Bigger than Bakken
In my youth, I became a fighter pilot and take my word, you need to understand the odds in air-air combat because the payout is painful should you get the odds wrong.
Case in point, I spent a week in Vancouver at the last of January and someone passed by a company that has an interesting situation. The company is named Marauder Resources (MES-V).
Marauder owns 50% of 965 square kms (375 sections) of exploration acreage in the East Coast Basin of the North Island in New Zealand.
Marauder’s land sits midway between two parcels of land controlled by TAG Oil. TAG Oil controls 3500 square km or about four times as much ground as does Marauder. TAG Oil was in a Joint Venture with Apache (APA-NYSE) where Apache was going to pay up to $100 million to earn into TAG’s East Coast Basin shale play.
In documents prepared for the JV (slide 17), TAG and Apache were estimating that their ground in the East Coast Basin could contain between 250-500 billion bbls of OOIP. That’s Original Oil in Place, not recoverable. Their internal numbers indicated that at a 1.5% recovery factor, the shale play could contain 4-8 billion barrels of recovered oil.
The Bakken shale formation only contains 577 bbls of OOIP. TAG and Apache were saying the East Coast Basin of New Zealand in total could contain more oil than the Bakken.
Don’t you just love neighbors like that?
Apache did shift their corporate strategy and in early January of 2013 announced they were dropping the farmout agreement in order to refocus their international operations.
Here’s where Marauder or MES gets real interesting. If TAG’s ground in the East Coast basin was four times the size of the MES/COPL ground and 50% of TAG’s ground was worth $100 million to Apache, that implies that MES’s ground should be worth $25 million. That gives you a fairly hard number to value MES. The current market cap of MES is $6.6 million. I like the payout on that.
Let’s assume for the moment that TAG has it right and they control 250 billion bbls with 12.5 billion barrels recoverable and they get the 5% recoverable as estimated by Casimir Capital. That makes TAG’s ground worth $20.5 billion as estimated by Casimir and $6.1 billion as estimated by the metrics of the recent PetroChina/EnCana deal at $.49 a bbl, (risked recoverable for the Duvernay shale oil play in Alberta).
If you use the most conservative numbers from an industry report done by AJM Deloite for the Marauder/COPL OOIP resource at 4.8 bn bbls, and use Casimir’s 5% RF, the 240 mm bbls recoverable is worth $394 million NPV ($197 million net to MES), or $59 million net to MES if you use the metrics from the PetroChina purchase of EnCana’s Duvernay project at $.49/boe. If you use the metrics for what an acre of shale oil land is worth in the Bakken, at $3000 an acre, its worth $360 million net to MES.
What I’m really trying to say is that it really doesn’t matter how you value Marauder, the payoff is a hell of a lot higher than the odds.
Here’s where it got even more interesting. When I heard it I called my broker and bought some shares on the open market. TAG is drilling four holes. Two north of Marauder’s ground and two south of Marauder’s ground in the 300-600 meter thick Whangai shale. (In comparison to the 10-50 meter thickness of the Bakken formation.) They are going to spud in late March/early April. I guess they would be reporting results in less than four weeks after that. By investing in MES between now and maybe two months from now, you get a free ride, TAG drills and MES can intarprelate the results.
The proposed TAG wells are marked with a red star.
I don’t know what the odds are of finding another Bakken. I know the formation in the East Basin of New Zealand is a lot thicker. I know the oil is a higher grade (50 API) than the Bakken (42 API) I know the porosity, in portions of the sand lenses within the Whangai, is 16-31% compared to 8-12% in the Bakken. I know that if you use TAG Oil’s numbers, it infers a value of $1.6 billion dollars to MES. I can accept odds of maybe between 2 to 1 or 5 to 1 for hitting something that big but the payoff maybe 100-1. I like the payout.
TAG Oil is drilling soon and we will know the results. They have already drilled some Strat Test holes. These are shallower holes drilled where the shales are near the surface. The well logs from these shallow holes help determine the stratigraphy and correlate to the seismic data. They know they have oil; it seeps to the surface. They know they have thick shale and a high gravity oil. What’s not to like?
In today’s financial climate you simply have to be invested in something real, something tangible. The banking system is coming unglued on a daily basis. As much as I like mining, billion dollar-mining companies are rare. Billion dollar oil companies are not so rare. MES has a tiny market cap today. The drilling TAG will be doing over the next two months has the “POTENTIAL” to substantially derisk the shale potential for Marauder.
I bought shares in the open market. I participated in their latest PP. MES is advertising as soon as I can get a banner finished for them. I am as biased as I can be. Do read through the TAG presentation, especially page 17. The numbers are amazing. It’s not 51-101 but it is what Apache and TAG believed was possible. The potential is great but you alone are responsible for your own due diligence.
Marauder Resources East Coast
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July 23rd, 2014
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