JeriCan on Oil

All Canadian oil and gas investment information centre.

Global Vibrations

Global energy experts and analysts have often questioned the value of the U.S. Energy Information Administration’s weekly and annual reports. Some see it as a means of the U.S. keeping a lid on crude oil prices. Others see it as another tool for speculators.

The U.S. Energy Information Administration (EIA) has made another annual forecast. For years the EIA has argued against the experts which predicted that the era of low crude oil prices has ended and peak oil had arrived. The EIA stipulated in 2004 that peak oil could not possibly come sooner than 2050.

In its recent 2009 Annual Energy Issues and Outlook Report, the U.S. Energy Information Administration has made an about face and is now convinced that global crude oil supplies will only keep pace with the demand by 2025. It now sees unexpected increasing demand from growing industrialized countries such as India and China.

The 2005 Annual U.S. Energy Issues and Outlook Report predicted that global crude oil production in 2025 should reach 122 million barrels per day and global oil consumption should not exceed 119 million barrels per day.

The 2009 EIA Annual Report has now revised its long term forecast. Global crude oil production should reach 101 million barrels per day by 2025. Conveniently, the new EIA report states that the global oil consumption will be 101 million barrels per day as well.

‘Shouts & Toots’ from the Oil Patch

Crescent Point Energy Corp. (CPG.UN:TSX) announced on July 3^rd acquisition of Gibraltar Exploration Ltd.. Crescent Point is continuing its consolidation strategy for southwest Saskatchewan. The majority of Gibraltar's assets are adjacent to and contiguous with existing Crescent Point properties, including some of the assets acquired on July 2, 2009.Crescent Point expects 2009 daily production to average 42,000 boe/d, with an exit rate greater than 44,500 boe/d. 2009. Crescent Point Energy Corp. is a conventional oil and gas producer with assets strategically focused in properties comprised of high quality, long life, operated, light oil and natural gas reserves.

Teck Resources Limited (TCK.A, TCK.B:TSX) announced on July 3^rd that China Investment Corporation (CIC) has agreed to purchase through a wholly-owned subsidiary 101.3 million Class B subordinate voting shares of Teck for C$17.21 per share. On closing, CIC will indirectly hold approximately 17.5 per cent of Teck's outstanding Class B subordinate voting shares. The transaction is expected to close on or about July 14, 2009.

Teck President and CEO Don Lindsay said: "This transaction will have an immediate and very positive effect on Teck's balance sheet, and represents an attractive opportunity for Teck to establish a relationship with a major Chinese financial investor, with a deep understanding of China, the world's largest consumer of our principal products."

Teck is a diversified resource company committed to responsible mining and mineral development with major business units focused on copper, metallurgical coal, zinc, gold and energy. Headquartered in Vancouver, Canada.

Canadian Superior Energy Inc. (SNG:TSXV) announced on July 3^rd that it has received from BG International Limited a notice of election regarding BGI's right of first refusal dated June 30, 2009 in respect of the agreement of purchase and sale dated June 1, 2009 between Canadian Superior and Centrica Resources Limited. BGI's right of first refusal with respect to the Company's interest in Block 5(c) arises pursuant to a joint operating agreement among Canadian Superior, BGI and Challenger Energy Corp.

Antrim Energy Inc (AEN:TSX) (AEY:AIM) announced on July 3^rd it has been notified by the UK Department of Energy and Climate Change that it has been offered Block 21/24b in the UK North Sea as part of the 25th Seaward Licensing Round. Antrim was previously awarded five blocks in the 25th Round, three of which are in the Fyne area. Antrim Energy Inc. is a Canadian Calgary based high-growth junior oil and gas exploration and production company with assets in the UK North Sea and Argentina.

Profound Energy Inc (PFX:TSX) announced on July 3^rd that George Chow, William T. Davis, Nicholas R. Wemyss, Keith Macdonald and Richard Bonnycastle have resigned from the board of directors of Profound. Joining the board of directors of Profound in order to fill the vacancies created by such resignations are Susan Riddell Rose, Donald Nelson, Randall Johnson, Cameron Sebastian and Robert Maitland. Profound Energy Inc. is a junior oil and natural gas company based in Calgary, Alberta.

Petro Andina Resources Inc. (PAR:TSX) announced on July 3^rd that its Board of Directors (the Board) unanimously recommends that shareholders reject Alberta Ltd's. Pluspetrol unsolicited offer to acquire Petro Andina. The Board, after a thorough review and evaluation of the June 19, 2009 unsolicited take-over bid and after consultation with its financial and legal advisors, determined that the Pluspetrol Offer is inadequate from a financial point of view. The Board recommends that Petro Andina shareholders reject the Pluspetrol Offer and not tender their shares to the Pluspetrol Offer. Petro Andina is engaged in oil and natural gas exploration, development and production in South America and the Caribbean region and is headquartered in Calgary, Alberta.

Cirrus Energy Corporation (CYR:TSXV) announced on July 3^rd that its wholly owned subsidiary Cirrus Energy Nederland B.V. has signed an Amendment and Restatement Agreement relating to the Secured Revolving Borrowing Base Facility Agreement with The Royal Bank of Scotland plc. Cirrus President and CEO David Taylor comments; "We are very pleased that we have concluded this revised agreement with RBS and are able to use the debt facility to fund our remaining development costs to bring both the M7-A and L8-D fields into production.” Cirrus Energy Corporation is an international oil and gas company headquartered in Calgary and has approximately 78.9 million fully diluted common shares outstanding.

Nordic Oil and Gas Ltd. (NOG:TSXV) announced on July 2^nd that the Company, along with its joint venture partner, Western Warner Oils Ltd., are examining the possibility of using Underground Coal Gasification as a means to convert the coal into product gas at its recently acquired Drumheller, Alberta property. Nordic is currently making preparations to submit an application to the Province of Alberta for a UCG pilot project, only the second such project ever undertaken in Canada, and one of just a few in North America. The Company announced on June 1, 2009 that it had acquired 3,856 hectares (9,528 acres) of coal leases located at Drumheller, Alberta and that historical data had determined that the leases contained approximately 54,000,000 recoverable tonnes of coal.

Gastar Exploration Ltd. (YGA:TSX) announced on July 2^nd that it has entered into definitive agreements with Santos QNT Pty Ltd and Santos International Holdings Pty Ltd, affiliates of Santos Ltd (STO:ASX) for the sale of all of Gastar's interest in Petroleum Exploration Licenses in New South Wales, Australia, along with the sale of the shares of Gastar Power Pty Ltd, the entity holding Gastar's 35% interest in the Wilga Park Power Station. Gross pre-tax proceeds from the transaction are expected to be approximately US $240 million. Gastar has also elected to voluntarily de-list its shares from trading on the Toronto Stock Exchange following the completion of the transaction with Santos.

CIC Energy Corp. (ELC:TSX) (CIC:BSE) announced on July 2^nd an update on the Mmamabula Energy Project. Offer was taken through Eskom's formal governance process, culminating in consideration of the Offer at an Eskom board meeting held on June 18, 2009.The Board is still in discussion with the Government of South Africa. CIC Energy is still waiting to the response of the offer.

Transeuro Energy Corp. (TSU:TSXV) TSU:OSLO) announced on July 2^nd that the Company is attempting to reduce its outstanding liabilities by approximately CAD $40 million as a first step prior to attracting additional funding to maintain the Company as a going concern. The full restructuring process proposed by the Company involves settlement of various liabilities and the raising of new funds through the sale of common shares in Eaglewood Energy Inc. and thereafter through issuance of equity as a private placement or rights issue.

Canacol Energy Ltd. (CNE:TSXV) announced on July 2^nd that it has been awarded the Pacarana Technical Evaluation Area by the National Hydrocarbon Agency of Colombia. The Pacarana block is located immediately adjacent and to the south of the Ombu E&P contract which contains the Corporations Capella heavy oil discovery which is currently under appraisal. The Corporation has a 100% working interest in the block, which is approximately 470,022 hectares in size and is located in the Caguan - Putumayo Basin of Colombia. An interpretation of the existing geotechnical data on the block identifies prospective structural trends similar to the Capella heavy oil discovery located immediately to the north on the Ombu E&P contract.

* It is our policy not to publish stock symbols of any companies listed on American stock exchanges. This is in respect to possible contraventions with U.S. legal issues.

Quote of the Day

John K. Lagemann, “Intuition isn't the enemy, but the ally, of reason.”

New Feature Article

British Columbia’s shale gas plays on a roll

Interest in British Columbia’s shale gas plays remains strong despite extremely low natural gas prices in North America. While the U.S. natural gas exploration and development has dropped by 54% over a year ago, exploration and development in British Columbia’s natural gas plays is on the increase.

Mid June announcement by the provincial government in Victoria, stated that B.C. netted $179 million in its land rights sales for its June land lease sale. The most significant sales came from the Horn River Basin. Oil and gas companies invested $173 million in land rights for that area alone.

Imperial Oil Limited, Mobil Corporation, and Nexen Incorporated all increased their land holdings for that area of British Columbia. Even the small oil and gas junior, Questerre Energy, announced a small toehold in that area.

Why the rekindled interest for B.C.’s shale gas plays when natural gas prices are below $3 per one thousand cubic feet? Last winter’s announcement by EnCana Corporation that it has employed a new advanced fracturing technique to increase greater gas volumes has caught the attention of other oil and gas companies.

New fracturing technology may save oil and gas companies large sums of money in drilling costs by increasing wellhead productivity. EnCana stated that where it had planned on drilling 40 wells, it would have to drill only 24 wells to reach the same targeted natural gas volumes.

The new fracturing technology steps up from 6 to 14 frac stages per single hole. This newest development in fracturing may transform the whole concept in drilling and well services. Even with low natural gas prices, profitability may return to the natural gas sector. Estimates are that $4 natural gas will make most gas companies turn a profit.

By J. Klemchuk

From uncertainty to recovery

There has been a significant turnaround in crude oil prices since bottoming out in January. Although oil prices are far from $147/bbl as of last July. We have seen prices rebound from $33 to $58/bbl, or by 75%. World stock markets have responded to the oil price increases in a positive manner. In Canada the TSX Composite Index has risen by 3000 points, or over 43% since mid-March. All the gains have been mainly due to regained interest and speculation in the energy sector.

While some energy stocks have risen considerably, others have dropped in value. There are some mid-caps and small-caps that may be on their last gasp. If you are paying attention to the business news you may have realized that all is not well in the oil patch. One such oil company is struggling to do its annual audit and has been suspended from trading. It has used every clever means possible to be reinstated. Active oil rigs have dropped to record lows.

Markets gains have responded to news that most economies have bottomed out and are slowly onto their recovery. Reliable sources in the orient indicate that China, South Korea and Japan have weathered through the economic storm and their economies are beginning to revive. There are signs that in Europe and North America slow economic recovery has begun.

Optimism is beginning to be evident but we are still overshadowed by uncertainty. No-one knows what the outcome will be in the North American auto sector. Both General Motors and Chrysler are going through major restructuring. The outcome is contingent to many factors and difficult to assess. The auto industry in the U.S. and Canada will never be the same as we all remember.

We will continue to see market retreat on occasion due to these uncertainties. Hedge fund managers are still watching the markets and will be dumping stocks that are in limbo. Expect to see this happening very soon. Desired stocks will continue to make modest increases, but there may be some stocks that will take further battering due to sell-offs.

Traditionally the summer months are not kind to the stock markets. Many shrewd investors in the past have exited from the markets and cash out for the summer months. I am certain that this will happen again. Further caution and diligence is a must for these uncertain next few months.

By J. Klemchuk

British Columbia’s Gems - the Horn River Basin and Montney Play

A look at why the province of British Columbia is reaping billions of dollars in revenue from its oil and gas land sales. Here are the reasons why that province is attracting more attention than its sister province Alberta from the exploration companies.

Two of the three hottest plays in Canada have netted British Columbia 2.7 billion dollars in revenue in 2008. It’s a very sizeable shot of revenue for any government. Never in Canadian oil and gas history has any province seen such interest in land sales.

Politics and oil often cause a very unpredictable volatile mix. In 2007 the province of Alberta, prior to the provincial election, appointed a royalty review panel to recommend new oil and gas royalty rates. The panel recommended considerable increases in royalties. Oil companies protested the panel’s recommendations but the province showed intent to proceed with royalty increases.

Alberta’s government stood by idly while British Columbia and Saskatchewan courted the oil and gas companies. Both provinces dangled promises to the oil and gas companies that there would be no immediate and foreseeable increases in royalties. Early in 2008 oil and gas companies exited in droves from Alberta into Saskatchewan and British Columbia.

Finally the Stelmach government agreed to sit down and listen to the oil and gas companies’ grievances, but the response was too little and too late. The province of Alberta addressed the situation after the oil industry’s exodus.

Some of the oil and gas companies ventured to Saskatchewan’s hot spot, the Bakken Play. Others saw an opportunity in northeastern British Columbia. These companies chose to move across the provincial borders into British Columbia because they were familiar with the Montney formation in the Peace River Arch of Alberta.

EnCana’s pioneering exploration in the area led to the discovery of the Montney in 1993. The eastern side of the formation is nestled with pockets of oil as well as natural gas reservoirs. The Montney shale formation proceeds up slope to the northwest. The formation is wedge shape. Its thickness ranges from 3 to 80 feet on the Alberta side and gradually deepens on the British Columbia’s side up to 700 feet. The formation is 175 miles wide and 200 miles long.

The Montney is characterized by its variability as it proceeds into British Columbia. It is a mix of sandstone, siltstone and shale. Porosity varies from 6 to 9 percent in the Dawson Creek and Swan Lake area. Tracts of land now being purchased for exploration are as low as 3% in porosity. This exemplifies a very tight shale formation.

The Montney on the British Columbia side is viewed with great potential for unconventional natural gas. Current estimates evaluate the Montney to contain 500 trillion cubic feet in place and a probable recovery of 50 trillion cubic feet. Recovery rates are estimated to be 10 to 20%.

Ten years after the Montney discovery, EnCana made another big natural gas field discovery, Horn River Basin. It is situated more than 200 miles north of Fort Nelson. Horn River Basin comprises of five formations, Key River, Evie, Otter Park, Fort Simpson and Muskwa. Early evaluations place Horn River to be Canada’s largest field of unconventional natural gas.

Exploration reports by EOG Resources state that the Muskwa shale formation in the Horn River Basin is 500 feet thick and has a porosity of 4%. This compares to the Texas Barnett formation which has a porosity of 4.5%. EOG reports that the silica content to be 10% better then that of the Barnett formation. This quality gives the Horn River Basin reservoir an excellent production potential.

Recent estimates place the Horn River Basin at 750 trillion cubic feet in place and recoverable reserves of 75 trillion cubic feet; this is more than twice the size of the Texas Barnett Shale play which is estimated to have recoverable reserves of 30 trillion cubic feet. The Barnett shale field produces 3.5 billion cubic feet of unconventional natural gas per day.

Experts estimate British Columbia’s shale formations may hold a possible 250 trillion cubic feet of recoverable unconventional natural gas from all possible sources. Even if these figures are off by 50%, British Columbia may eventually become a major natural gas producer in Canada.

It is believed that Canada’s conventional sources of natural gas peaked as early as the 1980's. The Canadian Society for Unconventional Gas predicts that 50% of our nation’s natural gas will come from shale sources by 2025.

It must be cautioned that Canada’s unconventional natural gas is still in its infancy. The unconventional natural gas industry is learning and is in experimental stages. Knowledge is being passed on from the Barnett Play to assist exploration and development of Montney and Horn River Basin.

Gas recovery rates are variable and largely dependant on the porosity and permeability of the shale gas reservoir. Present development costs reported by ARC Energy Trust are at $10 per barrel equivalent. Other companies state that gas prices must be above $9 to break even.

Recovery of natural gas from shale formations necessitates expensive horizontal or multilateral drilling from a single pad. Eight to twelve-stage hydraulic fracturing using millions of gallons of water and sand is necessary to achieve viable flow rates of 4 to 8 Mmcf/d. The shale porosity and density vary from well to well and fracturing techniques must be tailored at each wellhead.

Unconventional natural gas wells do have a long life expectancy. Natural gas that is locked in shale formation has nowhere to escape. While initial flow rates are lower than conventional reservoirs, wells may produce from 20 to 30 years.

The biggest obstacle exists that there is no infrastructure in the potential gas exploitation area. Roads, pipelines and gas plants must all be built. It is very difficult to move drilling rigs and equipment. Terrain conditions are rugged and muskeg conditions are prevalent. In many instances exploration and drilling is only possible when the ground is frozen. Costs can be astronomical.

There is a sense of much optimism by the oil and gas companies involved in these two plays. Companies are spending huge sums of money and committing to increase their spending budgets.

Last November EnCana submitted a proposal to British Columbia’s provincial regulators to construct a multibillion dollar natural gas plant in northeastern British Columbia. If approved by the B.C. regulators, EnCana’s proposal to proceed in constructing an integral element may define the future of Horn River and Montney, and the future of shale gas in British Columbia.

By J. Klemchuk

Previous Feature Articles

The Bakken Oil Formation — Hottest Oil Play

If you haven’t heard about the “Bakken’ then surely you have been away, far away from the media. It’s not a new discovery; call it a rediscovery. Initially the Bakken formation was discovered in 1957 in Saskatchewan. It’s an unconventional play that was ruled out as unprofitable using conventional drilling.

The formation lies in the Williston Basin and covers more than 518,000 square kilometers. It is more than 3500 meters below the surface in parts of North Dakota and Montana. The formation which covers Southwestern Manitoba and Southeastern Saskatchewan is much shallower and oil can be struck at depths of 900 to 1600 meters.

It is 300 meters below the Mississippian Formation. Oil reservoir pressures are low on the Canadian side and much greater on the Southern tips of Montana, North and South Dakota. This is due to the far greater depths that the formation is situated. With today’s technology CO2 injection makes this an issue of irrelevance .

The Bakken shale comprises of three distinct layers. The upper and lower layers have distinct properties of non- porous hard rock and the middle layer have the features of a conventional oil reservoir. The middle oil bearing layer may be five to 12 meters thick but there are pockets where thickness may exceed 17 meters.

It is true that the American share of the Bakken is much greater than on the Canadian side. It is possible that the Americans may have 2/3's of the hidden treasure. It is far more risky to drill in North and South Dakota as well as Montana than in Manitoba or Saskatchewan. Thus, it is more profitable and less risky to drill on the Canadian side.

Why all the excitement over the Bakken now? Recent months have seen crude oil reach historical record highs of $120 /bbl. Estimated costs of recovery on the Canadian side is a little over five dollars per barrel over a span of 6 years . This is based on a well production of 200 bbl /day and the price of oil is over $100/bbl.. Compare the costs of developing an off shore oil field or the tar sands and you can see where the profits lie.

With global consumption reaching staggering limits and high quality crude getting much more difficult to find, there lies the reason for Bakken exploration and development. Oil from this formation is of very high quality.

Bakken oil is the best in the world. It grades at an average of 42° API and some samples testing at 47°API. This surpasses the quality setting standards of the Saudi Arabian sweet crude. As an example, the oil from Ghawar field in Saudi Arabia averages at a mere 34° API. The tar sands of Venezuela average is a low 8.5° API and that of Alberta oilsands grades at 10° API.

The low API grades require special extraction and refining technology. These costs exceed $50/bbl while that of the Bakken are a mere $5/bbl. Take the premium of up to $5/bbl for high quality sweet crude into account and it’s easy to see why there is excitement over the Bakken.

We often hear a variety of figures as to what the total reserves of the Bakken formation are. Some figures only add confusion. I firmly believe in the figures released by the US Energy Information Report in 2006. The US Energy Information (EIA) Report states, “Estimates ranging up to 503 billion barrels of potential resource is in place.”

While the lion’s share of the Bakken oil lies within US soil, Canada’s share is approximately 30 % of the EIA estimates. Saskatchewan’s reserves in the Bakken may well be in excess of 100 to 150 billion barrels of sweet crude.

Recoverable rates have been low balled at 1 to 2% recovery; these are extremely low values. It’s unacceptable to think that only 1.5 billion barrels of crude will eventually be recovered. New technology is quickly being developed. Bakken recovery may be a more realistic 15% and may increase to higher levels with newer developments.

The cutting-edge technology that now is in place will further advance at even more of a rapid pace. Horizontal and directional drilling techniques are being perfected. In some instances the horizontal leg is far greater than the initial vertical entrance.

Advanced hydraulic fracturing technology developed by Petrobank Energy and Resources injects massive amounts of sand into the oil bearing formation. This results in higher porosity resulting in increased flow rates from the reservoir.

Inherent problem in the Bakken is that reservoir pressures are low. This is more so on the Canadian side where formation depths are at far lesser depths than on the US side. This is no longer a limiting factor. Technology is now in place where reservoirs can be pressurized with carbon dioxide and substantially increase flow rates.

Saskatchewan has considerable reserves of coal in very close proximity of the Bakken. SaskPower, provincial supplier of electricity, has large coal fired steam turbine generators near Estevan at Boundary Dam.

Prior to the provincial election, SaskPower faced a very serious problem in eliminating the pollution from their coal fired generators. Recently the Federal Harper Government has come to the rescue and has offered financial assistance in modernizing the polluting coal fired generators. This could have not come at a more opportune time.

What once appeared as a very serious environment issue for the provincial supplier of electricity has now turned into a more positive development. SaskPower can now expand their coal powered generators using new technology and profit from sequestering the huge amounts of carbon dioxide for the Bakken to pressurize oil reservoirs.

To the companies who decided to leave Alberta because of the royalty issue, the Bakken is an enticing alternative. Premier Brad Wall and Minister of Energy and Resources, Bill Boyd have made a strong pitch to the oil industry.

Brad Wall has reaffirmed that there will not be a sudden royalty increase as occurred in Alberta. “There will not be an increase in royalties for years to come”. This in itself is a strong message to the oil companies in welcoming them.

Some oil companies that are involved or have properties in Saskatchewan Balkan Formation:

Action Energy (AEC:TSXV), Advantage Energy Income Fund (AVN.UN:TSX), Athena Resources Ltd. (AHN:AX), Crescent point Energy Trust (CPG.UN:TSX), Grand Banks Energy Corp. (GBE:TSXV), Encore Acquisition ( EAC:NYSE), G2 Resources (GRT:TSXV), Marathon Oil (MRO:NYSE), Petrobank Energy and Resources (PBG:TSX), Petromin Resources Ltd. (PTR:TSXV), Reece Energy (RXR:TSXV), and TriStar Oil & Gas (TOG:TSX).

By J. Klemchuk

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Friday, July 03, 2009

Last Update @ 1:41 PM

About the author and editor...

“My introduction to the oil industry occurred at a very early age, a year prior to attending grade school. I was fortunate to be brought up on a farm in east central part of Saskatchewan. During the 1950's there was a buzz in the oil and gas exploration activity.

An exploratory well was being drilled a few hundred yards away from my parents’ farm. My mom and dad didn’t know it but I’d sneak off and watch the roughnecks as they proceeded to drill the well.

Many years later I found out it was only a dry hole but these early moments in my life drew a strong attraction to the oil and gas industry. While there was a number of years that I was not active in the oil industry, my interests were not forgotten.

After graduating from high school and then completing my post secondary education I began my work for Prairie Gas Ltd. Following that, I was employed, with Home Oil and Gas Ltd. When that company was bought out by Imperial Oil I exited from the oil and gas industry but I did not lose my interests in that industry.

In the 1980's I developed a strong attraction to the stock markets and investments. I read dozens of books written by such authors as David Cork, David Chilton, and two of my most impressive authors about investing in the stock markets, Peter Lynch and William J. O’Neill. Some of these books I reread many times until I knew them almost by heart.

With the coming of the internet, stock investing was opened to the fortunate that were computer literate. I began trading stocks on the internet in the late 1990's. Gaining much valuable experience and love of writing brought me to a decision influenced by my eldest daughter who as well is interested in stock investments.

Three years ago I designed my own website, and launched “JeriCan on Oil Blog’. Within months, I changed directions of the website to an investors information site called “JeriCan on Oil’. I continue to gather information and make it available to the public. In the future I intend to write a book based on my website content. I hope that all my readers find the material here to be informative, enjoy reading my written articles and continue using this site.”

Best regards,

J. Klemchuk

Email:

editor @jericanonoil.com

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