have 10 to 100 million barrels left in place, that
is going to cost you a lot of money. And how does the
company arrange a deal to either purchase it, lease it or
whatever.
Meanwhile, many other projects are starting to be joint
ventured and some have significant revenue implications
for the company.
A typical well work over that they are working on, say in
the Fort St. John area, could cost up to $200,000 to stimulate.
Their percentage gross revenue on a play like that at
around 15% becomes significant. It is the same thing with a
cheaper well, like a $38,000 play near Red Deer. Of course,
these costs depend on whether the well is vertical or horizontal.
Part of what Davidson is working on now is simply trying
to get the company’s story out there. He is on the road to
places like Houston and Oklahoma at major oil and gas conferences
to get the story out. Both about their new technology
and what it is that the company may offer, to both those
in the industry and potential investors.
It is not surprising that as of yet there is not a single analyst
covering this story. “Usually that takes something like
positive cash flow”, Walter Stelmaschuk points out, but
suddenly that’s not as far out as it is used to seem.
We own a bunch and we wish that Don Mosher had been
a better salesman back when they were making their market
debut, but this remains a significant story for the oil and
gas patch and it will be interesting to see just what and how
fast this technology can be developed and how soon the
industry will embrace it as more generally accepted operational
practice.
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