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Gold/Mining/Energy : Canadian Oil & Gas Companies -- Ignore unavailable to you. Want to Upgrade?

To: devtan who wrote (4887)	4/5/1998 9:32:00 AM
From: Taylorm.	Read Replies (3) \| Respond to of 24915

I hope Kerm or someone else can help me. I am sure it is here somewhere. Does anyone know where to go to find an easy set of rules to follow when looking at junior oil and gas stocks. Brian Fagan has a great one on "How much is that" for mining stocks and I was just wondering if there was such a thing for oil and gas . Also has anyone been following CVL Resources and their thoughts. Ted Carter{newsletter writer} is very high on this stock but it seems to be dropping from .90 to .70. Thank you

To: devtan who wrote (4887)	4/6/1998 12:32:00 PM
From: Kerm Yerman	Read Replies (1) \| Respond to of 24915

devtan / Enerchem Int'l Yes, I thought the numbers reported by the company were on target -although I was looking for more. I still believe we're looking at a $5.00+ stock come year end. Underbalanced Drilling Here is a January capsule report you have probably already seen, but some reading this might not have seen. U.D.S.L. Underbalanced Drilling an introduction to advanced drilling technology UDSL Underbalanced Drilling Services Ltd. (UDS-ASE) is a junior oil and gas industry service company engaged inthe business of manufacturing a nitrogen alternative through its unique "exhaust gas processing" technology.Understanding the service this company provides requires a short introduction to drilling mud technology. A well blowout occurs when natural gas or oil in the reservoir literally blows out of the well bore and into theatmosphere. To prevent this from happening, weighted drilling mud is circulated through the drill pipe at a pressure greater than what exists in the reservoir. This overbalanced mud is what prevents blowouts from occurring. Drilling mud is generally water based. Typically bentonite or polymers are added to the system, togive viscosity to the mud. Barite is generally added, to give the mud the necessary weight to keep thereservoir fluids from entering the well bore. The pressure of the mud system is directly related to the amountof barite added to the system and can therefore be controlled, depending on the reservoir pressure. Typical of a lot of old oil fields in the Western Canadian Sedimentary Basin, the reservoir pressure begins to decline as more and more wells are drilled. With the lower reservoir pressure, it becomes a problem when drilling mud invades the reservoir causing excessive formation damage. This damage can restrict production from the well. Quite often fields are abandoned with significant amounts of oil left behind. Underbalanced drilling, as the name implies, is the process of intentionally lowering the pressure of the mud system to simulate a controlled blowout. Special equipment is used to allow the reservoir fluids to escape the well bore in a controlled and safe manner. This process is a tried and tested procedure that has given old and declining oilfields a new lease on life. And more often than not more production for the oil and gas company. To lower the drilling mud pressure, nitrogen or a suitable non-combustible, non-corrosive alternative is injected into the drilling mud to lessen the mud weight and therefore lower the mud pressure to less than the existing reservoir pressure. While simple in principal, the process of manufacturing the volumes of nitrogen necessary to make the system work is very expensive. The expense is a major factor when evaluating the economics of recovering more production from a declining field. UDSL has developed and tested a procedure that can cut between 50% and 80% of the costs from existingn technologies. These costs represent a significant portion of the daily drilling costs. This cost saving is not only good for the oil company but such advancements in existing technology could have a dramatic impact on oil development programs, as more declining fields begin to look more profitable. Such economics plays a major roll when determining whether or not to continue to spend money on a property with declining production rates. This can especially be the case during periods of weak commodity prices What makes UDSL unique? Unlike cryogenically or membrane produced nitrogen, UDSL utilizes the exhaust gases from internal combustion engines. The end product of UDSL's technology is 87% nitrogen and 13% carbon dioxide. The same engines are used to power the compressors that bring the gas to the required pressure for injection into the well bore. The exhaust gas technology uses as much as 30 to 40% less horsepower than alternative on-site technologies. An added benefit for investors is the fact the UDSL is moving beyond the research and development phase of its business. The company has one unit completed that is currently earning revenue and another unit nearing completion. The company should have two more units completed and working in the field towards the end of the first quarter, 1998. Field- testing is nearing completion, with only minor modifications being required. Looking forward, management estimates that additional units will cost in the neighbourhood of $1.3 million with annual revenues approximating $1.1 million per year, per unit. This translates into a pre-tax and interest payout of a little under two years per unit. Based on a current share price of $2.75 and 10 million fully diluted shares outstanding, UDSL is trading at a market cap of approximately $27.5 million. The company has approximately $3.5 million in working capital that has been allocated towards the construction of more field units. What makes a company like UDSL so attractive is the potential market share for such technologies. It is estimated that in 1997 more than 2,000 horizontal wells will have been drilled in western Canada. This number is expected to grow continually over the foreseeable future. It is also estimated that up to 30% of these wells were drilled underbalanced. Assuming an average of 4 days underbalanced per well for each well drilled, a total of 2,400 days were spent drilling underbalanced. At an average cost of $30,000 per day the industry will have spent in the neighbourhood of $72 million, just drilling underbalanced. Assuming a conservative market share of 10%, UDSL could be exposed to a potential $7 million per year revenue flow. Purchasing shares in UDSL should be for investors comfortable with the risks of investing in a new service industry stock. The company must prove its ability to operate efficiently and profitably. UDSL will also be competing with well-established senior well servicing companies and will also be subjected to the cyclical nature of the oil and gas industry. On the other hand, with success, UDSL has the opportunity to capture significant market share. The company is well managed with several notable senior oil and gas professionals on the board of directors. Once fully operational, the company should generate significant after tax revenues. Over the next 2 years the company will be reinvesting cash flows into more equipment, at a rate dependent on equipment demand. This should also allow management the opportunity to control growth and maximize the return to shareholders. With increased field decline rates anticipated over the foreseeable future, UDSL is well positioned to take advantage of the potential increase in demand for its service and technology. Should this scenario unfold, UDSL has the makings of a profitable growth stock.