₪ David Pescod's Late Edition March 7, 2008
RESULT ENERGY (V-RTE) $0.55 +0.04
It was a good day last week to be visiting with Bill
Matheson, the head honcho at Result Energy. He was still a
little bit cranky as many people in the natural gas business
are still suffering a bit from increase in royalties here in
Alberta plus the high Canadian dollar, but who would have
thought a while ago we would be seeing 2-year highs in the
prices for natural gas? There might be light in the sector
after all.
When it gets to politics though, we suspect Matheson
(in fact we know Matheson) didn’t bless the Conservatives
with his vote. He is one of the Calgary oil men that was so
shocked with increase in royalties that his loyalties have
gone elsewhere quickly.
He opened our eyes with the explanation that some of
the debenture holders in Result Energy from offshore said
simply I want out of Alberta and out of Canada...period.
And weren’t looking to wrangle or anything. They just
wanted out. Matheson says, “Heck...the same thing is happening
on Bay Street” where suddenly people are worrying
about Alberta.
“The other things to be happy about in the oil patch
these days” Matheson says, “are some of the economics
are suddenly getting a lot better.” First of all, rigs are definitely
available and more importantly, good crews to run
them are suddenly available. A double rig that was up to
$17,000 a day, now can be had for $9000 and a five-day well
more importantly, now takes five days to drill rather than
the seven or nine that a crew with less experience might
take.
Another plus in the gas patch these days is with the big
companies like Encana, CNQ and others, suddenly deciding
to leave the Province, if the little company wanted some
land, suddenly there is land available...and for a very small
fraction of what it used to be. The Province’s attempt to
increase royalty income has back-fired, big time.
But take a look at the chart on Result at the left over the
two-year term, it shows you what many other natural gas
companies have done and it doesn’t matter whether it’s
been itty-bitty Result Energy or biggies like True Energy
Trust. If you were mainly gas, you’ve seen your stock hammered.
In Result’s case, from $1.50 over two years, down
to $0.30 plus. While a company like True has slipped from
$20 to as little as $3.00 just a while ago.
Now the vast majority of natural gas stocks have put in
bottoms and meanwhile, south of the border in the United
States, the natural gas index is now flirting with all-time
highs.
We are going into spring when oil and gas prices traditionally
sell off, but isn’t something you can count on and
also, how much could natural gas prices drop off as there
still is lots of gas in inventory, although Canada is producing
ever-less?!
Result is now taking some rather drastic changes to
change the company as they are selling off some of their
Saskatchewan assets to pay off most of their $15 million
in debt and looking to swing for the fences. Matheson had
been complaining that Result was only being valued at
roughly $15,000 for flowing barrel equivalent, but their
assets in Saskatchewan were getting more than triple that,
so it’s being sold.
Meanwhile, the small company that has been growing
20% to 50% quarterly over the last two years (although its
stock was going the other way) will be back from 1400
barrels equivalent to 1000 barrels. And then as we said,
they start swinging for the fences.
In the case of Result, it is centered on some of the big
announcements that were released over the last week keying
on a remote area of Northeastern BC referred to as the
Horn River Basin. What created the excitement was Houston-
based EOG Resources said it might have reserves of
up to six trillion cubic feet. And according to a Globe and
Mail article, that would equate to the same as the
McKenzie/Delta, the NWT and a number that would increase
all of Canada’s reserves by an incredible, 10%.
The suggestion by the Globe and Mail is also that
Apache, may also have six trillion cubic feet of gas.
It was Apache and partners that first brought attention
to this play by announcing huge purchases of land in the
Horn River Basin that totaled $325 million and shook the
industry. With the better royalty structure in BC and the
availability of rigs, one suspects this is going be become a
very busy place and little Result Energy has decided they
are going to be there.
After having heard rumors about the area, Matheson’s
Result Energy has picked up 40 sections of land in the
area to date and hopes to have as much as 80. What’s he
going to do with it?
Matheson says boldly, “We hope to find $50 million to
develop and create value of 800 million to a billion over
the next three winters.” How he is going to do that is still
very much open to debate, but the junior, at a big guys
game, is looking at possibilities of joint ventures and other
methods of raising the $50 million they will need down the
road.
One thing to remember about the Horn River is that it’s
a relatively new discovery and not much is known about it.
It’s also assumed that this is going to be a high cost area
for the shale-gas-like play and wells in the Horn River are
expensive at roughly $10 million a hole.
An analyst at RBC Dominion is being quoted as suggesting
they actually may need as much as $8.00 an mcf
for long-term gas to make it economical.
Matheson also reminds us that there are problems
working in this area of the world, first of which is seasonality.
You are in a muskeggy-type area and you need winter
conditions to work on, which is roughly three months
of the year. There are also native rights issues in the area,
gas processing infrastructure is needed and you are a
long way away from any services including frac fluid and
the like.
Matheson points out that most of Result’s land holdings
are very close to pipeline which is another key ingredient.
The chart again shows you how most gas companies
have faired over the last few years in Canada ... it’s been
brutal, but that might be changing and key numbers to be
watching are natural gas inventory mainly because of a
colder than normal winter and lower than expected Canadian
production.
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If you were looking for a great movie to take in over the
last while, then we would definitely recommend The
Bucket List.
It reminds me of some of the bad stock analysts out there
because the critics absolutely loathe this movie giving it
an average grade of D. Interestingly, you look at the fans
who saw the movie and they see it as an A or B.
No big surprise to the story line, as Morgan Freeman,
plays a mechanic who ends up in the hospital with the
guy that owns the hospital, a very rich Jack Nicholson
and both have a terminal illness. And the big question of
course, is what are all the things in life you want to experience
before you actually do “kick the bucket.”
While we have to admit that the audience we sat in with
had more than a little grey hair and the movie might appeal
to a certain mature element of the population but I
haven’t seen a movie in a long time that had this many
laugh out loud lines. Freeman and Nicholson are great
and I wonder if you will recognize Nicholson’s assistant.
Give it 8 1/2 stars, and because of the critics, its leaving
theatres quickly.
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