Dundee Securities issues updated research report

Dundee Securities issued an updated research report on Canadian Spirit Resources Inc. (SPI) today (click here to view). SPI has reached the milestone of first production and is now producing natural gas from three Montney horizontal wells. SPI joins Canbriam and Talisman Energy as the only Montney natural gas producers.

SPI expects to complete two previously drilled upper Montney wells, one in February and one after spring break up. There are also plans to drill an additional Montney well by the end of the first quarter. The company is also expecting to receive its reserve report by the end of the first quarter.

Entering the production phase is a big milestone for SPI. Dundee says that future results from their next two wells will be a big catalyst for the company's stock price should they be in the 6 to 8 mmcf/d range.

Canandian Spirit Resources Inc. announces first Montney production!

Canadian Spirit Resources Inc. (SPI) announced today that they have entered into the production phase in their Farrell Creek Montney project (click here to see the release). They have tied in three previously completed Montney horizontal wells and it is expected that the plant will be close to its 10 mmcf/d capacity.

Don Gardner, SPI's CEO, says "the commisioning of the new Farrell Creek gas plan and our first production from the Montney Formation are milestone events for CSRI and our shareholders."

CSRI releases updated Corporate Presentation

Canadian Spirit Resources Inc. (SPI) has posted an updated Corporate Presentation to their website titled "Moving Montney Resources to Reserves in British Columbia" (click here to view the presentation).

Highlights include:

1. SPI now holds 34.4 net Montney sections

2. First production and gas plant on stream by the end of January

3. $21.1M working capital

4. "Game Changing" results demonstrate the ability of the lower Montney to add to the total productivity and reserve potential

5. Reserve Report expected by the end of March

6. Summary of recent Montney transactions including the Talisman/Sasol deal, Monterey Exploration and Storm Energy demonstrate similar transaction metrics. SPI states that their potential Montney value is $10.20/share unrisked based upon the Talisman/Sasol deal and implies "significant upside".

ProspEx enters Montney Play in NE BC

ProspEx Reources Ltd. announced today (click here to see the release) that it has entered into the Montney play in the Birch area of NE BC. They have accumulated a 25,000 acre land position through Crown land sales and a farm-in. This is further evidence that the Montney play is still attracting interest.

Updated Montney Shale Map

With today's announcement from Canadian Spirit Resources Inc. (SPI), the company now has over 21,800 net acres in the Montney in Farrell Creek. As can be seen in the updated map, SPI's 100% lands (yellow) and JV lands (orange) are immediately adjacent to the Talisman/Sasol land. Byron Capital Securities recently calculated the value of the Talisman/Sasol land at $31,000/acre based upon their recent deal which translates to over $9/share for SPI.

Canadian Spirit Resources Inc. increases Montney acreage at Farrell Creek

Canadian Spirit Resources Inc. (SPI) announced today that they have acquired additional Montney lands adjacent to their existing lands at Farrell Creek. This acquisition increases their net land position to over 34 net sections. Using the recent Sasol/Talisman valuation metrics from their Farrell Creek deal as calculated by Byron Securities on SPI's land results in a potential per share value of $9.40/share. (22,000 acres x $31,000/acre + $21.1 M cash)/74.9 million shares = $9.40/share.

Byron updates research on SPI

Byron Capital Markets released research on Canadian Spirit Resources Inc. (SPI) reiterating their speculative buy rating and $3.25/share target price. Highlights from the research include:

1. Analysis of the recent Sasol/Talisman Energy deal resulting in transaction metrics equalling $31,000/acre for Talisman's Farrell Creek property adjacent to SPI's land.

2. Significance to SPI - $31,000/acre multiplied by SPI's net Montney land position of 19,700 acres yields a value for the company of $8.20/share.

3. Byron concludes that SPI is "undervalued and the shares have significant upside potential from current levels.

Rising oil prices renew interest in converting natural gas to diesel

An article was published by the Midland Reporter-Telegram called "Rising oil prices renew interest in converting natural gas to diesel." It talks about the possibility of turning natural gas into liquid fuels and Sasol's recent deal with Talisman Energy. Because of the huge spread between oil and gas prices, the article states that the technology could be a "money maker for whoever is a first mover in that space."

With Sasol acquiring a 50 percent interest in Talisman's Farrell Creek shale gas assets, increased attention is being paid to the area benefitting companies like Canadian Spirit Resources Inc. (SPI). SPI has a large Montney resource land base in Farrell Creek equalling over 19,700 net acres.

CIBC values Talisman/Sasol deal at $25,000/acre

CIBC released research today for Progress Energy and calculated the value of the Talisman/Sasol deal at $25,000/acre. They discounted the $1.05 billion value to account for Talisman's sunk costs of approximately $260 million and also for Sasol's future carry commitments over 5 years at 9%/annum. Taking the $25,000/acre value over Canadian Spirit Resources Inc.'s (SPI) 19,200 net Montney acreage in Farrell Creek equals approximately $6.25/share. This does not account for SPI's cash on hand, value of existing infrastructure or any value for their Gething land. This is one more example of an analyst demonstrating that SPI's share price is significantly undervalued.

Dundee says Canadian Spirit is "Significantly Undervalued"

Dundee Securities issued research on Canadian Spirit Resources Inc. (SPI) today titled "Talisman Farrell Creek Joint Venture Provides Valuation Data Point." They state, "given that Canadian Spirit's Farrell Creek Montney play directly offsets Talisman's, we see this transaction as a direct data point and use it to provide investors with a sense of Canadian Spirit's current valuation."

Implied valuation metrics from the Talisman deal applied to SPI result in a per share value of up to $7.44 according to Dundee.

Montney Shale Land Map

This map shows the proximity of Talisman Energy's (TLM) Farrell Creek lands to Canadian Spirit Resources Inc.'s (SPI) land.

TLM's land is shown in purple and SPI's land is directly to the south and is shown in orange. Note that two sections of TLM's land are completely surrounded by SPI land.

RBC says TLM's deal places a firm value on its Montney shale acreage

RBC released research today that stated "Talisman Energy’s $1.05 billion farm-out deal with Sasol Limited places a firm value on its Montney shale acreage at Farrell Creek." Since Canadian Spirit Resources Inc. (SPI) has adjacent Montney shale acreage, that same firm value can be extrapolated to SPI's land. Taking TLM's existing production out of the value, SPI's Montney land is valued at $575 million or $7.67/share using the same valuation metrics.

TD Securities comments on Talisman Farrell Creek deal

TD Securities released a research note today on the Talisman/Sasol deal. They stated that "Farrell Creek is considered largely de-risked." Since TLM's land is adjacent to Canadian Spirit Resources Inc.'s (SPI) land, one can project that at least a portion, if not most of SPI's upper Montney land could be considered de-risked. Should one consider SPI's Farrell Creek land to be similar to TLM's Farrell Creek land, similar valuation metrics place a value of $7.67/share for SPI. Even at a 50% discount, SPI has significant upside potential!

Of additional interest is Sasol's GTL (methane to liquid products) technology. They currently run the largest GTL plant in the world and this could be a viable alternative for North American natural gas.

Talisman announces $1.05 billion joint venture with Sasol for Farrell Creek Montney property

Talisman announced today that it has entered into a joint venture with Sasol. Sasol is paying $1.05 billion for a 50% interest in TLM's Farrell Creek Montney project. TLM's Montney project includes 51,365 acres and is estimated to have 9.6 tcf of gross contingent resources.

This transaction implies a valuation of approximately $0.21/mcf and $0.16/mcf on an adjusted basis taking into account current production according to a research note issued by CIBC. The transaction also equates to $41,000/acre ($26.2 million/section) unadjusted and $30,500/acre ($19.5 million/section) on an adjusted basis.

It is of great interest to note that Canadian Spirit Resources Inc. (SPI) has 29.5 net sections of Montney lands. SPI's west block and east block of Montney lands are both directly adjacent to Talisman's Farrell Creek Montney project. Using TLM/Sasol valuation metrics implies a value of $575 million for SPI's net Montney lands. On a per share basis, SPI's value equals $7.67/share ($575 M / 75 million shares).

As Wellington analyst Kim Page noted back in August, SPI could be "the next Monterey" and "using Monterey take-out valuation metrics points to a potential $8+/share." Both the TLM/Sasol deal and Monterey deal demonstrate that SPI is clearly undervalued!

Could these recent deals mean that there are other parties that are looking into Montney assets in the Farrell Creek area that did not prevail in those negotiations?

SPI announces closing of bought deal

Canadian Spirit Resources Inc. (SPI) announced that it has closed their public offering. As their were bets made by the market that their previous offering would not close, closing of this deal is significant and provides SPI with necessary capital to fund the exploration and development of their Montney shale gas project.

Bloomberg says that natural gas prices may climb in 2011

An aricle published by Bloomberg today stated that natural gas prices will climb in 2011. Natural gas prices may rebound as producers cut output for the first time in six years. The Energy Department said on Dec. 7 that there will be a decline in drilling and output will average 62.01 bcf/d in 2011, down from 62.09 bcf/d this year.

Jonathan Wolff of Credit Suisse Group AG is predicting an average price of $5.25 in 2011. "Production will flatten out in the next several months and then potentially start to decline after that, probably in the second half of the year," he said.

Jason Schenker, president of Prestige Economics, stated "Industrial demand is coming back already, storage withdrawals have been a bit larger than historical numbers even though new supplies are coming to market, which implies that demand is going up."

SPI announces another success in the Lower Montney

Canadian Spirit Resources Inc. (SPI) announced today that they have achieved their second successful test of the Lower Montney Formation. Their b-17 well flowed in excess of 3.5 mmcf/d and stabilized at 2.5 mmcf/d from five fractures over a short horizontal leg. The release states that the well "exceeded the Corporation's expectations and confirms the Corporation's conviction that the lower Montney zones can add significantly to the total productivity and reserve potential of the Montney Formation as a whole".

This is great news and shows that SPI is on their way to proving up their Montney lands.

SPI announces bought deal

Canadian Spirit Resources Inc. (SPI) announced that it has filed an amended public ofering of 16.7M shares at a bought deal price of $1.50/share. This deal will provide the company with the necessary capital to fund their share of the Montney project for 2011. This offering basically commits the underwriters to place the 16.7M shares at their risk as opposed to the previous offering which placed the risk with SPI. This deal demonstrates the confidence that the underwriters have in the company and their ability to place the shares. It is also significant that this offering does not include the incentive of warrants. It will be a positive sign for SPI should this offering now close as scheduled.

The placement will be led by Wellington West and will include Casimir Capital, Byron Securities and Acumen Capital. It's worth noting that Salman Partners is not included in this placement. Recent trading indicates that Wellington West and Byron Securities have been active supporters while Salman Partners has not shown much participation. It's possible that this is a factor.

Calgary Herald article states "Relief could be on horizon for small gas producers"

An article in today's Calgary Herald says that "Relief could be on horizon for small gas producers." The article says that junior natural gas producers might not have to wait too much longer for relief from low prices.

"Gas prices have bottomed and a meaningful recovery could become apparent as early as this winter," Josef Schachter, president of Schachter Asset Management said. "Natural gas prices have bottomed, the new cycle is starting so the commodity of choice right now is natural gas ... we're bullish," he continued.

China's natural gas demand to exceed supply by 35 percent

China's demand for natural gas will exceed its supply by 35 percent in 2011, Yin Jianping, a professor under the China University of Petroleum, said at the China Energy Forum. Yin said the China's demand for natural gas will maintain rapid growth in the coming decade.

A Wall Street Journal article a few weeks back stated that "China's insatiable thirst for fossil fuels to power its surging economy could put pressure on global energy supplies and drive up oil prices to much higher levels over the next 25 years, according to the International Energy Agency." The IEA predicts that China's demand for electricity will triple by 2035 and that their energy demand will rise by 75% between 2008 and 2035.

Kogas already has agreements with Kitimat LNG and Encana to ship natural gas to growing Asian markets. It's possible that Canada will be exporting more gas outside of North America in the near future.