If it is true, Bidding On Bay Street (BBS) believes the best speculative play here is PYR Energy, which has been largely ignored in recent Canadian reports on East Lost Hills.
URL: biddingonbaystreet.com
The following is a copy of a report BBS sent to readers before Christmas:
*BAY $TREET BYTE$* December 16: PYR ENERGY / EAST LOST HILLS
Markets for small issues continue to be soft and we are seeing last minute tax-loss selling. My parting gift will be a brief look at a highly speculative gas/oil play in California. Please pay attention to the risks involved in what is still, for the moment, an 'all or nothing' play. Since prices have already risen for many of the companies involved, prudence would suggest waiting for results from the site before investing. Management at PYR Energy is not hyping the play and states no conclusions can be drawn one way or the other at this time. There is excellent information being provided expeditiously on a number of Internet sites.
PYR ENERGY (PYRX,OTC BB:$2.75)
INVESTMENT HIGHLIGHTS:
** Dramatic blowout in California has brought instant visibility to a
potential "monster" oil/gas discovery in the East Lost Hills of the San Joaquin Basin. The U.S. and Canada are following this exploration play with great interest.
** Short term, there is a strong likelihood flow rates will be measured and reported by the end of this week or early next week. Depending upon the results, this could provide some additional excitement to the play. The planned relief well will be spud today, if not already in progress, and is expected to take 45 days to reach the existing well.
** The San Joaquin Basin of California has already proven to be one of the most productive hydrocarbon producing basins in the continental United States (and the world), producing over 12.7 Billion BOE and containing 25 fields classified as "Giant" & 6 of the 25 largest oilfields in the U.S.
75% of California's total oil & gas production comes from here. On a per square mile basis and when combined with the LA Basin, it is the world's most productive areas.
** Until now the Basin has suffered from a lack of applied exploration and deep drilling. PYRX, whose major strength is its technical expertise, is the company which identified and negotiated exclusive assess to the East Lost hills exploration play and two others in the southern San Joaquin basin.
** PYRX received cash and "a carried 6.475% working interest through the tanks" and owns an additional 4.1% working interest or 10.575% and 9.253% before & after payout.
** Based on extensive analysis of the area, the companies drilling the Lost Hills well believe there is a major reserve of light oil and natural gas more than 17,000 feet underground. "Reserve potential, based on the pre-drill structural interpretation, could be as large as 1.2 billion BOE."
(Eland Jennings report). Because of the blowout "it's obvious there is at least some concentration of hydrocarbons; the well burned fiercely for more than two weeks before underground water eventually won out and the flame died ..." (Bakersfield Californian).
** Should East Lost Hills prove to be a major discovery, it will also prove the ability of PYRX to identify major deep reservoirs in the region and increase interest in the company's two other high potential exploration plays. If an area play ensues, there is a very good chance PYRX already has exclusive access to the best areas.
** PYRX appears to be the best purely speculative company involved in the East Lost Hills play. In the event of a successful discovery, PYRX has the advantage of being a US company, trading in the US, with excellent leverage to future production on this project and a head-start in further deep exploration in any ensuing land/area play in the San Joaquin Basin.
EAST LOST HILLS - FOUND?
Most readers will have at least heard by now of the blowout well in
California that burned for almost two weeks and 'sparked' speculation in all the publicly trading companies involved in the play. A big discovery in the resource field does not happen every day, and when it does it tends to wake up the whole market and can be fascinating to follow.
My original decision to publish BBS was in the spring of 1995 was based on a recognition that there was a good chance Diamond Fields resources had made an 'elephant' nickel discovery in Labrador. If so, there would be an 'area play' in which companies staking claims in the area would provide significant speculative returns to investors in early. In an area play, I always recommend holding the company with the proven discovery and taking early profits on a basket of 'satellite' firms.
WILDCATTING
The Lost East Hills project is a little different in that there are several companies with an interest in the same project and if successful, the discovery could be a 'company-maker' for each of the smaller firms. It would likely also precipitate a 'land' or 'area' play. Bob Christie, Business Editor of the Bakersfield Californian says just on the basis of a possible big discovery here "you'd better believe that everyone with a pile of deep oil leases and seismic data is brushing the dust off their stashes.
Land agents are scurrying to nail down deals. Geologists are getting calls and executives are doing risk analyses."
"If the Lost Hills wildcatters prove they have a big find on their hands, a whole new round of deep exploration could begin. As many companies who have invested in the well are quick to point out, Kern County sits in one of the most lucrative oil-producing areas in the United States. Within the county are four fields that have produced more than a billion barrels of oil and dozens of lesser — but still major — oil fields. Nowhere else in the nation is so much oil concentrated in such a small area. It comes as no surprise
that there may be more oil here. All the geologic elements are in place ...
For the next several months, the collective breath of local industry
watchers will be held. If the new well comes in big, be prepared to grab hold and go along for the ride." (December 14)
In assessing the value of any of the players involved on an % interest /shares outstanding / current share price basis, keep in mind that exploration and development will be expensive. Most players will have to raise financing should initial exploration continue to look promising and some dilution can be expected. Excessive volatility could result from the usual game-playing, particularly on Canadian exchanges.
The speculative excitement surrounding the Lost East Hills project could end abruptly with any definitive bad news. Most likely it will be several months before the operators have enough information to predict some likelihood of success here. The excitement will wax and wane with each piece of new information or rumour.
HIGH RISK SPECULATION
Over two months ago a U.S. company named PYR Energy (PYRX,NASDAQ BB: $2.63) was brought to my attention by a trusted contact in the Oil & Gas industry.
He described PYR's involvement in a project with extreme high risk but
"monster potential" if successful. It was too risky at that time to bring to BBS reader's attention but the information on PYR's approach to oil exploration was certainly interesting. In order to spread the risk and the cost of this project, an exploration agreement was signed with several Canadian partners, the largest being Berkley Petroleum and Paramount Resources. Elk Point Resources through subsidiary Bellevue, is operator.
This project remains very high risk and the stock prices of most of the companies involved are already reflecting greater interest due to media coverage of the blowout. One should only invest money one can afford to lose on such a play; or choose one of the more conservative players which looks undervalued on the basis of its already proven reserves; or wait until exploration results tip the scales in a positive direction.
For several different reasons I find PYRX by far the most interesting of the highly speculative juniors involved, but it is not well followed by the Canadian analysts - in fact it has been omitted from several research papers written thus far. The fact that research reports have already been published by a number of brokerage analysts in Canada suggests this play is at least worth watching. So far reports have been fired off from Nesbitt Burns, First Energy Capital Corp.,Yorkton Securities (2), Research Capital
(2), Pacific International Securities Inc., Cannacord.
FOLLOWING THE PLAY
The best internet sites for information at the moment are:
** <www.bakersfield.com> (click on East Lost Hills fire); excellent
credible coverage, on almost a daily basis. The most recent article
contains a link to a diagram of the relief well being drilled which is a great help in picturing the whole current setup.
** <http://www.elandjennings.com/>: provides copies of all the recent
research reports. Pay attention to the sections on risk.
** SI:KOB: <https://www.siliconinvestor.com/subject.aspx?subjectid=10357>: where news releases and pertinent information from other sites usually will be posted.
PYRX: THE COMPANY
Reading:
1) Annual Report: <http://sec.yahoo.com/e/981204/pyrx.html>
2) Denver Business Journal Article:
<www.amcity.com/denver/stories/041398/story6.html>
If PYRX is successful in the achieving commercial production of hydrocarbons from deep, complex, unexplored reservoirs in the San Joaquin basin it will be largely due to the application of advanced exploration technologies.
PYR Energy was founded in 1996 by Scott Singdahlsen, a 3-D consultant who decided to begin using his technological expertise to find oil and gas for his own exploration and development company instead of for others. "PYR applies advanced 3-D seismic and computer-aided exploration technologies to systematically explore for and exploit onshore oil and natural gas accumulations in the western United States."
PYRX' (as yet unproven) competitive advantage in under-explored territory is clearly its technical strength. The company has assembled a "technically experienced staff of in-house geologists and geophysicists with extensive experience involving the utilization of advanced seismic data imaging and analysis" and "has had past exposure to more than 100 3-D seismic projects covering approx. 1,500 square miles in diverse geologic trends throughout the world ... The company also has access, both in-house and through consultants, to state-of-the-art exploration hardware and software applications. The Company owns one computer aided exploration workstation
running the full suite of GeoGraphix geologic mapping and analysis software. Additionally, the Company owns one geophysical workstation employing SeisX 2-D and 3-D seismic interpretation and analysis software. Through a strategic alliance with a Denver-based 3-D seismic consulting firm (Interactive Earth Sciences Corporation), the Company has full access to multiple UNIX-based seismic interpretation workstations running the complete Schlumberger/GeoQuest seismic analysis software package. Through this relationship, the Company also has full access to GMA seismic modeling software as well as Paradigm Geophysical's GeoDepth pre-stack depth migration software package."
PYRX has a lease agreement with Chevron "for exclusive exploration rights to 100 square miles adjacent to Chevron's Midway/Sunset field, which produces more than 165,000 barrels of oil daily ... the company's leasehold position is surrounded on three sides by ongoing production ...about six miles
southeast of Elk Hills, which the government recently sold to Occidental Petroleum for $3.65 billion." (Paula Aven, Denver Bus. Journal, April '98)
THE UPCOMING YEAR
It should be a very busy year for PYR Energy, both in East Lost Hills and in other areas of exploration. The company anticipates the drilling of at least two additional exploratory wells during 1999. The annual report contains a good description of all PYRX' ongoing exploration projects.
PURE SPECULATION
PYRX currently has no oil or gas production and no booked reserves.
Near-term reserve additions will only result from successful exploration efforts. The company was able to assemble a group of companies to share the risk/cost/potential returns in East Lost Hills. It should be equally successful in doing the same for the other two large exploration areas in the San Joaquin basin, particularly if news from East Lost Hills is positive.
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