|CBM - Part II Name Dropping|
Dropping a few company names as I said I would in Part I.
As I mentioned earlier, the most major Canadian Independent and Integrated operators have had their programs evaluated in the years 2003/04 and will be ramping up drilling in a significant manner in 2005. In addition, there are other operators that had established pilot programs in 2004 and it is these companies that I would tend to concentrate upon.
EnCana is at the forefront as far as exposure with quality land assets. However, the impact on shares of that company would be a wee bit less in comparison to the smaller producers involved with development on the same quality acreage. I believe EnCana has twice the acreage of any other producer in the Horseshoe Canyon Play and that is the area I would focus on immediately.
The acreage involved for the most part, is already in the hands of operators and there is very little left in terms of new acreage availability. It would be appropriate to say – what you see is what you get. Most of the Juniors involved in the play acquired the rights for conventional drilling and inherited the rights for CBM drilling at the same time.
Myself, I have already established a plan to gain exposure to a large degree in the play, all based upon the extent of land holdings and the companies current status in development of these properties. I hold the combination of these companies; intermediate sized Compton Petroleum and Juniors Thunder Energy and ProspEx Resources - when combined, they have total acreage which would be ranked among the top five in terms of Horseshoe Canyon acreage exposure. Although Thunder and ProspEx have a much lesser amount of acreage in comparison to Compton, the impact on shares of these companies would be far greater than that of Compton shares – of course, that is based upon how successful they are with their programs. Success would increase their reserves and impact the value of their shares. From what I have been able to determine, Compton has 9X the acreage of each, Thunder and ProspEx. I like what the combination offers – volume with the big outfit and share impact from the smaller outfits. As subscribers to my publication that have requested Material Change Alerts already know, I added ProspEx Resources to my Portfolio last Friday.
These three companies, along with my holdings in EnCana, Canadian Natural Resources and another recent portfolio addition of Fairborne Energy (last Friday also) certainly provides me with a very great extent of CBM exposure in the Horseshoe Canyon Formation Play.
One would get the idea that ole Kerm is going overboard in Horseshoe acreage holders. But, that’s simply not the case at all. I believe all these companies have quality conventional acreage and I more or less have fallen into a great situation in regards to CBM.
Moving on, I also believe the Mannville Formation activity deserves watching. Thunder Energy also has sizable acreage in this play. The companies to focus upon are probably Nexen and APF Energy Trust with their current 10 Well Corbett Creek Mannville Pilot program. Another of my holdings, Real Resources, has a land position almost equal to Nexen’s. Thunder Energy also has a huge land stake involved in this formation play.
I have omitted mention of Trident Exploration Corp., a private, Calgary-based company founded in 2000 and is part of the Trident Group of Companies. Trident’s sole business focus is the discovery and commercial development of natural gas in coal (“NGC”), also known as coal bed methane (“CBM”), resources in the Western Canadian Sedimentary Basin (“WCSB”). Trident has assembled its own WCSB land position, which it continues to grow through direct acquisition, farm-ins and other joint ventures with Canadian resource companies. From a land mass perspective, they are the third most major player in CBM involving both the Horseshoe Canyon and Mannville formation plays.
The backdoor entry into CBM that I mentioned in Part I is a coal company named Hillsborough Resources. I have no recommendation or stance on the company – but it may deserve checking out for those of you who like to uncover companies with their own due diligence. I read an article from a small newspaper that mentioned B.C. commissioned just four companies for obtaining rights to Province controlled CBM acreage and Hillsborough was one of them. That prompted me to contact the company. They control 43,000 acres in British Columbia – I believe in the SouthEastern corner of the Province. If that is the case, that’s real CBM potential. Subsequently, they have acquired another coal company in Alberta and rights to CBM properties were inherited as a result. Just how much or, to what extent is unknown to me at this time. They may be sitting on a hidden asset.
In concluding coverage of this subject, let me mention a U.S. company that has huge visibility in both the Horseshoe Canyon and Mannville formations second to EnCana. The company is Quicksilver Resources.
Through its Canadian subsidiary, MGV Energy Inc., the company began its exploration of CBM in Alberta when it entered into a joint venture with EnCana Corporation (formerly PanCanadian Petroleum Limited) in November 2000. With the EnCana asset rationalization agreement in January 2003, Quicksilver gained operational control of 95 percent of its CBM assets. Exploration and piloting activity in 2003 had proven commercial production in several new areas covering a large geographic area resulting in five new developments planned for 2004. In January 2004, MGV acquired an additional 50 percent working interest in 76,800 acres in the Wood River area in southern Alberta and now owns 100 percent working interest in those lands. Production rates from the Horseshoe Canyon CBM wells continue to range between 50 and 250 thousand cubic feet per day with negligible water production.
In their first quarter 2004 report, they announced that they held leases and drilling rights on more than 525,000 net acres in Canada. Glenn Darden, Quicksilver's president and chief executive officer, commented on the year. "After two years of extensive testing of shallow coals over a large geographic area in Alberta, we have now moved into the development phase. It appears that we have defined a large fairway of commercial productive coals. The lack of water in these coals makes the economics of this project compelling. The company drilled 300 wells in 2004.
Speaking of management, a subsequent event two months ago is worthy of mention. George Voneiff, President and Chief Operating Officer of MGV Energy Inc., received the Sproule Award for Lifetime Achievement in the unconventional gas industry at the Sixth Annual Unconventional Gas Conference in Calgary, Alberta on Nov. 17, 2004.
A current brief Corporate Presentation, along with Conference Presentations, can be found here.
In closing, I want to mention one trend that we have been witnessing over the past two years – conversions to energy trusts. I believe every company in my portfolios that has been mentioned in this review – are very strong candidates for conversions with spin-off Explore companies emerging as a result. There is also the distinct possibility that these companies will create a new public entity with entire focus on CBM activity only – much like Triton Exploration is today. Which brings me to the last situation, all these companies are also extremely attractive as buyout candidates – by companies such as Triton who is very active in acquiring CBM assets.
Keep in mind, just one man’s opinion – this time around, it was mine.
I had prepared links to words in the review but have no clue on how to present them in posting. The following are the references.
Trident Exploration Corp.
can be found here