₪ David Pescod's Late Edition March 28, 2006
TG WORLD ENERGY (V-TGE) $1.25 -0.04
One of our favorite oil and gas guys for finding those high risk/
high reward plays that down the road will create excitement and
hopefully higher stock prices in the oil and gas patch is Clive
Stockdale. The former oil and gas analyst with Loewen Ondaatje,
Pemberton and Dominion is currently a finance guy here at Canaccord,
but his love is still finding that big play.
Over the years, we haven’t found anyone better and that means
most Christmas’s we have to send him good bottles of wine,
scotch, trips to Mexico, etc. as rewards. Plus we have to phone
him endlessly and tell him what a great guy he is. And oh yes,
what have you got for us next?
As far as TG World Energy (TGE) and based on its performance
so far, we could probably get off with just sending him a Christmas
card this year! While it’s true he did get us into this story
back at around $0.70 and $0.80, that was a long time ago. Long,
long time ago. People have met, married and have had kids and
we still own this stock, but sooner or later, it’s probably going to
be attracting a lot of attention.
For those new to this story, TG World Energy, after years of
work, wrapped up a concession in Niger and it’s a big one of almost
17 million acres, which after some dickering, they farmed out
80% to the Chinese National Oil Company. What better partner
can you find than them, considering their financial and political
muscle.
They are in an area of Africa that has come up with some of the
most intriguing discoveries in rift basins. These rift basins have
come up with enormous rewards for Esso, which has so far come
up with six oil wells and one gas well on an eight well program
and of course, the enormous success Talisman—now owned by
CNOC for their properties discovered in the Sudan.
Rift basins in central Africa are one of the places to be and
that’s where little TGE and CNOC are. Or they will be sometime
soon. We had expected that they would be drilling way back in
November, but then a long list of delays as ever more seismic was
sought and of course, the ongoing problem of getting rigs.
While Cliff James is currently somewhere off in the world on
one of his many business ventures, Ted Best, the veteran oil man
who formerly ran BP’s oil and gas interests in Canada is minding
the shop. He had the unpleasant task to tell us that while we had
been expecting to see drilling this June or July in Niger, they
frankly now have no idea when that drilling will actually take
place.
The rig which is coming from China was supposed to have
been shipped the first of February and has yet to move off the
dock, Best tells us.
He suggests that the people at CNOC will not give a new date
on when to expect drilling to start.
Best hopes that the company will be able to put out further
information on the size and significance of the play they will be
drilling—an idea of what chance to expect for drilling success
and just how big the prize might be in a months time. The two
locations they’ve picked out to start with one suspects will be
their best shots, but again, the question is—are we looking at
something that could be 50 million barrels, a 100 million barrels,
or looking at what they’ve come up in the Sudan. Dare we think
1/2 billion or even a billion barrels? Why not dream in Technicolor?
In the meantime though, TGE has just announced another joint
venture which is going to give the company another focus and
Best points out that it might give them cash flow a little quicker
than should they ever discover something in Niger. Remember in
Niger, while the prize is big, there is very little infrastructure of
any type at this point and it could take a long time (should discoveries
be made) to get them to market. Alaska on the other
hand is quite different.
TG World Energy has just farmed in with Brooks Range Petroleum
Corp. to drill four wells over the next while (they expect to
drill their first well this coming winter, which is early by Western
Canadian standards) and of course the Prudhoe Bay area of
Alaska has been, in the past, prolific.
Best compares it to what happened in the North Sea. With the
initial excitement and euphoria particularly the big oil and gas
companies rushed there, created a euphoria and everyone went
searching for elephants. After a few decades though, the elephants
have been discovered and the big boys are moving off in
search of big plays elsewhere in the world. Much of the North
Sea exploration is now being left to the littler guys with a little
more agility and to whom 25 or 50 million barrels means something
big.
Same thing in Prudhoe Bay, Best suggests as with its initial
discovery, the big boys were all there, but with nothing of note
over the last while, the big boys are gone. Now the little guys are
back and it’s not as if there haven’t been some discoveries of
significance made. He points to the Alpine Field with about 400
million barrels currently producing 100,000 barrels a day. Not
bad at all. He suggests that anything discovered in that area of
the world has readily available facilities and access to the Alaska
Pipeline, plus all needed infrastructure.
They are looking forward to new 3-D seismic before drilling
commences, but in the meantime, he categorizes the area as under-
explored and off the radar screen for many oil and gas explorers.
He suggests that while their targets are realistically in the 20—25
million barrel targets, and there is a multiplicity of those targets, he
suggests there is still the possibility of a significant size discovery
being made.
Their partner in this play is Brooks Range Petroleum, which is
mainly a group of professionals, many of which were formerly with
Atlantic Richfield, one of the big players in the area. Based on their
commitment to drill four wells, they will have 25% to 35% interest in
the areas that are drilled. And again, should they be successful,
cash flow should be relatively quick.
It also does give TG World Energy a diversity of projects, should
Niger fail, but while we were with Best, we had to ask him questions
we figure many investors would want to ask these days of a 35—40
year veteran of the oil patch. Such as, “what next for oil prices, considering
currently huge numbers in inventory, as well as gas prices”.
And if he could buy a stock other than his own, what would it be?
He admits he is a bit of an admirer of some of the work Centurion
Energy (CUX) has done and for that matter, some of the other Canadian
juniors that have done so well in the international exploration
field where in many ways, have led the pack. But as far as predicting
commodity prices, he says that he learned many years ago, the only
thing you can do is make sure that you are a low-cost producer.
He reminds us that back on April 1st, 1986, when he was running
BP in Canada, the price of oil went under $10.00 a barrel. That was
not a particularly funny April Fools Day!
If he had to guess though, and we forced him to do so, he thinks
gas will probably be $9.50 by this coming Christmas. He is more
confidant on gas prices, than oil, suggesting the likelihood of another
winter this warm is unlikely, plus he notes that in this past winters
drilling, there hasn’t been that much success finding much more
gas.
As far as oil he suggests there is plenty of supply around these
days and that it’s mainly geo-politics that keeps oil prices at its lofty
level. He suggests if it’s not problems in Iraq or Iran, it’s the politics
in Venezuela or Nigeria or for that matter, the problems in Saudi Arabia.
But again, if he had to guess, he would predict $50.00 for oil by
next Christmas, which is still a lofty number by historical standards,
but no where near what some people seem to be expecting these
days.
We were lucky to spend a very enjoyable time with a significant
industry veteran.
Disclosures: Centurion Energy : Canaccord Capital covers this stock and has a Buy rating on it. (Buy: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months.) Canaccord has recently led a financing for TG World Energy.
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