₪ David Pescod's Late Edition May 8, 2006
OILEXCO INC (T-OIL) $5.85 +0.82
STERLING RESOURCES (V-SLG) $2.94 +0.54
After three high profile and disappointing misses on their exploration
program, Oilexco has better news today. While the deeper
and bigger target on their Disraeli prospect came up dry, their shallower
Eocene Tay Sandstone target came up with a 90 foot oil column
and needless to say that’s promising! We are a long way away
from ideas as to how big this target could be, as far as reserves or
when cash flow could be achieved, but needless to say….90 feet of
pay in this area of the world, The North Sea, is very promising. A
big move by both Oilexco (considering shares out) and Sterling Resources.
BACTECH MINING (V-BM) $0.445 +0.055
It is usually a dangerous adventure when an analyst in one
sphere decides to start following a story outside of his expertise.
Andy Gustajtis, the oil and gas analyst at Dominick & Dominick,
admits that one story that he finds absolutely intriguing is BacTech
Mining Corporation.
“Notice the significant new change in personnel”, he suggests,
as a major technical guy from Noranda has joined the company as
Chairman. And while this is a mining story and not oil & gas, he
points out that many “stranded” ore bodies around the world that
could be aided by a new technology and making their deposits economic.
He points to the new technology, which is called bacterialoxidation
technology or “bugs” to help in retrieving the metals from
the ore body.
While this company was originally designed to recover gold from
ore, today they announce that given the high prices for copper it
was obvious that they should be examining possibilities in that
sphere as well.
Obviously some people are paying attention, as there is big volume
in the market today. But, back to Gustajtis’s sphere of influence
oil & gas—given all the changes in prices of stocks,
Andy….what are your three favorite stories as of today?
In no particular order he mentions that you have to be looking at
Connacher Oil & Gas after the buy out of Blackrock today, he says, as
there simply not too many Connacher like plays out there that can be
had for billion dollars or less. Corridor remains on his list as he still
has hopes for double digits down the road when they get to drilling
the Dawson Settlement play in New Brunswick later this year and
for a stock that is trading at a big discount to net asset value, he
suggests Rally Energy for their assets in Egypt.
BLACKROCK VENTURES (T-BVI) $23.86 +4.98
INCO LTD (T-N) $74.70 +9.32
It’s been hard not to bump into the theory, that you have been
hearing over the last year or so with the increase in oil prices, that all
the major fields in the world, most of which were discovered decades
ago, are starting to deplete. It’s also getting harder and more expensive
to find the smaller oil fields and there is also more than a few
books being written these days on just when does oil production
peak, and whether oil goes to $100 a barrel, $200 a barrel or pick your
own figure.
Even given some lofty oil and gas prices these days, maybe it is
still cheaper to buy another oil company, then it is to spend all that
money in trying to find new oil fields and today you see an acknowledgment
that maybe that is the way to go, as big Shell Canada oil company
buys Blackrock Ventures in a massive $2.4 billion deal.
Maybe the same argument can be used in the metal business, only
slightly different. There are probably a lot more big metals discoveries
to be made around the world. The difference is that in the oil and
gas business when you find something, you can get some production
and cash flow really quickly. In the mining business these days,
though, with concerns about environmental issues, home ownership
issues (whether you are even wanted in the community given the
ugly and depression track record of some of the miners) there are
areas in the world that they simply don’t want miners around.
So, maybe you can use the same argument that it is cheaper to
buy proven producers then it is to go and explore and spend the 10
years it takes these days to get major mines up and running….plus
the huge cost!
Today, mega biggie mining outfit Teck Cominco makes a bid for biggie
Inco in a $17.8 billion deal. A note of interest, though, is that both
of these companies are based in Canada and there may well be a
good reason for that…….
In Venezuela today, Chavez announces that they intend to increase
the rate of income tax on their heavy oil projects from 34% to
50% and move the royalty rate from 16% to 33.3%. While we are not a
whiz at math, it’s becoming obvious that there is suddenly not as
much money to be made in Venezuela….and a lot more risk!
Disclosures: Blackrock Ventures: Canaccord Capital covers this stock and has a Hold rating on it. (Hold: The stock is expected to generate riskadjusted
returns of 0-10% during the next 12 months.) Oilexco & Connacher Oil & Gas: Canaccord Capital covers these stocks and has a Buy rating
on them. (Buy: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months.) Sterling Resources: Canaccord
Capital covers this stock and has a Speculative Buy rating on it. (Speculative buy: Stocks bear significantly higher risk that typically cannot
be valued by normal fundamental criteria. Investments in the stock may result in material loss.)
*Canaccord has recently led a financing for Oilexco and Sterling Resources
*Canaccord has recently participated in a financing for Corridor Resources
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