this is probably more what you are looking forGreater San Joaquin Joint Venture Update Jeff Fiell (403) 508-3860
* Stocks of the participants in the Greater San Joaquin joint venture
were up yesterday on news that the Cal Canal prospect reached the top
of the targeted Temblor formation. The participants' stocks were up
yesterday as follows: BKP +3.2%, ELK +4.5%, WML +6.7%, POU +3.6%, HTP
14.8%, KOB +4.3%, RLP +4.9%, TMK +24.9%, IE +7.1%.
* In the event that the Cal Canal prospect is successful (i.e., trap,
charge, porosity, permeability, and thickness are proved), the
prospect called "Lucky Dog" would undoubtedly be successful as well,
since Lucky Dog is part of the same structure as Cal Canal. Prospect
size at Cal Canal is thought to be in the 3.0 tcfe range, while Lucky
Dog is thought to be in the 11.0 tcfe range. Note that, as a rule of
thumb, 1.0 bcf is worth about $1.0 million, therefore 1.0 tcf is worth
1.0 billion. If 10.0 tcf is eventually proved, Hilton, for instance,
would theoretically be worth $10.0 billion times 11%/34 million shares
or about $37.00/share in asset value, but that doesn't necessarily
mean these companies would trade to that level.
* At Cal Canal, drilling operations ceased at about 14,000 feet due to
increased gas shows in the mud plus indications that the bit was right
over-top of the Temblor formation. The joint venture decided to cease
drilling operations to ensure all aspects of the rig system were
reservoir-ready. So yesterday, the JV pressure tested the 16,000 psi
blow-out preventors, tripped back to change the bit, and ensured the
oil-based mud composition was optimal. Drilling should recommence
today into the target zone. Indications so far are that the mud
became more and more gas saturated the deeper the well was drilled, to
a level referred to as "40 units". This means that if the mud
hydrocarbons were originally calibrated to one unit, there would be 40
times the hydrocarbons now present in the mud. It is unclear if the
JV calibrated the mud to one, 10, or 20 units, so the fact that 40
units were recorded means very little in the absence of the original
calibration. In any event, indications of vertical shale fracturing
and gas shows in the mud are very encouraging, and the JV is preparing
to drill what they believe to be an over-pressured gas reservoir.
Drilling operations will probably be slow, perhaps two feet per hour
to ensure proper mud circulation, and we would therefore not expect
total depth to be reached for at least 40 days.
While the East Lost Hills blowout proved the JV's geological
interpretation of the deeper San Joaquin fault, fold and trap system,
plus removed a great deal of risk in the project, we continue to point
out that this deep gas exploration program remains highly speculative
in nature and subject to possible disappointment. Until further
drilling and engineering operations are complete, stocks of the JV
will continue to be subject to high volatility and speculation.
* Berkley appears to be the most undervalued San Joaquin participant
right now. If we assume Hilton, which is a pure play on East Lost
Hills, contains a representational amount of speculative value, on a
share outstanding and working interest adjusted basis, Berkley would
have about $5.80 of San Joaquin speculation built into its current
price. If we factor out the $5.80 from Berkley's current price, a
8.85 Berkley stock without East Lost Hills would be implied, and that
would be less than 4.0 times our 2000 cash flow per share projection
which doesn't include any potential cash flow from East Lost Hills).
Clearly, Berkley does not have as much speculation built into its
current stock price as the other participants and that it also has
excellent downside protection in the event Cal Canal is a dry hole.
As a result, we will be issuing a report on Berkley in the next few
days with a positive recommendation and target price. There is also
speculation built into Westminster's current price with respect to a
potential corporate acquisition. The "scuttlebutt" is that Berkley
would likely be the acquirer but having recently met with both
companies, we dismiss that rumour as hearsay and without merit. |
