₪ David Pescod's Late Edition January 2, 2008
CULANE ENERGY (T-CLN) $7.22 +0.33
Just because we’ve been moaning and whining because the Stelmach government has decided to pillage the oil and gas industry and chase it off to other provinces or countries around the world, doesn’t mean that there won’t be the odd opportunity hidden out there in Alberta.
One of them is Culane Energy and the timing is going to be just around the corner. You can tell there is opportunity coming because all of a sudden, the brokers are starting to talk about it. In just the last few weeks, both PI Financial and RBC Capital Markets have started coverage on Culane Energy. The titles of the reports tell you something. PI Financial highlights, “Unique Oil Growth Story with Waterflood Upside” while RBC writes, “Unique Undeveloped Oil Asset.” For all those who followed Capitol Energy with their waterflood program, that’s what you are looking at.
PI Financial points out, “Culane Energy is a high growth oil weighted junior oil and gas company with its main operations in Killam, Alberta, Culane produces 2700 boe/d with a 70% weighting to oil. There is also 630 boe/d shut-in at the moment due to regulatory issues and 470 boe/d “behind pipe.”
They talk about the impressive track record of management and how horizontal drilling is working so well at Killam and also the potential for five new oil pools identified by seismic.
The excitement though, comes with the waterflood and PI writes, “Secondary and tertiary recovery schemes could double or triple reserves. A waterflood pilot should be online sometime in 2008 with response expected later that year. A tertiary recovery scheme known as an ASP (alkali-surfactantpolymer) flood is also being investigated. These improved oil recovery schemes could increase recovery factors in the Lloydminster oil pools to 45% from the existing 10-15% expected from primary production.” This will definitely be one of the stories to follow in the coming year.
As far as what to expect on these projects, it always depends on the waterfloods, but lately those have been quite successful. PI Financial analyst Geoff Ready gives a target of $9.50 while RBC Capital Michael Harvey calls it an outperform and gives it a $8.50 target.
We started following Culane a while ago while another former analyst got us intrigued by the story and it was because of him we got involved with Capitol Energy. He expects the same kind of success and he suggests that the two other analysts have targets that are much too low. Kind of appeals to your greed doesn’t it? I know it appeals to us. One of the few plays to still be following in Alberta.
CONDOR RESOURCES (V-CN) $1.45 -0.08
We recently mentioned that Canaccord’s Wendell Zerb and Toni Wallis have done a report on the “2008 Wish List” where they looked at their favorite junior mining stories and gave a bit of a rough detail on each one of them. For those who haven’t received copy yet, just e-mail Debbie at Debbie_lewis@canaccord.com.
There is one story that we find tantalizing. When you are looking to make a buck in the junior mining sector (maybe the markets are turning—all of a sudden we are feeling greed again instead of just rampant fear) there are three things you are looking for. You are looking for size, you are looking for grade and you are looking for management.
Actually, if you are looking to make a big chunk of change, there’s a fourth and very important factor as well, and that’s how many shares outstanding. These days when you look around, there’s so many junior miners with 100 million shares outstanding and sometimes a lot more. That leaves very little room for leverage and upside momentum.
Which gets us to Condor Resources. How about management? Well, Pat Burns, a veteran in Latin American minerals circles is the guy that helped discover Escondida. One mark for them.
Secondly, they have two significant projects outstanding, both of them of significant size. In the report that you have to read that Wendell Zerb put out, it gives you an idea of the size. And both of their projects are significant.
One of them has seen some drilling to date and assays will be in sometime in the coming weeks. They will be important. And then if you are looking for pizzazz folks and upside leverage, how about this.
Condor only has about 22 million shares outstanding or 30 million fully diluted. If they have the size that some people expect, and of course, the grade is important, with experienced management, this is obviously one story one has to watch.
We get Wendell Zerb to confess that “yes, this is one of our favorite stories from a speculative stand point” he suggests.
It’s the time of year you typically get a lot of prognostications of what to expect for the coming year.
Very, very few predicted correctly what happened to us, particularly in the last quarter with the asset-backed credit mess which has hit everything from brokers, to bankers to oil and gas to mining and provided one heck of a rotten last quarter for the year.
But anyway what next? We go to Nick Majendie, one of the deep-thinkers at Canaccord, and who interestingly had a bearish position for a while, and only recently going positive. So his thoughts?
He headlines his piece, “Despite likely first half volatility, equities will have a strong year.” He makes these three points:
1) The Fed earnings yield model indicates that stocks are the most undervalued relative to bonds that they have been in the 29 years. This is in sharp contrast to early 2000 when the index was significantly overvalued. The US yield curve has also normalized. Thus, we believe that it is time to take on greater risk through increased exposure to equities.
2) We have moved over the last quarter to an overweight position in commodities; in particular, oils and golds where we believe these stocks will be rerated upwards as commodity prices remain firmer than analysts anticipate. We are also underweight financials but overweight the Insurance companies relative to the banks.
3) Our view assumes no global recession even though the US could potentially experience a slowdown/shallow recession. We see growth for China and other emerging-market economies partially compensating for US sluggishness and allowing global growth of close to 4%.
Needless to say we hope he’s right.
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