₪ David Pescod's Late Edition April 9, 2007
OILEXCO INC. (T-OIL) $8.16 -0.11
INTL. FRONTIER RES. (V-IFR) $1.02 -0.19
GULF SHORES RES. (V-GUL) $0.405 -0.125
CORRIDOR RES. (T-CDH) $8.25 -0.12
Ouch! This one hurt...After almost two years of waiting to see the deals finally put together for the mighty Laurel Valley play drilled in the North Sea, in almost record time the well was drilled...and abandoned.
We had been attracted to this play from day one because of the potential size of the play with many folks arguing a target of 600 million barrels was possible and some dreamed of even bigger numbers. In this area of the North Sea, there is no less than six or seven huge fields that gave the play some credence as well.
And the good people at Oilexco with access to some pretty good exploration talent were paying 75% of the cost of this well to earn a 45% interest, so you knew they had faith that this well was worth drilling. We like the big exploration plays that you can get in early and cheap, hopefully see it talked about on the “Bullboards” hopefully greed over time builds and the prices go up and along the way you can sell a few shares at a nice profit and then finally decide how many shares you want to hold for the big news of whether it’s a hit or a miss. And a hit on a play of this size could have been very good.
The odds-givers came up with any number from one in three to one in ten with most being closer to traditional exploration odds of one in ten. What went wrong was the drilling went lickety-split with only 12 days needed to find out the bad news when we could have expected as much as 30 days. So much for letting people get excited and greedy...and when people realize news is going to be out a lot sooner than expected, those with profits decided to heck with hanging on, let’s take the easy money and run.
While Oilexco has barely been scratched by this play, the two juniors involved have charts that look like someone diving off a cliff. They both have several additional plays in the North Sea coming up and needless to say, it will be of interest to see exactly when those will be lined up so shareholders have hope of another bounce down the road.
Mike Turko of Gulf Shores tells us today that both they and IFR will be involved with Lundin Oil drilling the Lytham project in the North Sea, sometime in July and this is a fairly significant play as well that should be followed by the same rig drilling the Ridgewood project sometime in August/September, so little GUL and IFR do have things to look forward to (depending on rig availability it could be a few months later).
As far as comments on Oilexco today, Canaccord analyst Fred Kozak writes, “We had no success in our model, for the Laurel Valley well, and see any short-tem weakness as a result of this dry hole as a further buying opportunity.”
He writes, “We value Oilexco at a multiple of cash flow, reflecting our estimates of the timing of new production additions through 2008. We note our target price of $14 is based on 4.4 times 2008E debt-adjusted CFPS and does not include the potential impact of the company’s current exploration program.”
He does add, the upcoming catalysts for Oilexco “will see multiple catalysts including, another exploration well about to be drilled at Huntington. In addition, the Ocean Guardian is expected to arrive in mid-to-late April and is likely to drill a well on the Ptarmigan prospect and then move to the 2007 discovery at Shelley for delineation.”
He continues, “However, the most notable short-term catalyst remains the start-up of production from the Brenda/Nicol oil fields...and start-up could see production flowing before the end of April.”
Needless to say, for those suffering from the high risk/high reward play of IFR and GUL, this might not be the time to talk about another high risk/high reward play...or maybe it is…
Corridor Resources has a chart that just goes higher and higher and we are very thankful for wheeler-dealer Andy Gustajtis of Dominick and Dominick for continuing to feature this story and continue to suggest people should be playing it. Most gassy stocks over the last year have been decimated with exploding costs and lower than expected natural gas prices. While many gassy’s are trading for 30 cents on the dollar from a year ago, Corridor has been hitting ever new highs.
It’s an “Alice in Wonderland” story that should see a movie done about it some day. Who would have thought a potash company in Canada, drilling disposal wells in New Brunswick to get rid of their problem with excess water in their mine, is drilling away trying to get rid of the excess water and discover gas? Corridor, the oil and gas company in the right place at the right time, grabs a big chunk of the play. After further work, they find that there’s even more excitement being generated by a deeper zone—the Dawson Settlement.
Now when they attempt to get to the deep play, on the way down they discover the Fredericks Brooks shale formation is gas bearing...and there is lots of it.
So what next? A good report out by Greg Chornoboy of Jennings Capital is probably answering some people’s questions and you’ll find it interesting about his target of $9.90. The shallow zones look like they are going to be productive and productive soon. The shale is still a new discovery and shale can be quite productive ... or not. And we still have no idea what’s in the deep zone.
Chornoboy runs through some numbers and gives you an idea of what this play could be worth...or not. Not giving the company much credit for their McCully or Dawson Settlement results, he comes up with a risk value working out to a net asset value of $7.57.
On the other hand, giving some unrisked value, to both the Fredericks Brooks and the Dawson Settlement, he comes up with a potential net asset value of $59.00 a share. That’s a huge disparity and it shows you the parameters that just might be involved in this play.
Chornoboy also makes this comment, “The Fredericks Brook could add significant value. We have run a Monte Carlo simulation to assess the potential value in the Fredericks Brook formation. Based on some broad assumptions, it’s unrisked value could be as high as $28.00 per fully diluted share. For a look at his report, go to www.jenningscapital.com under ‘Research’ and then ‘Research by Company’. Scroll down to Corridor to April 4, 2007 and click on the link. The good people at Jennings share some of their research.
As far as what next for Corridor? Chornoboy’s event calendar suggests the important P-76 well reaches total depth in early May, first quarter financials and the E-38 well reaches total depth mid-May and initial tests of the F-58 testing the Fredericks Brooks shale which will be very important, should occur late May or early June.
One thing that will make a big difference for a company that is followed by very few analysts is the actual start-up of their pipeline and cash flow in early June. What’s the high risk/high reward here? There is always a risk in any play and maybe it’s just natural gas prices. On the other hand, a big risk might be some of us counting on some of those higher price targets as being in the bag. |
