₪ David Pescod's Late Edition November 14, 2007
OILEXCO INC. (T-OIL) $16.05 +$0.63
PETRO RUBIALES ENERGY (V-PEG) $1.37 +$0.06
It looks like Oilexco has become a real oil and gas company as today they announce the quarterly results, and they aren’t bad at all. Revenue increased to 149 million for the quarter from 2.2 million the same quarter last year. Net income was $54 million versus 4.7 million last year and first full quarter production from Brenda/Nicol field produced a total of 1.7 million barrels.
Meanwhile, they report that the Brenda/Nicol exceeded expectations with production rates reaching 30,000 barrel a day peak. Also average daily production for the quarter from all sources was 21,600 barrels of oil per day.
Yes folks, after all these years of waiting there is now actual revenue. Meanwhile, another brokerage house has decided to cover the ongoing Oilexco saga as RBC Capital Market’s out of London initiated coverage with an outperform rating and a price target of $21.00. Of interest to us is some of their expectations as they suggest that 2008 they would expect production of 37,000 barrels a day and for 2009 a whooping 84,000 barrels per day.
And they comment “Oilexco is well placed to add value over the next 12 to 18 months” and they note the explorations upside as they are “scheduled to drill more than 25 E&A wells to end 2008 that could, on an unrisked basis, more than double our risked NAV.”
Their $21.00 target is a target that Canaccord’s Fred Kozak has had for some time, and when we touch base with Kozak today he suggests the next big development for Oilexco and something that could make him move his target price would be test and reserve results coming out of Huntington and Shelly which shouldn’t be too far down the road.
We expect an updated analyst report from Kozak later today or tomorrow. Meanwhile when we asked Kozak our favorite question, If you could only buy one oil and gas stock today, what would it be? He answers, with Petro Rubiales.
He calls it the preeminent Columbian exploration and production company. And while we usually hate stocks with that many shares out (fully deluded almost a billion shares with more to come) he gives us his target of $2.15.
For those that would like to look-see at his take on Petro Rubiales, email Jenn at Jennifer_Lagdamen@Canaccord.com
OILSANDS QUEST INC. (AMEX-BQI) $5.65 -$0.24
PEERLESS ENERGY INC. (T-PRY’A) $5.35 +$0.06
With Ed Stelmach becoming the Hugo Chavez of the North Country, he’s obviously not helping Alberta but he could be helping Saskatchewan become the promised land of Western Canada. In a very interesting research report by analyst Phil Skolnick of Genuity Capital he does a feature piece on Oilsands Quest and featured an interesting report headlined “Revealing the Saskatchewan Advantage.”
Skolnick writes “we ran an NPV analysis to demonstrate the potential economic advantage that a generic SAGD project in Saskatchewan could have over one in Alberta.”
The answer: “the estimated NPV appears to be roughly 25-35% greater than the NPV for a project in Alberta. This bullish data point supports our thesis that BQI’s high exposure in Saskatchewan is a key advantage for valuation and joint venture potential and (possible takeout potential) given the more favorable royalty regime that exists in Saskatchewan.”
He continues, “we reiterated our BUY rating with a $7.50 price target.”
Which realistically isn’t that much higher than it currently is. In the report introduction he writes, “because actual project details are still unknown as a potential recovery methods, etc. are still being examined, our analysis assumes a generic 30-year, 30 MBbl/d non-upgraded SAGD project that costs $35,000 per Bbl/d and commences production in 2012.” They also continue “our analysis assumes SAGD technology is used. However, BQI is examining the use of derivatives of exiting in-situ methods that use solvents. Accordingly, various labs are testing multiple potential recovery methods. As a reminder, early lab tests have shown that hot water (wet steam) recovery processes in a low pressure/temperature environment are yielding a recovery of 54-83% (versus 35-55% for high pressure SAGD). The upside potential to recovery rates from wet steam could suggest enhanced economics if it results in higher production rates and lower unit capital cost. This is not assumed in our analysis.” “BQI still needs to field test any recovery methods for first half of ‘08.”
Then they get to the bottom line “what about the new Premier and royalties?,” as Saskatchewan just elected Brad Wall of the Saskatchewan party, as the new Premier and they have a majority government. Skolnick writes “we had a discussion yesterday with the newly elected government and were told that there are no plans for a royalty review and the government plans to look at key sectors of the economy, including energy, to hopefully reduce/remove barriers to grow.”
Two provinces going two very different ways.
GAMMON GOLD INC. (T-GAM) $7.75 +$0.42
Just because the mine has gone into production doesn’t mean that all that gold that was promised actually gets delivered. Canaccord analyst Wendell Zerb looks at Gammon Lake and he’s almost suggesting that anything that could be wrong is going wrong. He writes “the company has reported Q3/07 production of 47,091 ounces of gold at cash operating cost of a lofty $764/ounce versus production of 58,957 equivalent in the second quarter from its Ocampo and El Cubo gold silver operations in Mexico.”
Zerb continues “despite our negative outlook for the company, it even underperformed our conservative forecast of 68,000 ounces gold equivalent at cash cost of $502/ounce. The company reported negative operating cash flow at 6.6 million versus our expectations of 5.6 million…”Zerb writes “the Ocampo operation Gammon’s principle assets continues to underperform. A series of problems continue to plague the operations from crusher utilization, to increased strip ratios, to a lack of underground throughput and so on. Given these compounded problems at Ocampo we believe the operation will continue to underperform for several quarters, and it may never achieve feasibility-level production.” And uh-oh, he also writes “Short term, the company could have a liquidity problem give its compromised balance sheet and its additional capital requirements.”
Gammon Lake becomes a sell according to Zerb with a 12 month target of $5.85.
SHEAR MINERALS LTD. (V-SRM) $0.67 +$0.11
The 1990’s certainly was an exciting time for diamond explorations in the north of Canada as it was a surprise to the mining business to think they even existed in Canada’s north. It precipitated some of the biggest staking rushes and so much excitement in the market. And now Canada is one of the biggest producers in the world. Which is the good news.
It’s been years now since anyone’s found anything of note, and while there are still a handful of explorers most of them these days haven’t had a lot of news out in ages, have too many shares outstanding and are facing a disinterest in the public. Today some good news out of Shear as they announce the recovery of a 5.3 karat diamond from it’s 400 ton bulk sample at the kahuna kimberlite dyke in Nunavut.
Pamela Strand announces today the discovery of these large diamond fragments prove the potential for their “kahuna kimberlite dyke hosts larger diamonds” as she suggested that the big diamond recovery today might have been part of the bigger diamond that could’ve been up to 14 karats in size. Now that’s a big rock! |
