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April 25th, 2015

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Innovation and Efficiency Drive U.S. Oil Supply and Demand
Frank Holmes  Apr 01  

Oil Market Update
Clive Maund  Mar 29  

Still Another Update on Oil
Ferdinand E. Banks  Mar 24  

Oil Market Update
Clive Maund  Feb 24  

A Daily Energy Economics Dozen
Ferdinand E. Banks  Feb 18  

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expert analysis & newsletter briefs

Manitok Energy Inc.

"Our favorite at the moment continues to be Manitok Energy Inc. (MEI:TSX), a 5,000 5 Mbbl/d producer with all its assets in Alberta. The company is one of the cheapest we can find in the space. It's trading at about two times EV:EBITDA versus the group, which is trading at about seven times EV:EBITDA. We believe the company has a long runway of growth ahead because it has established a foothold in an area of Alberta called Entice, which it bought from Encana Corp. Some initial results have been excellent. . .the company was a CA$3/share stock last fall, but pressure from falling energy prices and tie-in deliverable issues at both Stolberg, its original core area, and Entice, have held the stock down. One tie-in issue was related to Husky Energy facilities that Manitok delivers into, and the other was related to similar Encana facilities, where the condensate content overwhelmed the facility. The company has made discoveries, but the market doesn't like a company that has production glitches. I think the market is being myopic, and production should be in line in a month or so. The market is also concerned about the higher royalty rates Manitok pays PrairieSky Royalty for the Entice production, and the capital spending obligations it has this year and next. But PrairieSky is aware of this issue and, hopefully, there can be a meeting of the minds to alleviate any concern.

With the Canadian dollar having gone from par to about CA$1.22 now on the U.S. dollar, the value of Manitok today is in the CA$2.50/share range, but could easily rise to CA$4/share or substantially higher with higher oil prices. As drilling at Entice continues, production and reserve additions should rise significantly over the next couple of years, offering compelling upside potential. . .to date, Manitok has been using the Cenovus Energy Inc. analog, which is about 25 kilometers away, meaning Cenovus wells that look similar to the Entice wells. But the Entice results to date have been well above that analog. Soon, Manitok will have had its Entice wells on for a five-month period. In another month or so we'll be getting results on those and, hopefully, we'll see a different royalty rate structure for the company too. And costs are coming down across the board in the sector, so the cost per each well should be lower, leading to 2025% internal rates of return on drilling. With all of that meshed together, even at $50/bbl oil, this company will look appetizing. The market should be more relaxed about the company's debt level, which is about 1.5x EBITDA versus the peer average above 2x. . .the bigger catalyst here is seeing what the well results are, and getting the facilities issues locked down. Hopefully, Manitok will be viewed as a diamond in the rough." (4/23/15) - The Energy Report with Randall Abramson

Manitok Energy Inc.

"Our favorite at the moment continues to be Manitok Energy Inc. (MEI:TSX), a 5,000 5 Mbbl/d producer with all its assets in Alberta. The company is one of the cheapest we can find in the space. It's trading at about two times EV:EBITDA versus the group, which is trading at about seven times EV:EBITDA. We believe the company has a long runway of growth ahead because it has established a foothold in an area of Alberta called Entice, which it bought from Encana Corp. Some initial results have been excellent. . .the company was a CA$3/share stock last fall, but pressure from falling energy prices and tie-in deliverable issues at both Stolberg, its original core area, and Entice, have held the stock down. One tie-in issue was related to Husky Energy facilities that Manitok delivers into, and the other was related to similar Encana facilities, where the condensate content overwhelmed the facility. The company has made discoveries, but the market doesn't like a company that has production glitches. I think the market is being myopic, and production should be in line in a month or so. The market is also concerned about the higher royalty rates Manitok pays PrairieSky Royalty for the Entice production, and the capital spending obligations it has this year and next. But PrairieSky is aware of this issue and, hopefully, there can be a meeting of the minds to alleviate any concern.

With the Canadian dollar having gone from par to about CA$1.22 now on the U.S. dollar, the value of Manitok today is in the CA$2.50/share range, but could easily rise to CA$4/share or substantially higher with higher oil prices. As drilling at Entice continues, production and reserve additions should rise significantly over the next couple of years, offering compelling upside potential. . .to date, Manitok has been using the Cenovus Energy Inc. analog, which is about 25 kilometers away, meaning Cenovus wells that look similar to the Entice wells. But the Entice results to date have been well above that analog. Soon, Manitok will have had its Entice wells on for a five-month period. In another month or so we'll be getting results on those and, hopefully, we'll see a different royalty rate structure for the company too. And costs are coming down across the board in the sector, so the cost per each well should be lower, leading to 2025% internal rates of return on drilling. With all of that meshed together, even at $50/bbl oil, this company will look appetizing. The market should be more relaxed about the company's debt level, which is about 1.5x EBITDA versus the peer average above 2x. . .the bigger catalyst here is seeing what the well results are, and getting the facilities issues locked down. Hopefully, Manitok will be viewed as a diamond in the rough." (4/23/15) - The Energy Report with Randall Abramson

Hemisphere Energy Corp.

"Hemisphere Energy Corp. will continue to be conservative this year given a depressed commodity price environment. Drilling has been deferred until H2/15. . .the company will focus on debt reduction in order to increase financial flexibility and position itself for potential accretive acquisitions, while seeking low-risk development opportunities. . .Hemisphere is still operating to our expectations and continues to generate positive cash flow as a result of low operating costs. We maintain a Buy recommendation and a CA$1.00 per share 12-month target price on its stock." (4/22/15) - David Ricciardi, Mackie Research Capital

Madalena Energy Inc.

"Despite production being impacted by third-party facility shutdowns in Canada and a contraction in its Canadian credit facility, Madalena Energy Inc. has made positive advancements and is well positioned to continue advancing four high-impact, scalable plays in Argentina. Most notably, Madalena and partner Pluspetrol (45% working interest) were successful in obtaining an official decree to extend the evaluation phase of Coiron Amargo Sur, the heart of the Vaca Muerta unconventional shale play, where we believe land values alone could yield net asset value addition multiples above current Madalena share prices." (4/20/15) - Michael Charlton, Industrial Alliance Securities

Blackbird Energy Inc.

"Blackbird Energy Inc. recently drilled two horizontal wells targeting the Upper and Middle Montney, both of which confirmed liquids-rich gas production capability on early test results. Both wells. . .tested over 145 bbl/MMcf of liquids-rich gas, and pressure data confirms an overpressured regime. . .the company is surrounded by industry leading players. . .and has assembled an extensive land position at a very low cost. . .we are relaxed about supporting a current value of approximately CA$180 (CA$0.46 per share) for this land alone. . .4 wells per section provides Blackbird the potential for. . .over 500 MMBoe liquids-rich reserves." (4/20/15) - John Clarke, Octagon Capital Corporation


featured companies

Jericho Oil Corporation (TSX-V:JCO)
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Quantum Energy (QEGY.PK:OTC)
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The Energy Report ()
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from the publisher
  Robert J. Moriarty

Welcome to 321energy.



Peak Copper

Roland Watson
December 16th, 2005

If oil is the most important commodity, then copper cannot be far behind. Being used extensively in electrical power cables, electrical equipment, automobile radiators, cooling/refrigeration tubing, heat exchangers, artillery shell casings, optical fibre, water pipes, drain pipes, plumbing and even jewellery, this reddish-brown metal is a commodity that the world can ill afford to be in short supply of.

But the fact of the matter is that copper is yet another metal that is in a mining deficit that was predicted to be 700,000 tons in 2004 by the USGS 2005 summary. That would be about 5% of the estimated 14.5 million tons produced worldwide. As a result, stockpiles have reduced and prices have increased to over the $2 a pound mark recently.

Against this backdrop, I was nevertheless surprised to read recent comments by Ross Beaty, the chairman of Pan American Silver and Lumina Copper, that global copper production was approaching its own version of "Peak Oil" or shall we say "Peak Copper"?

His remarks can be found in this article. But his main points centred on such facts as:

Only 56 new copper discoveries have been made in the last 30 years. He predicts Chilean copper output to peak about 2008 (Chile is the world's main producer). A lack of smelter and refinery supply is creating another bottleneck. 21 of the 28 largest copper mines in the world are not amenable to expansion. Many large copper mines will be exhausted between 2010 and 2015.

Does not all this sound familiar to the arguments of the Peak Oil debate?

New oil discoveries of the last 30 years are dwarfed by those of previous decades. Saudi Arabia, the world's main oil producer may peak soon. A lack of refining capacity is causing bottlenecks in gasoline, etc. Many of the super giant oil fields in the world cannot have their production expanded or even maintained. Supergiants such as Ghawar, Cantarell, Burgan and others will be well on the decline path by 2015.

When we look at the comparative reserve numbers for oil and copper we also get a sense of an impending dual peak scenario. Worldwide economic reserves of copper are stated to be 470 million tonnes by the USGS 2005 summary for copper. If the 2004 mine production figure of 14.5 million tonnes is held steady into the future, copper would be exhausted within 33 years.

If we also assume about 1 trillion barrels of oil remains to be economically recovered worldwide with a current annual production of 30 billion barrels then we come out with a similar reserve lifetime of 33 years. Coincidence? Not if we realise that increased energy consumption means increased metal consumption. The two go hand in hand.

When might this peak come around? That is probably a little easier to calculate than oil since secrecy about copper reserves is much less prevalent. But the shocking news that Chile, which produces one third of the world's copper, may begin to decline irreversibly in 2008 suggests that as Chile goes, so goes the world.

When Chile peaks, the world peaks.

Sounds a bit like the peak oil mantra "When Saudi Arabia peaks, the world peaks".

However, if you believe that reserves are purely a function of price, you may take comfort in the recent USGS suggestion that the total reserve base of copper (economic and uneconomic) is not the 940 million tonnes of its 2005 summary but a whopping 1.6 billion tonnes! Sadly, some reading between the lines of that statement reveals a more sobering truth that half of that estimated tonnage does not appear to have been discovered yet!

Perhaps the USGS is indulging in the same over-optimistic numbers that we have seen it display in its estimates for crude oil. We think so and will continue to work on that assumption.

In conclusion, what are the ramifications of copper supply diminishing in the face of potential increased demand? The answer is far higher prices to begin with. The second answer is substitution of applications using aluminium, titanium and plastics - depending of course on how strained their resource base is.

There is one hope for those consumers who yearn for lower copper prices. When Peak Oil finally arrives, we'll probably enter a severe economic crisis that will kill demand for copper. Then they'll have their lower prices and unlike gold and silver that will see fevered demand as safe haven investments, nobody is going to fly to copper as a store of value.

Roland Watson

email: newerainvestor@yahoo.co.uk

Roland Watson writes the investment newsletter The New Era Investor that can be purchased for an annual subscription of $99. To view a sample copy of the newsletter, please go to www.newerainvestor.com and click on the "View Sample Issue Here" link to the right.

He invites comments and questions at: newerainvestor@yahoo.co.uk.



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April 25th, 2015

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