₪ David Pescod's Late Edition June 26, 2007
MARCH RESOURCES (V-MCF) $0.69 -0.01
SOUTHERN PACIFIC RES. (V-STP) $3.70 -0.05
PETROLIFERA PETROLEUM (T-PDP) $16.75 -0.39
It feels like the summer doldrums are here...not just the mining sector which we’ve been expecting for a while, but in oil and gas as well. We’ve been looking forward to corrections, to hopefully get some of the more exciting high profile/high risk/high reward plays cheaper over the next few months for when we hope things will, once again, be a lot more fun—probably late summer or fall. Although we have to admit with our expectations for oil prices, we don’t know whether the oil sector can fall off that much.
One story to be watching is Petrolifera Petroleum, which was one of the success stories of the decade after its debut back in the fall of 2005. A ten-bagger within a year because of their successes in Argentina, the stock has been selling off lately due to profit taking and a few little disappointments in production levels (because of unavailability of rigs). But Dick Gusella today suggests they are “still targeting 21,0000 barrels of oil per day from Petrolifera by year end, which would be a huge accomplishment and would justify a much higher price for Petrolifera.
But if you are hoping to scoop up Petrolifera cheap over the summer, you are not keying on Argentina anymore, you are probably becoming aware of the size of the targets that they will be drilling in Peru, probably the first quarter of next year and when people find out about that size...people will care.
Another high impact/high risk play that will be happening much sooner is March Resources. We caught up with David Antony today and his screen doesn’t look any better than ours, but he’s had an awful lot of fun the last few months. He is the Chief Financial Officer and interim CEO with Southern Pacific—the oil sands stock that has been on a tear the last few months...just take a look at the chart. He’s also Chief Financial Officer with March Resources, which I suspect is going to be attracting a lot attention in three months time, as they spud their Pica North and Pica South blocks in Chile. March Resources has inherited some of the work done by Evergreen, a private oil and gas company in the U.S. that has been working on this prospect in Chile for the last five years. And Antony tells us that “the good folks at Degalyer McNaughton, have suggested a target size of 0.65 TCF for their play in Chile” and that’s big!
Negotiations concluded with the Chilean Government a month ago, Antony tells us, and the obligations are to drill three wells probably starting in September. They’ve got a Canadian rig with a Canadian crew heading down and he says, “one thing good about the oil patch these days is that suddenly good crews and good rigs are available, quite a difference from a year ago when they were first planning for their commitments” he says.
They are not drilling in the jungle side of Chile either, it’s in the smack-dab middle of the Atacama Desert, which should make for cheap drilling. They are a bit of a way from pipe (almost 140 km) but it’s amazing how if you find something, you can quickly find a way to get it to market, particularly in Chile which is facing a shortage of natural gas these days.
Antony suggests that “Chile is having to import gas from Argentina” and because Argentina is having their own problems, they are being cut off from time to time. If a commitment is made to drill three wells, each well he suggests, “should take about 35 days to drill” and it’s two different zones they will be looking at, the Northern Prospect, which has had a fair amount of work done it and the Southern Prospect, where much less is known.
When we ask Antony for a stock pick that can’t be one of his own, he goes with Solana Resources (SOR), another story based in South America. He suggests the company has had more than a few trials and tribulations with dry holes over the last while, but it looks like they are onto a very exciting field that he thinks can deliver a lot more of the good stuff.
STEALTH VENTURES (V-SLV) $1.33 +0.01
We do appreciate the e-mails and faxes that we get from the good folks out there, although we are not always able to answer, but one article sent in to us was about Accuweather.com and the forecast for this coming summer.
They mention how long-range forecaster Joe Bustardian and his team expected this summer to be hotter than normal across the large section of the nation. It was published May 16 and so far much of North America has seen no taste of summer at all and that’s why natural gas prices has stumbled. It’s also a reminder that last year, many of the prognosticators expecting a hot summer and lots of hurricanes, were about as close to being dead wrong as you can get. Will it happen again? That’s the problem with natural gas, you’re betting on weather.
Which gets us to Robert Bell the President of Stealth Ventures, a story that Andy Gustajtis (a guy that we think is one of the better stock pickers, but is also a raging bull on natural gas) likes. Stealth has been working on 3 major projects, but the one that’s cost them the most money has been their coal bed methane project in Nova Scotia. So far there has been lots of money spent without a lot to show for it. But suddenly having other explorers in that area of the country may be paying off, as Bell tells us that Corridor Resources has brought in a lot of equipment to frac their projects in New Brunswick and Stealth hopes to use the same equipment to do some significant fracing later this year on the coal bed project in Nova Scotia.
One of their other significant projects is their shale gas project in Alberta. Bell points out that 80% of their budget for this coming year is budgeted for shale gas.
As far as the economics, he says, “well, at $5.00 an MCF we’ll pull back your horns. But at $7.00 an MCF, you’re looking at a two-year pay back at $9.00 an MCF, a one-year payback and that can make a big difference.”
There are also a beneficiary made of a significant cut backs by gas explorers this year and suddenly their costs are going the right way. They not only have more and better crews available with the quill, with the hybrid rigs they need, but their cost per well are also dropping sometimes dramatically from around $440,000 a well all cost into $350 and possibly getting even cheaper.
Bell does emphasize that suddenly better crews and better equipment are available, which is probably even more important than the better costs.
A bet on a story like Stealth is still very much a bet on weather, but should your crystal ball be suggesting there is a hot summer coming some time or some year, helped to be followed by a cold winter, well this is one of the stories you’re going to want to be following.
BRILLIANT MINING (V-BMC) $1.80 -0.30
Don’t think the summer doldrums are here yet? Take a gander at the chart of Brilliant Mining and see the correction it has suffered.
Nickel prices have corrected, but still remain at levels a person would have thought impossible even a year ago and more importantly for Brilliant, is a hedge that had them selling nickel for less than a third of current price is off within the next month and suddenly their cash flow should be seeing a nice boost.
But the chart is a sign of the times….. |
