₪ David Pescod's Late Edition 5/26-5/30/08
To receive the Late Edition and be on our daily circulation simply e-mail Debbie at Debbie_lewis@canaccord.com and give your address, phone number and e-mail and we’ll have you on the list tonight.
_____________________________________________________________________________________________________________________________________
David Pescod's Late Edition May 26, 2008
AN INTERVIEW WITH FRED RUMAK
PRESIDENT and CEO
PANTERRA RESOURCE CORP.
(As of May 12, 2008)
David Pescod: We are here with Fred Rumak, the leading personality behind PanTerra Resource Corp, who recently closed a significant financing and their major asset is a big chunk of land in Saskatchewan which is currently one of the hot spots of the world, particularly because of the interest in the Bakken. Okay Fred, now that you’ve got some money to work with, where do you see it going first?
Fred Rumak: We’ve raised $5 million, one and a half million of that five million was flow-through dollars and three and a half million was hard. As you know, fees and commissions and regulatory fees took off half a million dollars, so basically we are left with $3 million hard dollars and a million and a half of flow through. The flow through will be spent as soon as possible as there are time constraints on the money and we are going to be going out in the field, working on some of our fracture stimulation and completion techniques. As you know, we’ve had an extensive amount of work done by Humble Geochemistry out of Texas, TerraTek out Utah and CoreLab out of Houston and we know that we have gas in place. We know we have found gas. We now have to figure out the best way to fracture stimulate these wells in order not to damage the reservoir and recover a large amount of gas in an efficient and economic manner.
We have been dealing with some reservoir engineering companies that have been taking a fairly detailed look at our scientific data to help us design the best fracture programs in order to accomplish this task. We are going to be going out in the field in the very near future. We were actually talking to a field manager today and our project areas in Saskatchewan have been drying out very good this spring. We are hoping to get on these properties at the very earliest – the end of May.
D.P: When you said “get out on the land” you’ve got a huge chunk of land which is why some people are so intrigued by this story. How big is this and of course, how much of it has potential for Bakken?
F.R: The western half of our Moose Jaw property, sits at the eastern flank of what’s called the Elbow Sub –basin and the Elbow Sub-basin basically developed at the same time as the centre of the Williston Basin which is located at the U.S./Saskatchewan border where all the Bakken activity is taking place. We know that from a couple of old wells that were drilled in the 1950’s and 1960’s, that we have between 40 and 80 feet of Bakken zone on the west flank of the Moose Jaw property. We are in the process of doing some preliminary exploratory work in this area and our earliest indications are that we have about six to seven townships of land that do hold Bakken potential and we are going to be evaluating that in the very near future. We may perhaps, even use some of our flow through money to drill a Bakken test ourselves.
D.P: No talk about joint ventures at this time, or are there people knocking on your door?
F.R: We’ve had several companies talk to us and call us and we have met companies in our travels in the last week or two. We are in the process of looking for someone that may come in and farm in on our Bakken potential and drill a couple of Bakken tests, cut some core and do a little bit of science so we know what we are dealing with. While PanTerra remains focused on its up-hole shale gas property, we would like someone to evaluate our deeper potential as well. We are looking for what you would call a ‘strategic partner’. We would like to try and do business with a larger entity that is well-financed that also has some shale gas experience. At the same time, we may also want to do this with the Bakken, so we may have to have two strategic partners. We may need one for the up-hole shale gas potential and we may need one for the Bakken potential. Ideally, if we could find a larger company that may want to pursue both entities and just have one partner.
D.P: That would be good. Now we need some exact numbers…How big is your acreage and on some of your early wells, did you get any flow rates?
F.R: We own approximately 1.1 million acres of which approximately, 200,000 acres are Shell Lake; 450,000 acres at Foam Lake and 385,000 acres at Moose Jaw. We have gone into some of these properties and we have done a couple of fracture stimulations (at Foam Lake and Moose Jaw) we have actually flowed gas to surface. We are not in a position to divulge the specific numbers, but early indications are that when we come up with the proper fracture stimulation technique we will be able to establish some type of a commercial flow.
D.P: The Bakken is attracting an awful lot of attention, what are the tricks that they know about this Bakken so far and the rewards appear to be enormous.
F.R: Number one of course is that you have to have the Bakken zone there itself. The Bakken shale is the source rock and much similar to shale gas. It can hold a lot of oil. The trick is to know what type of RW you are using. The resistivities in the Bakken are usually very low. High resistivities could indicate the presence of fresh water, but because the Mississippian waters in Saskatchewan are very saline, the resistivities are usually very low and you have to use the right RW in order to calculate your SW to know whether you have commercial oil or not. The other thing is that you have to cut core and look for the disseminated pyrite which could lower your resistivities quite drastically, so you’ve got to do some science, you’ve got to understand the mineralogy of the Bakken itself and you’ve got to understand the resistivities and the salinities of the formation waters. Once you know those things, you can determine whether your Bakken will be commercial or not. What we are planning to do is whether we do the Bakken ourselves or get a partner to do it with us, I would like at least two wells drilled in our area of Bakken potential and to cut several cores and do some detailed laboratory work to know exactly what we are dealing with.
D.P: Well let’s pretend you are dreaming late at night, of the million acres, what percentage do you think is potential Bakken?
F.R: About 20%.
D.P: That is still a big chunk of land.
F.R: It is. It would work out to be approximately 160,000 acres.
D.P: Do you think people are getting a little bit carried away with the Bakken because it seems to be the only things we hear about these days are shale gas in northeastern B.C. and Quebec and Bakken in Saskatchewan?
F.R: They sure are in vogue these days. On our Moose Jaw property we also have some potential for Jurassic. Now I’ve heard rumors that there is a new Jurassic trend developing in the western part of Regina. I don’t know if there is any substance to this, but I heard this through the grapevine and we do have the Jurassic section on our Moose Jaw property.
I am going to have our geologist start having a look at that as well. The other thing as well is that north of our Foam Lake property, Nordic Oil and Gas has been announcing that they are going to be drilling some Devonian tests because they do have oil seeps on their land. We have these similar seeps on our land at Foam Lake and in my travels when I originally did my study of that area 4 or 5 years ago, I found an old geologic paper in the archives in Regina by a Mr. Fry – a geologist who is probably no longer with us – this was a paper from the 1930’s – that indicated that he felt there was Devonian oil potential in that general Foam Lake area.
D.P: Now you have some experience in your travels around the world, you even worked in Africa for a while I believe….So how excited on a global scale, is this project?
F.R: As far as the gas potential is concerned, it’s very, very exciting. This could be a world-class play. We have (according to TerraTek’s numbers on a gas in place per section basis) about a 60 TCF of potential on our lands at Foam Lake, Shell Lake, and Moose Jaw, but there is a ton of crown land around that area in central Saskatchewan itself, so the potential for the Province as a whole, is huge.
D.P: When you say 60 TCF, this sounds absolutely outrageous!
F.R: That is original gas in place Dave. That’s not recoverable reserves. You have to put a recovery factor to that, which in shale gas terms is (basically in the States), historically, 9% to 18% recovery factor. So when you take that on the low end, you have 6 T’s of our land on the low side and up to about 10 or 12 T’s of gas recoverable, based on the U.S. historical numbers.
D.P: A year from today, you hope to look back and say that you have accomplished…..
F.R: That we established commercial flow; we’ve taken our prospect from being a resource play to a play where we can actually book reserves, have a net asset value or NAV and then at that time, we will either have to decide as a Company we want to raise large capital and go forward and develop this ourselves or dispose of the Company or the assets to a larger entity.
D.P: Now our favorite question of all oil and gas guys and of course we keep track of how well they do, you hang around in the oil patch and so if you had to buy one oil and gas stock other than your own, what would it be?
F.R: Right now I kind of play the penny stocks. There is a company that I have been following and hearing a number of things about. It called Magnum Energy (V-MEN). Apparently, they have had some Cardium discoveries southwest of Edmonton and they are waiting on GPP from the ERCB to crank these wells up to a larger rate. I heard they have capabilities in excess of several hundred barrels a day and they have other locations which they can drill on this property, so that is something that I look at these days.
D.P: Thank you very much, Fred!
_____________________________________________________________________________________________________________________________________
David Pescod's Late Edition May 27, 2008
ULTRA PETROLEUM (T-UPL) $87.16 -1.54
Every decade or so, there is an oil and gas story that towers over all others and for the past decade that story has been Ultra Petroleum. The chart show you how a $1.00 stock a decade ago has become $180.00 with stock splits and all.
An unconventional gas play that was ahead of its time when the technology was new and gas prices weren’t as exciting as today, Ultra had one huge leg up on all its competitors in the Green River Basin ... land...and lots of it.
The history of Ultra involves the genius of Marc Brunner who saw the future of unconventional gas and tied up lots of land and Doug Varley of Canaccord fame who raised the money for the team and Mike Watford, who eventually took care of the problems, debt and other management concerns and helped turn things around.
Then gas does better, technology gets better and cheaper and eventually the story is listed in the United States ... and then everyone seems to discover the story. Silly us, we were happy with a five and ten bagger (of course when five and ten baggers weren’t that common) on the story that has become a 180 bagger over the decade and is truly one of the stories of the last while.
But one point we’ll always remember was the size of the land holdings. We remember being on one of the first bus trips/investment tours through the property and Allan Laird was on the microphone and says, “Ladies and Gentlemen, for the last hour, you have been traveling on land owned by Ultra.” It kind of gave you the important scale of their holdings ... if the promise of unconventional gas works ... and it did.
What stayed with us again, was the importance of size...if you had big land holdings and what was hoped to be underneath was there, you could have a big payday down the road.
So now the Bakken is hot, Saskatchewan is big and guess who has a huge chunk of land?...
To be continued …
LAKE SHORE GOLD (T-LSG) $1.60 n/c
We are in Bangkok getting a firsthand view of the boom in Asia and Thailand, it sure looks like all you read about by those that talk about booming economies in Asia. Millions of motorcycles, cars in gridlock and expressways and building cranes dotting the landscape. There is no zoning here like in North America so luxurious hotels are next to poverty and the boom on the water ways / still a major source of transportation is unbelievable. How more barges and tourist boats and the like, don’t collide, is still a mystery to us.
On the newsstands, the Wall Street Journal is right next to the South China Morning News and you don’t know which one of the two is more capitalistic. We are with the Chairman’s Club here and amongst the 20 top brokers of Canaccord, so we ask our favorite question, if you could only buy one stock today, what would it be?
One of the picks was Lake Shore Gold—and we just happen to be shareholders.
If you want to look at Lake Shore Gold, an intermediate gold story that has been hit like many other juniors of late, e-mail Debbie Lewis for a report on Lake Shore by Wendell Zerb.
_____________________________________________________________________________________________________________________________________
David Pescod's Late Edition May 28, 2008
AN INTERVIEW WITH RAY SMITH
CHAIRMAN of MADALENA VENTURES
(As of May 14, 2008)
When it comes to stock picking, there are just some people you have to listen to…one of them of course, is Dave Antony. Antony is a veteran oil man currently with several positions including President and CEO with March Resources, CEO with Southern Pacific and Chairman of Bridge Resources. He has experience in the North Sea, in South America and also heavy oil in Alberta. More importantly, over the last year since $1.70, he was telling us to buy Solana Resources – a story that has more than doubled over the last while and just keeps going. Antony now says that if he could only pick one stock other than his own, he would go with Madalena Ventures. Today, we caught up with Ray Smith of Madalena Ventures who is currently the Chairman and of course, he is a veteran oil and gas man formerly with Meridian and Corsiar.
David Pescod: Ray, a little bit of your history in Meridian and Corsair would help introduce people to the fact that you do know your way around oil and gas…
Ray Smith: Both Meridian and Corsair were start-up companies like Madalena. Our formula was to bring in our solid management group, cleaned up the balance sheets with equity financings followed by implementing a risk reduced exploration program. The companies were sold into the merger / acquisition market after two and a half years providing between a five and ten-fold increase in shareholders value.
D.P: Is this some sort of magic wand you have or just a regular formula?
R.S: We follow a pretty rigid formula. Firstly, we bring in experienced management with a track record of success in their respective areas of expertise and explore the basin employing a statistical approach. The Company strategically ensures that it generates and can fund statistically sufficient opportunities to ensure success.
Given ten separate technically sound projects in the Western Canadian Basin, statistically we know that we are going to achieve a success rate that includes at least 1/3 impactful wells, 1/3 of the wells are going to be none commercial while the remaining 1/3 provide good rate of return projects. In order to ensure that we have success, we always want to make sure that we have enough quality opportunities for the Company to pursue. The strategy has worked well for me at New Cache, Corsair and Meridian.
D.P: Now your current Company, Madalena Ventures, is an interesting divergence almost in that you have some assets in Tunisia and others in Argentina, both of which are interesting places to work. What are your thoughts on Tunisia?
R.S: Tunisia is a good place for us to work because the Ghadames basin is one of the most prolific oil and gas basins in the world. Due to our past business relationships Madalena was invited to participate in exploring two large leases, one onshore the other offshore with a quality operator and at an interest level commensurate with our financial ability. In addition, oil production in Tunisia has fallen short of its consumption, providing a ready made market. Tunisia possesses a legislative framework that is friendly to investors. There are numerous farming opportunities available in Tunisia, the profit margins are good, and the State-run oil company ETAP is one of the most progressive in Africa working with foreign companies. Tunisia’s location on the Mediterranean provides access by proximity to the important markets in the European Union.
D.P: I guess we should mention first of all, that you are waiting for results on your drilling in Tunisia and it is expected in the next few weeks. Is that correct?
R.S: Yes. We drilled our first well in Tunisia that spudded at the end of March. The TT-2 well is located on the Sud Remada land block that has 1.2 million gross acres onshore, adjacent to the Libyan border. Jointly with our partners we ran a new 2D seismic program on the block during 2007, and our interpretation of the seismic identified several anomalies on the block. The drilled anomaly has an arial extent of about 70 square kilometers as defined by the seismic. Our expectation of encountering a thick Ordovician section was proved up in the TT-2 well. The well has been cased after obtaining a core on the Ordovician that recovered predominantly sand from approximately 150 feet of interval. The next phase of the operation is to conduct the completion and testing program in an effort to determine the productivity and commerciality of the discovery.
D.P: What is it that you are hoping for?
R.S: In this region, in similar Ordovician gas sections, bearing in mind we are typically dealing with liquid-rich reservoirs, the general deliverability is in the 5 to 10 mmcfd of natural gas with liquid rates at or above 100 barrels per million cubic feet. So that is my expectation given that we get a successful completion and the reservoir quality away from the wellbore matches these analogus fields.
D.P: And you expect results how soon?
R.S: We need to get the final core analysis to determine all of the constituents within the reservoir, the actual rock fabric. We require the analysis to facilitate the completion programming. It is imperative to ensure that our completion fluids stimulate the well so as not to create a permeability block. The analysis will take another three to four weeks followed by three to four weeks of completion operations. So, we are looking at least two months before there is quality information available for the marketplace.
D.P: Now much of the future of the Company though is based in South America and with all the successes in Colombia and elsewhere, Argentina is also attracting a lot of attention. How about some background on Argentina and suddenly there are an awful lot of Canadian companies heading there?
R.S: Argentina has 2.5 billion barrels of proved oil reserves and that’s up 13% year over year. Argentina also ranks third in oil production and fourth in oil reserves in all of South America and first in gas production. I am not sure many investors know that. Argentina possesses a friendly government to foreign investment and offers very competitive royalty rates. The royalty rates typically run between 12 and 15%. This positive economic climate with a friendly stable government makes Argentina a good place for Madalena to explore. In addition our management team has extensive experience working in Argentina.
The Argentine government recently increased gas pricing on new discoveries, matching the import commodity pricing from Bolivia, which is currently north of $6.00 BTU’s. Madalena has acquired three prospective blocks, comprised of 278,000 gross acres in the Neuquen Province, which is a very prolific producing area in Argentina. The Company also has acquired an extensive amount of seismic and is currently running additional 3D seismic to help identify addition drilling prospects.
The three prospective blocks held by the Company are surrounded by existing producing oil and gas fields that produce anywhere from a million barrels per pool to over a billion barrels per field. The proximity of some of these fields can be viewed on Madalena’s web site: www.madalena-ventures.com.
D.P: Those are huge numbers!
R.S: Those are huge numbers and we have an average 70% majority ownership in the three blocks. That’s why Argentina is so impactful to Madalena and its shareholders.
D.P: Getting equipment down there still is a bit of a problem, correct?
R.S: Well it is a bit of a problem because the basin is very large, that alone stretches the limits of accessibility on short notice. The nice thing about the Neuquen basin is that it produces about 280,000 barrels a day and over 3 billion cubic feet of gas. It has an extensive pipeline and facility infrastructure, and has a highly developed service industry. This week for example, we are moving a wireline unit on two separate wells on the Curamhuele Block. These wells existed when the Company acquired the lease. One well tested oil at just under 150 barrels a day on a short test, while the other one tested at 10 mmcfd with 500 barrels a day of condensate from a lower zone. So we are going back in to test the wells and obtain pressure data in an effort to determine if the wells can produce with minimal investment by Madalena, and provide us with additional information that will enable us to effectively drill more locations we have already identified based on existing seismic and geologic studies. The wells also provide a tremendous lead to tie our new upcoming seismic program too. Modern 3D seismic will help define potential pool extension and pinpoint future drilling locations to extend those pools. Bottom line is Madalena has a quality land base, at a high working interest that is surrounded by prolific oil and gas fields, and we have leads that show the presents of hydrocarbon on the blocks.
D.P: Now two years from now, what kind of production numbers would you dream of being at?
R.S: It is to early in the program to color production numbers. After Madalena has successfully drilled new pools on our acreage we will be in a position to prognosticate development production levels. Anything earlier is little more than a dream.
On the Coiron block the Company has in excess of 340 square km of 3D seismic and has identified eight anomalies in this prolific oil area. Our plan is to drill the first two of those anomalies in the mid-summer – July/August window, contingent on Madalena and partners receiving government approvals and obtain services of a drilling rig.
D.P: If there is one negative, it’s that Madalena is starting with 100 million shares outstanding and is going to have to raise money down the road.
R.S: As typically seen with rejuvenating existing companies the initial equity is raised at values that results in higher outstanding fully diluted share numbers. However, the size of the prize in the international arena and certainly in Tunisia and Argentina is impactful even with 100 million shares outstanding. A net 20 million barrel pool with a $30 netback yields $600 million for the Company. Even with the additional capital to develop these pools there is a significant increase in value per share to the Madalena shareholders.
D.P: Now one question we always ask in interviews like this, if you could only buy one stock, other than you own, what would it be?
R.S: The stock I would pick would be Profound Energy in Calgary. I think they have an outstanding management group that’s showing finding and developing costs down in the $11.00 window and with today’s commodity prices, I think that will yield a recycle ratio of about three. The Company has a good management team and with their current land position in Western Canada they have significant growth potential.
D.P: One last question, what are your thoughts on oil and gas prices at this time?
R.S: I have always been one of the people who is very bullish. I firmly believe that oil in the next 18 months will see $200 a barrel and as a result of that, plus the continuing decline in natural gas production in North America coupled with world-wide demand growth for natural gas, I think we are going to see natural gas in the $20 per mcf window.
D.P: That’s going to hurt the whole economy isn’t it?
R.S: It will have some effect. The North American economy is so diverse and energy spending is such a small component of the GDP I think the effects will be minimal. On the citizen level, $125 oil hasn’t prompted a move away from SUV’s, $200 oil might.
D.P: Thank you very much!
_____________________________________________________________________________________________________________________________________
David Pescod's Late Edition May 29, 2008
We all know Josef Schachter follows Oilexco, so we thought we would send out his most recent publication on Oilexco for today’s Late Edition:
I am unable to post this issue – it won’t copy and paste.
For a copy of Josef Schachter’s Oilexco report, email debbie_lewis@canaccord.com and ask for a copy of Late Edition May 29, 2008.
_____________________________________________________________________________________________________________________________________
David Pescod's Late Edition May 30, 2008
AN INTERVIEW WITH RICHARD FINDLEY,
CHAIRMAN, RYLAND OIL CORPORATION
(As of May 19, 2008)
We are glad to be with Richard Findley who has had quite a history in the Bakken and of course these days, the Bakken seems to be the one thing people are talking about in North America, particularly in Montana, North Dakota and Saskatchewan.
David Pescod: So if we could have first of all, a little bit of background about your personal history with Bakken plays south of the border, and also what exactly is a Bakken play?
Richard Findley: The Bakken is a geological formation, it’s a mappable unit. The Bakken is composed of three members or layers- an upper shale and lower shale that are both world-class source rocks in that that they have the ability to generate very large volumes of oil. The third member is the middle member and the middle member generally does not have great porosity or storage capacity. We encountered an unusual situation in Elm Coulee in eastern Montana in 1996 while drilling to a deeper objective. We encountered porosity that was filled with hydrocarbons from the adjacent world class source rock. It’s an unconventional reservoir in that it’s very low permeability. No one would have believed back in 1996 that you could produce oil from these very low permeable formations. What I mean by permeability is the capacity for oil to flow or to move within that storage capacity. That’s what makes it unconventional. Originally we were drilling vertical wells, and during that time we had a very precipitous drop in oil prices; but knowing that we had a very large regional accumulation, Lyco, the company that I had sold the Bakken play to back in 1996, and Halliburton and in particular Tom Lantz, who was then with Halliburton and is now our Executive Vice President, Engineering with Ryland, looked at the feasibility of drilling horizontally in the Middle Member. They realized because of its low flow capacity, that it required fracture stimulation in order to make the wells economic and that was cutting-edge technology back then. No one was fracture stimulating horizontal wells.
So Tom Lantz and Halliburton developed the combined technology and the result made the play economic. Elm Coulee is expected to produce anywhere from 300 million to 500 million barrels.
D.P: Is that the play that got you the “Outstanding Explorer of the Year” award?
R.F: That’s correct. It was the American Association of Petroleum Geologists award in 2006. I was quite honored.
D.P: It’s nice to get a pat on the back, particularly after the ugliness of those low oil prices.
R.F: Exactly. There was a play in the Bakken early on and it had been productive scattered across the basin but was very marginal. It was really not considered a primary objective, so before we made the Elm Coulee discovery, it was really considered a four-letter word. As of result of that, people are trying to extend the play into North Dakota and, as you are aware, View Field is probably one of the most active plays , if not the most active play in Saskatchewan or Canada. It certainly has created a world-wide frenzy. In my travels to Europe it seems all anybody can think about is to be in the Bakken play in Montana, North Dakota and Canada.
D.P: Getting to Saskatchewan, Ryland is an interesting company in that there are so many shares outstanding and so very little production. So what is it that’s creating the excitement?
R.F: If you take a look at the location of our acreage position surrounded by ViewField, the big Parshall discovery in North Dakota by EOG and Elm Coulee, it appears that we are surrounded by this frenzy of activity. Our acreage position is also adjacent to Bakken production. I think the perception is that our 300,000 acres must be well located for exploration in the Bakken. I think people are looking for a pure Bakken play – so I believe that what it is that has created this frenzy.
D.P: Now the first five wells – we haven’t really heard too many details so far, so can you give us an idea of what to expect on those 300,000 acres?
R.F: We have been operating below the radar screen. We have developed a very large regional concept of potential production and as a result of that, we had to acquire our acreage over a number of lease sales and so we had to keep it quiet. We were successful in acquiring that acreage, but our first five wells (because of its location) required a lot of science. We had to actually do a lot of coring and a lot of specialized testing in order to determine the potential on our acreage and as a result of that, we identified multiple zones that we feel have potential. We actually had to create our own data base. The formations we have been looking at have not really been the focus of industry attention, so we had to get a lot of specialized data along our 80+ mile long trend and we were successful in doing that.
D.P: You also maintain that it’s not just the Bakken you are interested in, in this land holding.
R.F: I think anybody that’s playing the Williston Basin recognizes its multi-pay potential. You have the deeper objectives in the Red River, there are also several zones in the Devonian that have very good production potential, there’s the Bakken and there are shallower zones that we also recognize as having potential. We are really looking at this site not any differently than you would look at any play in the Williston Basin. You need to focus on the multi-pays that are available to you and that’s what we are doing. We are however thinking big and focusing on the more unconventional reservoirs like Elm Coulee.
D.P: Three hundred thousand acres…that means you could have an awful lot of drilling for the next couple of years, if not decades.
R.F: That’s exactly right. We would anticipate very shortly going into a very major, multi-rig development program.
D.P: Are you fully funded for all that?
R.F: We are fully funded to continue developing the potential of our position at least until the end of this year, if not beyond and I think it is also clear that we intend to be a very large oil company. As a result, we probably will need to do additional financings, but it’s not clear to me what the timing of that is yet.
D.P: There are some pretty big numbers already applied for Ryland right now, very early in its existence. A cynic might ask, look at this company, with these many shares outstanding and almost zero production, is this not just another Vancouver promotion?
R.F: Why don’t you just value Ryland based on its acreage holdings by looking at the last several lease sales and offerings in southeastern Saskatchewan. You have to understand that we put our position together for an average of $71 an acre. If you take a look at the pricing frenzy that has gone on (and I think primarily as a result of the Bakken) right in our area, you can see acres that have gone for as high as $885 per acre. The low was probably $100, but that was several offerings ago. Average costs per acre for comparable acreage being paid is quite high and if you multiply some of those numbers, times our 300,000 acres, you can probably justify much of the price just on the value of the acreage alone. We are in an enviable position with a large acreage position in probably one of the hottest plays in the world.
D.P: Do you have some goals down the road as to what kind of production you might actually have a year or two down the road to give a shareholder a little bit of handholding?
R.F: Yes. We have to use the analogy of Elm Coulee and the importance of Elm Coulee is that’s it an analogy to produce oil from unconventional reservoirs very economically. We can go back and take a look at the potential economics of the Elm Coulee and that analogy so I think it’s fair to say that that certainly is our goal - to develop economics similar to those kinds of numbers. Quite frankly we think Elm Coulee is small compared to the potential of Ryland.
D.P: Any idea how many wells you hope to drill this year?
R.F: This year probably on the order of 12 wells before the end of the year.
D.P: That sounds small for a company with 150 million shares outstanding.
R.F: We are still on the learning curve. I think it’s important to understand how long these learning curves are. In order to develop the potential types of economics at Elm Coulee we now have, that’s a minimum of five years. In fact Tom Lantz, our VP Exploration, will tell you that it took the first 18 wells before they really had a good handle on things at Elm Coulee. If you take a look at what our competition did, by doing nothing more than bringing in the same Middle Bakken formation, using the same technology as we used on Elm Coulee, it took another three years before they were able to make that economic. So these learning curves are quite substantial. I believe that we are a very long way up that learning curve, but we still have additional work to do. So, we want to be careful and not put the cart before the horse. We want to make sure that we really understand fully what we are doing and identify which of the multiple plays we want to be concentrating on. I think what we can say is that our expectation is that these wells that we are getting ready to drill are really transitioning from learning the science into the production mode. We hope to be very shortly be entering that type of mode. But we need to do some confirmation drilling and that’s going to occur probably the latter part of June. Once we start confirming some of these concepts then it’s our hope these wells that we will be drilling the remainder of the year will be classified as a development program. If we have some success with our confirmation wells, we will be ramping up and will be putting on multiple rigs before the end of the year and continue to ramp up in the following year.
D.P: So there still is a little bit of speculation here. In other words, it’s not good for Grandma Pescod to buy a few shares?
R.F: I would say that we still have some learning to do and as I said, we are well down that curve. I think if you take a look at the people involved in our play and look at the management that we have, I think you will have great confidence that we are going to get down that learning curve. How I would view lower risk is certainly different from what Grandma would consider lower risk.
D.P: You have experience now in both Canada and the United States. What is the biggest difference in the oil business?
R.F: I think the main difference is the ability to acquire acres in Canada compared to the U.S. It is quite a positive thing, particularly on a play that you may have some unique thinking about and you can get ahead of the curve. You can put together very large blocks of acres in a short period of time. We were able to accumulate our 300,000 acres in the order of eight months. That would be a very difficult thing to do in the U.S. where we are dealing primarily with fee acreage, or what you call free hold in Canada. It’s owned by private individuals, so you have to go and knock on the doors of the farmers and ranchers and negotiate individual leases. Sometimes and quite often, these mineral rights are split between numerous people - ten or 12 is not uncommon. The ability to acquire acres is a great thing about Canada. The regulatory requirements are also quite different. We obviously need to have engineering confirmation of our numbers that we put out, but the 51-101 report requirements are something that we are not used to. But it is certainly a good thing to have that kind of oversight on the industry, particularly in light with what’s gone on with Enron and some of these other major disasters over the last few years. I think the geology is quite similar; in fact it’s great for a guy like me that’s always been wanting to work for years using a cross-border strategy. The things we do down here in the U.S. are a little different than what you do up there, exploration wise and vice versa, so it’s a really great opportunity to take different types of thinking across the border.
D.P: I guess there is one thing we have to find out about your crystal ball and that is the price of oil and gas. We are currently looking at prices that six months ago we would have never dreamed possible. Where do you see oil and gas prices going from here?
R.F: I think you have to separate out the short-term versus the long-term. In the short-term I’m just not going to be surprised if we don’t have some spikes in the downward trend. I’m certainly not basing my long-term decisions on the pricing that we’re dealing with today. I think we need to take a look at some lower pricings to make sure that our plays work. However, if you take a look at the long-term fundamentals, I just don’t see how we cannot be dealing with the higher pricing we are dealing with today. Is it going to go higher? There are a lot of people that believe so. I think, however, if you take a look at the peak theory, and you take a look at the last two years of our international curve we’ve been flat. I think the only way that we are really going to know if oil is at the peak will be by looking back (say for three years) like we had to do in the lower 48 back in the 70s. I think it’s clear that if we are not at the peak, we are certainly very near the plateau of it. If that were to occur, it’s reasonable to expect the oil tankers to be sitting out in the middle of the ocean waiting on orders to see who is willing to pay the higher price – that’s where that tanker is going to go. I have to say for the long-term we are looking at higher prices.
D.P: One last question we always end our interviews with, if you could only buy one stock other than your own, what would it be? And of course, we would be looking for a double….
R.F: I have to say there is a neat company just coming out called Next Millennium - It’s a company that’s making some similar acquisitions to Ryland and looking for unconventional reservoirs. These unconventional reservoirs are not unique to the Bakken and not unique to the Williston Basin as they occur world-wide, so we’ve been able to focus on those kinds of things. I think Next Millennium is a company that has that kind of similar attitude and focus and I would look to them to have some high potential in the future.
D.P: Thank you very much Richard! |
