₪ David Pescod's Late Edition June 15, 2007
AN INTERVIEW WITH BOBBY LAMOND
CHAIRMAN, SHARON ENERGY LTD.
(As of June 5, 2007)
We are with Bobby Lamond, who over the last few decades
had a rather high stature in the Canadian oil and gas business
with names like Czar and Orbit Oil & Gas and these
days, it’s almost as if you are just having a hobby. Little
Sharon Energy has a market cap of less than $20 million.
Dave: What gives, Mr. Lamond?
Bobby: It’s hardly a hobby! We have been working on this
company for over five years, and Humboldt and myself have
invested substantial sums in making sure the business plan
succeeds. But to recap, I teamed up with a chap – Kip Ferguson,
(who is the President of the company), and a third
generation Gulf Coast geologist. Sharon is Texas-based,
has six employees and is run out of Houston with the board
and financial advice being sourced from Canada. We are
listed on the TSX-Venture, but the objective of the company
was for Humboldt to deploy some of its funds from the sales
of Czar, Orbit, Nycan and other companies, into high impact
Texas prospects. There is no point in being there without
the prospect of large reserves, so we have been looking at
20 to 100 bcf projects. The key in prospecting in Texas is
3D seismic, and our aim was to acquire a large spread of 3D
seismic surveys at low cost. In fact, the management told
me the other day that we now own or have rights to over
1200 square miles of 3D seismic. That’s a huge amount of
seismic for a small company, and is a valuable data source,
as you can’t drill a well in the Texas Gulf without 3D seismic.
Our in-house geologists, directed by the President, go
through this data as they can. We have focused on two
counties – Colorado and Lavaca, which are just 100 miles
west of Houston, almost half-way to San Antonio. So far we
have drilled three deep gas bearing Wilcox structures and
all have been successful. It’s a type of resource play where
the wells come on stream at high rates, decline, and then
continue to decline hyperbolically for a very long time. We
have drilled six wells so far, we have four wells on stream,
one currently being completed, and we had one mechanical
problem and lost a well, which was also a producer.
The key right now for us is our view of natural gas. I’ve been
involved in the business for decades, and I’ve watched gas
cycles come and go in almost regular three to four year intervals.
In fact, Humboldt Capital, which has its principal business
in investing in energy stocks, pretty well departed the
field 15 months ago when we saw irrational exuberance in the
gas business at the top of the cycle. Outrageous prices for
land, rigs being bid up to top dollar, a giant drilling boom, and
resulting huge gas storage surpluses developing. When the
music stopped, the trend slowly reversed and most energy
stocks lost between 25% and 90% of their stock prices from
highs in the last quarter of 2005. The hangover however, became
a classic negative sector rotation with gas stocks trading
down to ridiculously low levels.
We have always kept Dave in the loop by bombarding him
with new graphs of what is going on in the gas business, and
currently we think we are in a tremendously positive stage.
With the loss of the royalty trust boys and with the major gas
developers finding religion, this has resulted in a collapse of
drilling in Canada, and I’m just going to e-mail Dave yet another
graph of today’s gas rig rate. As we have discussed,
this commodity cycle is like copper, nickel, zinc and other
commodity trends features in your publications. With some
forward thought, you can see gas prices staying stable and
gradually closing the BTU gap with oil throughout the balance
of the year.
Dave: A question here on natural gas – is betting on natural
gas in a big way, betting on weather?
Bobby: Warm winters and cold summers are important in the
short-term in gas pricing, but it’s not so simple, as many gas
traders have been disastrously wrong with climate-related
hedges recently. In fact, either in buying stocks or making
major investments in gas reserves, the more important issues
are the outlook for the economy, and oil prices, coupled with
drilling rates and new additions to deliverability. Consequently
gas cycles normally last two or three years and major
trends cannot be significantly altered by short term crises,
either cold or warm weather, or transitory interruptions resulting
from hurricanes.
Dave: Now you are focused in Texas and I think the average
Canadian has this concept that Texas has been drilled like a
pin cushion. Is that true at all?
Bobby: They are absolutely quite right, but as in Canada, the
whole secret in Texas now is deeper drilling on projects previously
drilled to shallower depth. The key is 3D seismic in that
one can image the geology better and one can identify smaller
projects much easier. In the old days, you could only identify
big anticlines and drilling to past 15,000 feet used to be quite
difficult. So in essence, we are using 3D seismic and we are
going deeper. Obviously high gas prices are also key.
Dave: Andy Gustajtis is raising a little money for you guys
and he seems to be of the opinion that what you are looking
at is getting closer to a “gimme-type” project.
Bobby: He is looking at this (and I don’t want to put words
in his mouth), as a resource play where the risk is low.
Upon success, which is a key element of course, a large
number of offset wells can be drilled. These are not gushers,
but they are very long-term gas producers and that’s the
kind of thing Andy has been particularly successful in with a
whole number of his recent financings. So, we are very
happy to have him give us his endorsement.
Dave: Are there any tidbits that one should know, who is
new to oil and gas in Texas? Traditionally, Canadians go
down there and get their pockets picked.
Bobby: Yes you are right. It reminds me somewhat of Lagos,
Nigeria – many foreigners don’t make it out of the airport!
It actually happened to me a long time ago. Once bitten,
twice shy. Hence, Sharon’s operation is managed and
run by Texans. Other than periodic review and supplying
financial advice, Canadians are essentially banned from the
local operation.
As you know, unlike Canada where the minerals are owned
mainly by the province, these are all individually owned. To
learn the stratigraphy, the 3D and the various areas are not
something you can do by flying in for a couple of days a
month, you have to have local people there. We are happy
with this combination and we are hoping that a match of
Canadian financing and some business management credibility
and a team of experienced local Texan guys will do the
trick this time.
It’s not as much as an “Old-Boy Club” as everyone likes to
think, but in a way it’s like an “Old-Ranchers Club”. There
are a lot of big land owners (now often lawyers) who are
quite sophisticated, so one of the key things there is having
a very good land man. We have a very experienced land
man, Brian Burgher, who knows virtually all of the landowners
in our operating area.
Dave: Now you’re stock is down from around $0.80 so it has
been halved, but there are a lot of gassy stocks that have
gone through the same. Your comments
Bobby: If you look at the chart it really averaged around
$0.60 for a long time, and then spiked in the middle of the
gas euphoria about 18 months ago. We think we are near
the bottom and it should gradually improve from here.
Dave: For good times to be back for Sharon, it’s a combination
of A) better gas prices, and B) drilling success.
Bobby: I don’t want to correct you, but it’s actually not better
gas prices. The US gas prices are $8.00 right now, and
oil prices are over $65. We were slowed down by lack of
access to rigs, lack of access to capital, and we lost 18
months because we realized that gas investment was not the
place to be last year. Consequently, we have now come into
a better market where rigs are available for us. With new
financing available, we will be able to commence our drill
ready high impact prospects.
We have 14% in the current well we are drilling, “Cheney”.
The next one we have 25%, and the third one a 35% working
interest. That means we end up with higher and higher impact
wells drilled with this new block of capital.
Dave: Anything I should be asking you Bobby that I haven’t?
Bobby: I think one question would be what could go wrong.
Because the structures are so clearly defined, I think the key
issue might be the long term deliverability of the wells.
Dave: If you had to pick a stock, other than your own (which
is traditionally the way we end these Q&A’s), an oil and gas
that would double?
Bobby: Actually a number of our favorites you have covered
recently. We particularly like the Buffalo/Choice merger.
The management groups of both are really good. We like
Result Energy, and we also really like an Allan Bey run company
Rock. At a larger cap level we like Galleon and Rider.
Our basis of picking these is excellent management teams,
limited leverage and their prices are still reasonable compared
with some others right now. All good guys, and all
have done it before and have momentum.
Dave: Thank you so much, Bobby! |
