Canadian Insight

Canadian Insight

Online oil and gas magazine keeping investors informed ...

Updated on Friday, May 18, 2012

Another boost for oilsands development

The recent announcement by Texas based Kinder Morgan Energy has caught most everyone by surprise. Morgan plans to expand Trans Mountain pipeline. This will increase oil output from the oilsands by an additional 550,000 barrels per day into global oil markets.

Kinder Morgan Energy* has set plans to build an oil pipeline connecting the oilsands with marine facilities at Burnaby’s Westbridge Terminal. The expanded 1150 kilometer Trans Mountain pipeline would deliver 850,000 barrels of crude oil from Alberta to British Columbia’s west coast. It would be capable of sending enough oil to fill 30 oil tankers every month, mainly for the Asian markets.

The Texas Company has booked 660,000 barrels per day of oil market commitments for the next 20 years. Some of the oil from the pipeline will be consumed by the west coast markets including that of Vancouver and its surrounding area in British Columbia and the state of Washington.

Cost of the proposed expansion project is estimated at $5 billion. Kinder Morgan plans to have the pipeline operational by 2017.

The expanded Trans Mountain pipeline would be in direct competition with the already proposed Enbridge’s Northern Gateway pipeline.

The Enbridge pipeline is scheduled to be in operation by 2015 and will have similar capacity to that of the Kinder Morgan faculties. Public hearings for Northern Gateway are currently underway and expected to be completed by summer’s end. Federal government approval is expected in early 2013.

The completion of the expanded Trans Mountain pipeline and the Northern Gateway pipeline will give a significant boost to the development of the Alberta oilsands. It will offer an additional 1.7 million barrels per day of oil into new diverse markets.

By Allan Pierce

*Kinder Morgan Energy is an American pipeline transportation and energy storage company. KMP owns an interest in or operates approximately 29,000 miles of pipelines and 180 terminals. Company is also a provider of CO2 for enhanced oil recovery projects in North America. Its corporate offices are in Houston, Texas.

Honing an investor’s edge

Investing in the stock market today is not simple as in the past. The atmosphere is much different and markets more volatile. High potential companies are a rare find but…. there are still good performing companies. The single big issue is finding them; there is no easy way. It takes time and some serious digging.

Peter Lynch a famous investment manager summarized why most average investors fail in the stock market. “No wonder people make money in the real estate market and lose money in the stock market. They spend months on choosing their houses and minutes choosing their stocks.”

Lynch’s advice is now more pertinent than it ever was. There are many companies to choose from. A sprinkling of companies may be excellent performers. There are some that fall into the good category but there are also those still struggling to survive. A wrong pick can be a very costly decision and turn you off of the stock markets.

Do not rely on hot stock recommendations, be it a professional pick or someone you know unless you did a thorough research of the prospect. Be always on a look out, choose companies of interest, do a thorough research and you will succeed finding your own good picks.

It may be wise to get a notebook and jot down prospects that catch your eye. Keep your records handy and keep up with the updates. These may include notes on news releases or relevant articles. Write down the company’s symbol, stock price and from there keep a watchful eye. Do comprehensive research of the company if you feel it has potential.

Follow a potential investment as long as you feel necessary to get all your information and your confidence in the company. Look at the stock price history charts closely and find out why stock prices reacted suddenly. Find out the reason for its behavior, be it positive or negative.

Stay away from companies that are beginning, reveal little information, fudge their news or are in a sector that is difficult to understand. Check to see which exchange the stock is listed on and whether the company has had a suspension.

You should exercise caution and follow a routine of due diligence at every level to limit your risk. A history check of a company is imperative. Understanding the basics in reading financial reports cannot be overemphasized. Don’t handicap yourself by skipping vital financial information which shows corporate direction.

A company that continues to exhibit losses and high debt spells serious trouble. Always take into consideration the debt factor. Debt level determines whether a company will survive or sink into bankruptcy.

A company which rarely updates its operations for its investors may be deliberately hiding vital information from its stockholders. Beware of companies which use stock consolidation and name changes. There is usually a good reason for this tactic; in many cases, a company is diverting attention from a review by the stock exchange. Such a company may be in a bad financial situation and trying to stay afloat. It is really another way of postponing the inevitable insolvency.

A profitable company will buy back shares to increase stockholder’s value. Companies that frequently allocate large private or public placements and warrants are bound to bite the bullet. Placements are not always used for acquisitions or operations. Some companies in dire straits use this means for sustenance or for its immediate payroll. This adds no value to the company but merely devalues the company’s net worth.

A company which has a small number of shares is bound to have faster market performance than a company with countless loads of shares. Over stocked companies require high volume trading to move markets. Stock prices may be lethargic. Most inexperienced investors are attracted by their cheap shares and occasional high trading volumes. Beware as these trading volumes may be short term.

Company’s history in insider trading is important to examine and consider. Board members and employees will buy into a company during prosperity and sell off before a company enters troubling times. This is frequently a good indicator of the company’s health. Insiders are the first to be aware of any perils. They are also, the first to recognize potential success.

Contrary to most beliefs, an individual’s chances may be far superior to a commercial investment firm. You do not need a diversity of stocks in various sectors to succeed with your investments. Concentrate on a few successful companies rather than a hoard of potentials in various sectors.

Do not invest like an institution. It is much too difficult to be diverse. This will overburden your resources. Familiarizing yourself with many sectors is difficult and is a time consuming procedure. Keeping daily tabs may become overwhelming if you are tracking multiple sectors which are affected in many different ways.

A one or two day top gainer is not indicative of a good investment. Traders may be reacting to speculation or finding it an opportune time to sell. Some institutional investors dump their shares prior to dire company news. Occasional high trading volumes are acceptable but low trading volumes could spell trouble ahead. You may have difficulty in selling your shares should the need arise.

Reading news summaries is indeed helpful and keeps you informed. You can spot a potential winner by a company’s news releases, its increasing market capitalization and the numbers of outstanding shares. Frequent news means that it is concerned about their shareholders and keeps them informed.

Start a list of companies which you have found to be interesting and possibly have a potential. Keep track of these and watch their progress. A new company with high market activity is not necessarily a winner. Only time will tell how good of an investment this company will make... don’t rush into an unproven prodigy.

If you have found a possible investment, watch the market trading and who is buying and selling. Are the stock-trades mostly institutional, individual or a mix? There are times when companies have not been discovered and the trading is mostly individual. This may be a great investment to make before an institutional discovery is made and stocks make a big surge.

Investing in the oil industry is easy if you take the time to understand this industry. It is not difficult but it is easy to predict the general direction if you keep tab on oil prices, global demand and health of notable economies. Several isolated nations in financial trouble are not indicative of a global recession but if they are part of a larger union, the outcome may have large reverberations.

The more knowledge you gain, the more likely that you will succeed. Exercise care and caution; the stock market is not a casino – don’t take wild chances on the unknown. Reduce every possible risk and do not fall a victim of over confidence. Keep tabs on the company and the sector.

Remember, success is more than a matter of good luck; there is a lot of hard work behind it.

By J. Klemchuk

The Big Oil Crunch

Here is the proof that you should know if you are not convinced that peak oil is here now. Global oil shortages may be here sooner than you are led to believe.

Read the full power article and see the revealing ‘Peak Oil Chart’ on this page ‘Recognizing Peak Oil’ .

Did you know?

U.S. oil consumption has increased by 200% since 1960 and in the same time frame global oil consumption has increased by 410%. In 1960, U.S. oil consumption was 9.8 million barrels per day and in 2010; latest estimates indicate that U.S. is consuming 19.75 million barrels per day. According to U.S. Energy Information Administration, global oil consumption in 1960 was 21.34 million barrels per day.

Lower Shaunavon – Saskatchewan’s stealth oil play

Higher oil prices, smaller land base choice and overheated land sales in Alberta are driving back oil companies seeking highly prospective oil plays into Saskatchewan. Last three provincial land sales indicate that southern Saskatchewan and in particular lower Shaunavon is the prime choice.

The Shaunavon formation is composed of two members with different properties. Both members were formed in the Bathonian age and are situated in Western Canadian Sedimentary Basin. The upper unit is composed of sandstone, limestone or dolomite. The lower member is made up of microcrystalline limestone situated below sedimentary bedrock of oolite (egg stones).

The Shaunavon formation presently consists of 131 discovered oil pools and has a current assessment of 2 billion barrels of discovered oil in place. Canada’s National Energy Board estimates that there are an another 896 undiscovered oil pools and an additional 3.3 billion barrels of crude oil in place.

The lower Shaunavon member has an oil bearing zone at 4,388 feet or 1350 meters. The pay zone is from 13 feet (4 meters) to 52 feet (16 meters). Oil is rated as medium crude with gravity range of 18° to 22° API. Prior to introduction of horizontal drilling and multi-stage fracturing, this play was not an economical reservoir.

First discovered in 1953, lower Shaunavon formation now looks very promising with the event of advanced technology. A decade ago, a lower Shaunavon well averaged at 10 to 15 barrels per day of medium grade crude oil from a vertical well. Production in the area has made a dramatic jump. Some oil companies report a first year average of 100 barrels per day, declining to and stabilizing at 60 barrels per day in the following year.

There are several incentives which are enticing oil companies into the region. Large land tracts of lease land are still available at competitive prices. The potential of new discoveries are very high according to NEB data.

In 2010, the Saskatchewan government extended favorable royalty and regulatory practices. New horizontal wells are exempt from royalties on the first 100,000 barrels (2.5% mineral tax applies and must be paid). Drilling permits are done promptly and turnaround time is expeditious.

Alberta’s oil plays are quickly becoming congested with an abundance of participating oil and gas companies. Alberta land prices are continuing to climb. Saskatchewan offers much potential and the lower Shaunavon oil play will be difficult for most to resist.

By J. Klemchuk

Shouts & Toots’ from the Oil Patch

Tuscany Energy Ltd. (TUS:TSXV) announced on May 18^th its first quarter results for 2012. Company states that it has more than doubled oil production, revenues and cash flow from operations, as compared with the same period in the prior year.

Cash flow increased to $1.1 million from $400,000 in Q1 2011. The Company ended the quarter with no debt. Net earnings increased to $86,000 compared with a net loss of $300,000 in Q1 2011.

Tuscany incurred $2.4 million of capital expenditures during the quarter compared with $397,000 for Q1 2011. Capital expenditures for the quarter were financed from cash flow from operations and the proceeds from sales of Magnum Hunter shares. At March 31, 2012, Tuscany had working capital of $549,000 compared with net debt of $447,000 at the beginning of the year.

Tuscany is junior oil exploration and development company. It is currently achieving growth by developing its Dina oil properties at Macklin and Evesham,, Saskatchewan. Company is headquartered in Calgary. Tuscany has a market cap of $14.8 million and 124 million shares outstanding.

Sterling Resources Ltd. (SLG:TSXV) announced on May 18^th the execution of an agreement with Enquest PLC under the terms of which Sterling will acquire Enquest's 10 percent interest in its F-Quad and L-Quad licences in the Dutch North Sea, and Enquest will acquire Sterling's 50 percent interest in the Cairngorm licence (Block 16/3d) in the UK North Sea.

Following closing of the agreement, Sterling Resources Nederlands BV (a subsidiary of Sterling Resources), will now hold as operator a 35 percent interest in the shallow geological horizons of blocks F14, F16, F17a, F18 and L01b. The other partners are Petro Ventures Netherlands B.V. with a 25 percent interest and EBN with a 40 percent interest.

The five blocks cover 1,550 square km located approximately 80 km offshore in a water depth of 45 meters. The shallow geological horizons of these blocks contain four oil discoveries, with several wells which tested oil at flow rates of up to 4,800 barrels per day with API gravities in excess of 30 degrees.

Sterling Resources Ltd. is a Canadian-listed international oil and gas company headquartered in Calgary with assets in the United Kingdom, Romania, France and the Netherlands. Company has a market cap of $287.5 million and 219.5 million shares outstanding.

Shona Energy Company, Inc. (SHO:TSXV) announced on May 18^th that it has commenced Trading on OTCQX International. OTCQX is the premium tier of the U.S. Over-the-Counter (OTC) marketplace which gives non-U.S. companies access to U.S. investors, without the duplicative regulatory costs required of a listing on a traditional U.S. exchange.

Jim Payne, President and CEO of Shona Energy Company states, “Trading on the OTCQX will enable U.S. investors to easily trade Shona stock and efficiently access the Company's financial information and ...increase the Company's visibility among the U.S. investment community, potentially expanding Shona's shareholder base."

Shona is an international oil and natural gas exploration, development and production company focusing on South America, specifically Colombia and Peru. Its corporate offices are in Calgary. Company has a market cap of $45 million and 180.5 million shares outstanding.

CGX Energy Inc. (OYL:TSXV) announced on May 18^th that David Christian has resigned as a director. Mr. Christian joined the board of directors on June 28, 2011, shortly after the appointment of the former President and CEO, Stephen Hermeston.

CGX Energy is a Canadian based oil and gas exploration company focused on the exploration of oil in the Guyana-Suriname Basin. Its corporate offices are in Toronto. Company has a market cap of $98 million and 326 million shares outstanding.

More summaries on ‘Oilpatch Review’ page...

Worthy Quote

Edgar R. Fielder,” The herd instinct among forecasters makes sheep look like independent thinkers.”

U.K. oil output on a steady freefall

Many analysts observed that North Sea oil production has been in a freefall in recent years. Supporting evidence was there. B.P. Pic, a major oil company participating in the North Sea, saw slipping production numbers and diminishing profits in its operations off the British Isles. It sold a majority of its North Sea operations to small oil companies.

Latest data, revealed by U.K. Department of Energy and Climate Change, verifies that oil output from the North Sea is in a highly noticeable downturn. This information shows that the oil output from its sector of the North Sea dropped by 17.4% in 2011. Natural gas production during the past year tumbled by 20.8% in that region.

Participating small oil and gas companies in the North Sea are now blaming falling oil production on unforeseen maintenance shutdowns. The truth is that North Sea oil fields are mature fields which are long past their prime.

U.K. oil peaked in 1999; oil production during that year spiked at 2.7 million barrels per day. Oil output from 2000 to the present has been on a steady downturn. Last year, U.K. oil is reported to be a dismal 1.04 million barrels per day in 2011. Oil production from the British sector of the North Sea has dropped by 1.66 million barrels, or 62% in the past 12 years.

Not long ago, the Brits were oil exporters and their economy prospered from oil sales and royalties collected. Dismal oil production has changed U.K. to become a net oil importer. It’s no wonder why the Brits have high hopes on the Falkland Islands oil discovery.

But...you have to wonder if reality has sunk in, and how many Brits are aware of the ‘Peak Oil’ theory.

By Allan Pierce

America continues to rely on unethical oil

Energy Information Administration reports that United States oil imports fell about 3%, or 0.3 million bbl/d, to 8.9 million bbl/d. in 2011. Its states that it is the lowest level in over 10 years. Top suppliers were Canada, Saudi Arabia, Mexico, Venezuela, and Nigeria.

The top five foreign suppliers boosted their market share to about 69% of all U.S. oil imports. Canada, Saudi Arabia and Mexico increased their share during 2011. EIA reports that purchases of crude oil from Venezuela, and Nigeria decreased in 2011.

Canadian crude oil imports averaged a record 2.2 million bbl/d, up 12% from the year before, and topped 2 million bbl/d for the first time in history. The U.S. energy department explains that this is because more and more oil is now being transported by rail.

Saudi Arabian crude oil imports averaged at 1.2 million bbl/d, up 10% from the year before, and were the highest level since 2008.

Mexican crude oil imports were down by 4.5% to 1.1 million bbl/d from the year before. This is the second lowest since 1995, and reflects the steady decline in Mexico's crude oil production and rising domestic demand for fuel.

Obama administration continues to flog Canadian oilsands as being dirty. Here’s the irony, U.S. still relies on almost 2 million barrels per day of unethical and blood oil from two questionable sources. It imports 900,0000 barrels of oil per day from Venezuela and 800,000 barrels of oil per day from Nigeria without any fanfare.

By Allan Pierce

Priming the pump for Manitoba sweet crude

Competition amongst Canada’s western provinces has always been keen in the oil patch. Every province has its own royalties and incentive programs structured to entice and maintain new developing reserves. One slip up and companies will leave in droves into neighboring provinces. Luring back lost interest can be costly and difficult.

Smaller players like Manitoba have to be vigilant to maintain and lure new exploration and development. Alberta, British Columbia and Saskatchewan are well noted beyond the borders for their large oil and natural gas reserves. Frequently, their scheduled crown land sales play an important role in attracting oil companies into prospective and renowned plays.

Manitoba, the small kid on the block, has seen its share of ‘boom and bust’ in the past sixty years. Slumping oil prices throughout history have had a more negative effect on the oil patch in Manitoba than in Alberta but …. It’s much, much brighter in Manitoba’s oil patch now.

Manitoba’s first oil boom started with the discovery of the famous Daly field in early 1951. The field, located fifteen miles west of Virden, was first explored by three major oil companies – California Standard, Shell Canada and Imperial oil. Each company contributed to drilling a total of eight wells with some shows of oil.

On February 1, 1951, California Standard discovered the first commercially viable oil well. This well quickly led to the development of Manitoba’s first oil field, the famous ‘Daly field’. This continued to discoveries at Lulu Lake, Waskada, Tilston, Virden and Roselea. By 1956, Manitoba had 359 wells and 12 discovered oil fields.

Waterflooding was approved by the provincial government in 1960. This was in direct response to companies’ requests for enhanced production in the Daley and Virden oil fields. By 1968, Manitoba’s oil production surpassed an average of 16,500 barrels per day but began to drop until 2004 when production slipped to 11,000 barrels per day. Today, Manitoba’s production has doubled in the past seven years and now is within striking distance of 30,000 barrels per day.

The Manitoba government held its first land lease sale and introduced the ‘holiday volume’ incentive program in 1979. Another successful stimulant was implemented in 1987, ‘Enhanced Oil Recovery Program’. These two incentives brought another boom to Manitoba’s oil patch. In 1980, a second formation was discovered, Spearfish Formation.

In 1985, a Daly well was drilled beyond the licensed depth which resulted in the discovery of the Bakken Formation. This accidental discovery enticed other companies to explore at deeper depths. Eventually, this has lead to the discovery of two more formations, the Jurassic Melita formation in 1993 and Devonian Three Forks Formation and the Sinclair Field in 2004.

The oil producing region in south western Manitoba has the highest private mineral rights ownership in Western Canada. Many landowners settled in the province prior 1890. After this date, the federal government took over the mineral rights throughout Western Canada.

Eighty percent of all mineral rights in Manitoba’s oil patch are still held privately. The crown holds a paltry 20%. In comparison, the provincial government of British Columbia holds 95%, Alberta 81% and Saskatchewan 78% of all provincial mineral rights.

Privately held mineral rights have slowed oil exploration and development in Manitoba. It is far more difficult to deal with multiple mineral rights owners than one provincial authority. During the past decade, mineral rights brokers have eased the situation. Landowners can now place their land to be tendered on broker’s tendering lists.

Land owners are offered several dollars per acre to several hundred dollars and may involve a substantial signing bonus. Some are as high as $50,000; most are a fraction of this amount. Crown land sells at an average of $260. Bids may be much higher in both instances pending how desirable the land is. The most attractive area of the province is straddling the Saskatchewan and U.S. border north to Waskada.

Drilling and completion cost between Manitoba and North Dakota are several light years apart. A fully completed Manitoba horizontal well drilled into the Bakken formation costs from $1.2 to $1.5 million. A fully completed horizontal well drilled into the Bakken in North Dakota exceeds $5 million. The difference in cost is directly linked to expensive drilling depths and higher land costs.

It is true that North Dakota’s wells out produce those of Manitoba but the bottom line… costs in Manitoba Bakken oil range from $15 to $20 per barrel. In comparison, those in North Dakota run from $45 to $60 per barrel.

Manitoba government continues to use incentives to attract and promote its oil industry. The ‘holiday volume’ on horizontal and injection wells has been extended to 2015.

Last year, 516 successful wells were drilled in that province. Petroleum Services Association of Canada forecast that there will be another 550 new Manitoba wells place on production this year. Drilling interest in Manitoba’s oil patch is red hot.

By J. Klemchuk

Disclaimer

Investing in stocks and commodity trading involves risks. ‘Canadian Insight’ and its authors are not responsible for any misinformation, errors or inaccuracies submitted in any news releases, or articles. This site does not imply a guarantee, or warranty that all information on this site is completely accurate even though we take every precaution that is available to eliminate erroneous content. Use of this site is sole responsibility of the user.

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