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April 26th, 2015

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editorials

 
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  

»» more editorials in the archives

market data


Ux U3O8 Price (Uranium)April 20th, 2015
$38.85 -$0.15 www.uxc.com

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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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from the publisher
  Robert J. Moriarty

Welcome to 321energy.



Is This Where Investors Should Be Looking When Oil Recovers?


James Stafford
admin@Oilprice.com
http://oilprice.com/
April 22nd, 2015

When oil prices recover-and plenty of analysts think the climb back up will start soon-Canada's western frontier of Saskatchewan and neighboring Alberta will 'still have the edge', according to a report from TD Economics.

Depressed oil prices may have skewed the view from Canada's oil-producing west, but this will be one of the better places to bet on the oil rebound.

Saskatchewan remains the last highly accessible onshore North American oil frontier and it is home to part of the prolific Williston Basin.

And as the industry gears up for the Williston Basin Petroleum Conference(WBPC) on 28 April, the message is clear: Saskatchewan is still alive and kicking.

Those companies who overleveraged themselves based on $90-$100 oil may be in trouble, but those who prepared for the possibility of an oil price downturn, and those who have made acquisitions on this downturn are poised for bigger long-term gains.

And companies are still buying up land. The April sale of petroleum and natural gas rights in Saskatchewan raised $5.3 million in revenue for the province, bringing 2015 land sale revenues after two sales to a total of $22.8 million.

The highest price paid for a single parcel was $558,280. Prairie Land & Investment Services Ltd. acquired the 1,036-hectare lease north of Gull Lake. The highest price on a per-hectare basis was $6,312 and is shared by two parcels.

The next sale of Crown petroleum and natural gas rights will be held on June 8.

One indication of the continued optimism surrounding the potential of Saskatchewan despite the current oil price environment was the late March sale-at 'full price'--of Beaumont Energy Inc. to Whitecap Resources for $587 million.

At the end of the day, Whitecap paid 2.5 times Beaumont's value at current oil prices. Analysts were, of course, shocked.

For Beaumont, which had purchased the Saskatchewan Kerrobert area light oil resources in 2012 for only $110 million-the March sale price was brilliant.

More than anything, this deal demonstrates that Saskatchewan is still on the savvy investor's radar, and good management can see past current oil prices and prepare for the rebound.

"The key is to watch out for companies that are making fundamental acquisitions based on present-day oil prices and valuation metrics-companies that didn't overleverage themselves based on $90 oil," says Andrew Rees, President of Canadian explorer WellStar Energy, which also swooped in with a Saskatchewan acquisition in February-under current oil prices.

What most are eyeing in Saskatchewan is the province's portion of the prolific Williston Basin, which extends from the oil-bearing formations of North Dakota and Montana into Canada.

While the Williston Basin already produces over 1 million barrels of light crude oil per day, projections are that it could be producing double that as new wells come on line over the next few years. The Williston basin's top Bakken producers are Whiting Petroleum Corp. (NYSE:WLL), Hess Corp. (NYSE:HES) and Continental Resources (NYSE:CLR).

And as Rees points out, this is a well-developed thick Bakken sand trend.

"In Saskatchewan, investors and the bigger companies are looking for the smaller players who can deploy capital to low-cost, low-risk development opportunities that can immediately increase production," he said. "When oil prices start to rebound, those who made smart Saskatchewan acquisitions will be well ahead of the game."

At the other end of this equation, the debt-hobbled producers in the 'Saskatchewan Bakken' and Pembina Cardium-such as Lightstream Resources Ltd. and Penn West Petroleum-will have a hard time going forward in the current price environment. Both companies have severely curtailed activity, according to the Globe and Mail.

Only a year ago, companies such as these were riding high on three-digit oil prices and attracting tons of capital, pumping it all into massive drilling and new acquisitions. Since June 2014, however, oil prices have plunged 60% and these companies are now in trouble.

The weeding out of the good deals from the bad deals has now begun to restore a balance to Saskatchewan, which maintains the promise of a highly attractive final frontier in which smart management makes all the difference.

And as TD economics opined in its recent report: "Our long-term view has not been altered by recent events in the global oil market. The West will again be the best."


James Stafford
admin@Oilprice.com
http://oilprice.com/
April 22nd, 2015



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