Canadian Spirit Resources Inc. (SPI) announced today that they have successfully tested the lower Montney Shale Formation at their b-17-I/94-B-1 location. They have successfully perforated and stimulated that zone and the results have exceeded their expectations. They believe that “the lower portion of the Montney Formation is capable of adding to the total productivity of the Montney and other prospective formations.” This is significant because Talisman Energy (TLM) did not test the lower Montney at their b-15-I well and no determination was made by them on whether the lower Montney is economically viable. SPI's test demonstrates that the lower zone is productive and adds to the potential recoverable resource although flow rates were not released at this time (I'm guessing that flow rates were not released because they were flows from a vertical well in only the lower Montney zone and possibly could be misconstrued by the market if one were to compare them with other company's horizontal results from multiple zones).
SPI has reviewed the data from TLM’s b-15-I well located approximately one mile east as it is no longer in the confidentiality period and concluded that TLM has “very similar geological characteristics to that of CSRI’s well, adding significantly to the level of confidence that the upper Montney can be economically developed.” They have determined that the logs and cores are very similar to the Talisman data and are obviously, very comfortable with those zones. Talisman has stated that the initial test rates from their Farrell Creek Montney project have exceeded expectations and they are moving the portions of the project into commercial development in 2010.
SPI believes that they will achieve very successful flow rates from both the lower and upper portions of the Montney and the lower Doig Formation. In turn, they expect to move a portion of their Montney prospective resource into the 3P reserve category, possibly as early as the beginning of 2010. SPI also states that should the company achieve the required level of reserves as they expect, they “intend to graduate its listing to the Toronto Stock Exchange.” This is possibly a late 2010 event.
This can only be viewed as a highly successful test and news release! Anyone who has been following this company over the last several years can attest that the company has always been very conservative and understated in their news releases. The tone of this release as well as the remarks they made at the recent SEPAC presentation are in high contrast to their previous statements. They can easily be construed as much more enthusiastic and positive and one can almost see SPI beaming with excitement about their 2010 prospects.
Moving to the Toronto Stock Exchange will attract a different set of investors as well as broaden their prospective shareholder base and will positively impact the company. As SPI states, they believe that “2010 will be the year that visible progress is made toward achieving the Company’s mission of developing 1 tcf of natural gas in western Canada.” We can expect good things from SPI in 2010!
Wednesday, December 23, 2009
Tuesday, December 22, 2009
WSI forecasts a colder than normal winter
WSI Corporation forecasts a colder than normal winter for much of the U.S. in its winter outlook released today. They are forecasting approximately 2.5% more gas weighted heating degree days than last year for the period of January through March.
"For February, WSI is forecasting colder-than-normal temperatures on a nationwide basis. Natural gas demand is likely to be very strong with high residential and commercial heating demand as well as increased demand from the power sector. Natural gas inventories are likely to see significant draws in February under this cold weather outlook." They say the "colder than normal temperatures will increase the bullish outlook for gas in February."
Reuters says according to WSI, "The current El Nino event and the cold north Pacific will contribute to the unusually cold weather, which will help boost gas and power demand in the large consuming regions, especially in February and March."
"For February, WSI is forecasting colder-than-normal temperatures on a nationwide basis. Natural gas demand is likely to be very strong with high residential and commercial heating demand as well as increased demand from the power sector. Natural gas inventories are likely to see significant draws in February under this cold weather outlook." They say the "colder than normal temperatures will increase the bullish outlook for gas in February."
Reuters says according to WSI, "The current El Nino event and the cold north Pacific will contribute to the unusually cold weather, which will help boost gas and power demand in the large consuming regions, especially in February and March."
Monday, December 21, 2009
Ultra Petroleum to purchase Marcellus Shale assets for $5,000/acre
Ultra Petroleum Corp. announced today that it will purchase 80,000 net acres in the Marcellus Shale for $400 million. This equates to $5,000/acre.
This is another example of a company placing a high valuation on acreage in a shale play and lends further support to the $6,600/acre paid for Montney rights at the October '09 BC land sale.
Companies are paying a premium for acreage in the top two shale plays in North America, the Montney Shale and the Marcellus Shale. Canadian Spirit Resources Inc. (SPI), along with its joint venture partner, is currently testing its Montney Formation in the Farrell Creek area and we should expect initial results shortly.
The article noted above also states, "The demand for gas, which burns much cleaner than either oil or coal, is expected to increase steadily worldwide as nations struggle to control emissions that contribute to pollution."
This is another example of a company placing a high valuation on acreage in a shale play and lends further support to the $6,600/acre paid for Montney rights at the October '09 BC land sale.
Companies are paying a premium for acreage in the top two shale plays in North America, the Montney Shale and the Marcellus Shale. Canadian Spirit Resources Inc. (SPI), along with its joint venture partner, is currently testing its Montney Formation in the Farrell Creek area and we should expect initial results shortly.
The article noted above also states, "The demand for gas, which burns much cleaner than either oil or coal, is expected to increase steadily worldwide as nations struggle to control emissions that contribute to pollution."
Friday, December 18, 2009
Calculating SPI's value using Goldman Sachs' latest research report
Goldman Sachs (GS) issued a report on December 16. Within that report, they state that Exxon’s takeover of XTO shows that buyers are willing to pay for unbooked resource potential as evidenced by their offering a substantial amount for XTO’s “additional potential.” GS is currently targeting 3P resource valuation for the companies it covers from $0.50/mcf to $2.05/mcf as they state in their report. Evaluating Canadian Spirit Resources Inc.’s (SPI) Montney prospective resource using GS’ valuation metrics leads to the following:
Talisman estimates up to 300 bcf/section in the Montney alone as they stated at the Peter’s & Co. conference in New York. With SPI’s 44 sections, 35% interest and using a recovery rate of 40%, SPI has a possible 1.85 tcf. At the low end of GS’ 3P valuation, SPI’s Montney resource alone could be valued at (1.85 tcf x $0.50/mcf) = $925 million. This equals ($925 M/48.7M shares) = $19/share!!! Now obviously a lot would have to be accomplished in order to realize a price like that but if substantial progress is made, then a significant increase in the stock price could happen.
Currently, the market is valuing SPI’s Montney resource below $0.035/mcf or less than 7% of GS’ low end valuation. As SPI expects to begin moving their Montney and Gething prospective resources into the 3P reserve category, possibly as early as the beginning of 2010, SPI’s stock price should begin to reflect similar values. Even a move to the low end of the GS valuation range would lead to a significant increase in SPI’s stock price.
Talisman estimates up to 300 bcf/section in the Montney alone as they stated at the Peter’s & Co. conference in New York. With SPI’s 44 sections, 35% interest and using a recovery rate of 40%, SPI has a possible 1.85 tcf. At the low end of GS’ 3P valuation, SPI’s Montney resource alone could be valued at (1.85 tcf x $0.50/mcf) = $925 million. This equals ($925 M/48.7M shares) = $19/share!!! Now obviously a lot would have to be accomplished in order to realize a price like that but if substantial progress is made, then a significant increase in the stock price could happen.
Currently, the market is valuing SPI’s Montney resource below $0.035/mcf or less than 7% of GS’ low end valuation. As SPI expects to begin moving their Montney and Gething prospective resources into the 3P reserve category, possibly as early as the beginning of 2010, SPI’s stock price should begin to reflect similar values. Even a move to the low end of the GS valuation range would lead to a significant increase in SPI’s stock price.
Thursday, December 17, 2009
Raymond James valuation of the Montney shales
Raymond James issued a report dated November 5, 2009 for Talisman Energy (TLM). Within their NAV summary, they have assigned an unrisked value of $2.359 billion for TLM's Montney shales. TLM has 166,000 Tier 1 acres in the Montney shales so Raymond James is valuing TLM's Montney shales at $14,211/acre = $9.1M/section.
Canadian Spirit Resources Inc. (SPI) has 35% of 44 sections so their unrisked Montney value according to the same valuation metrics is $140M. This unrisked value is equivalent to $140M/48.7M shares = $2.88/share. This is the unrisked value of only the Montney portion of SPI's assets.
Risking at 50% = $1.44/share for only the Montney portion and does not include value for any other SPI assets.
Canadian Spirit Resources Inc. (SPI) has 35% of 44 sections so their unrisked Montney value according to the same valuation metrics is $140M. This unrisked value is equivalent to $140M/48.7M shares = $2.88/share. This is the unrisked value of only the Montney portion of SPI's assets.
Risking at 50% = $1.44/share for only the Montney portion and does not include value for any other SPI assets.
Natural gas futures rise on larger than expected draw
EIA reported a withdrawal of 207 bcf today from US natural gas storage. This exceeded the consensus estimate of 178 bcf according to a Bloomberg survey and last year's draw of 116 bcf. The five year average withdrawal for this time period is 127 bcf.
This follows a draw of 64 bcf last week which exceeded the estimate of 44 bcf.
Natural gas futures for January shot up as high as $5.90/MMBtu, a gain of 8.2%.
This follows a draw of 64 bcf last week which exceeded the estimate of 44 bcf.
Natural gas futures for January shot up as high as $5.90/MMBtu, a gain of 8.2%.
Wednesday, December 16, 2009
A quick SPI valuation
At the October ’09 BC land sale, the parcel adjacent to Canadian Spirit Resources Inc. (SPI) and similar in terms of topography and geology sold for $61 million for 3,738 hectares. This equals $16,300/hectare and $6,600/acre according to a recent Salman Partners research report.
SPI has a 35% interest in 44 sections of deep rights which equals 15.4 net sections or 4,011 net hectares (9,856 net acres).
The value of the deep rights based upon the October sale is $65.4M (9,856 acres x $6,600/acre).
SPI currently has $9.7M in cash.
Their Montney joint venture partner, Canbriam Energy Inc., has committed $29.0M of capital expenditures in return for a 65% interest in the deep rights which equals paying the first $10.15M ($29.0M x 35%) of SPI’s portion on SPI’s 35% share.
If Shell elects to proceed with the Gething joint venture, their lands would be pooled and SPI would retain 37.5 net sections. The value of the $50M spent by Shell on infrastructure and wells to SPI would be 25% of $50M = $12.5M.
SPI has tax pools of $45.9 million which has an M&A value of $6.5M.
Adding just those values up = $108.25 million.
With 48.7M shares outstanding, the value of the above mentioned items is ($108.25M/48.7M) = $2.22/share.
There is at least $4.0M of value related to the infrastructure and tie-in to the Spectra line. There are also wells and infrastructure that SPI has associated with the Gething project along with other company assets that are not included in the above valuation. They would add significant value to any M&A valuation.
With Talisman Energy completing wells nearby on adjacent land and having very good success, SPI’s risk has decreased significantly. Given today’s stock price and SPI’s very real assets noted above, SPI has a bright future.
SPI has a 35% interest in 44 sections of deep rights which equals 15.4 net sections or 4,011 net hectares (9,856 net acres).
The value of the deep rights based upon the October sale is $65.4M (9,856 acres x $6,600/acre).
SPI currently has $9.7M in cash.
Their Montney joint venture partner, Canbriam Energy Inc., has committed $29.0M of capital expenditures in return for a 65% interest in the deep rights which equals paying the first $10.15M ($29.0M x 35%) of SPI’s portion on SPI’s 35% share.
If Shell elects to proceed with the Gething joint venture, their lands would be pooled and SPI would retain 37.5 net sections. The value of the $50M spent by Shell on infrastructure and wells to SPI would be 25% of $50M = $12.5M.
SPI has tax pools of $45.9 million which has an M&A value of $6.5M.
Adding just those values up = $108.25 million.
With 48.7M shares outstanding, the value of the above mentioned items is ($108.25M/48.7M) = $2.22/share.
There is at least $4.0M of value related to the infrastructure and tie-in to the Spectra line. There are also wells and infrastructure that SPI has associated with the Gething project along with other company assets that are not included in the above valuation. They would add significant value to any M&A valuation.
With Talisman Energy completing wells nearby on adjacent land and having very good success, SPI’s risk has decreased significantly. Given today’s stock price and SPI’s very real assets noted above, SPI has a bright future.
Salman Partners research report on SPI's land value
The following was taken from a research report by Salman Partners dated October 26, 2009:
Canadian Spirit Resources Inc. (SPI – TSXV Cdn$1.25; Not Rated)
Land of Value
We would like to follow up on last Friday’s Energy Levels publication on Canadian Spirit Resources Inc. (SPI – TSXV Cdn$1.25; Not Rated) outlining the company’s recent press release. If we value the company’s Montney land holdings at Farrell Creek (~4,011 net hectares) at the recent B.C. land sale price of $16,300 per hectare, we come to a value of $65.4 million. Canadian Spirit has 48.4 million common shares outstanding; meaning the potential value of the Montney lands is $1.35 per share which is almost in line with the company’s current share price of $1.25.
Canadian Spirit Resources Inc. (SPI – TSXV Cdn$1.25; Not Rated)
Land of Value
We would like to follow up on last Friday’s Energy Levels publication on Canadian Spirit Resources Inc. (SPI – TSXV Cdn$1.25; Not Rated) outlining the company’s recent press release. If we value the company’s Montney land holdings at Farrell Creek (~4,011 net hectares) at the recent B.C. land sale price of $16,300 per hectare, we come to a value of $65.4 million. Canadian Spirit has 48.4 million common shares outstanding; meaning the potential value of the Montney lands is $1.35 per share which is almost in line with the company’s current share price of $1.25.
Tuesday, December 15, 2009
Highlights from SPI's presentation at the SEPAC Investor Showcase
Don Gardner, CEO of Canadian Spirit Resources Inc., presented at the recent SEPAC Fall Investor Showcase and made some interesting comments. He said that SPI sees 2010 to be the year they've been waiting for. He is quite encouraged with their developments and sees their story developing favorably in the next year. SPI expects that their Montney gas in place (prospective resource) will begin to move into the reserves category and expects production from their west block in 2010. SPI is well on their way to realizing their objective of developing 1 tcf of natural gas.
According to estimates made by Talisman at a Peter's & Co. conference in New York, there could be 300 bcf/section of gas in place in the Montney alone. According to Gardner, this is a "huge number." With SPI's 44 sections and their 35% net interest in the Montney, there is the possiblity of SPI having 4.6 tcf of gas in place in the Montney. Engineers are looking at 40% to 50% ultimate recoveries in the Montney east of Farrell Creek so SPI has a possible 1.8 to 2.3 tcf of recoverable gas.
Other highlights from the conference include 4.2 tcf of gas in place over 150 sections of land that is part of the potential pooled lands with Shell. If Shell elects to proceed, SPI would have a 25% interest equaling 1.1 tcf of gas in place in the Gething.
Just adding up SPI's share of gas in the Montney and Gething equals 5.7 tcf of gas in place. They have not even mentioned the possibility of productive gas from the Doig or Debolt zones which would only make their prospects even brighter. It's easy to see why SPI is so excited about their 2010 prospects.
SPI has financial strength as demonstrated by having almost $10 million dollars and no debt. Coupled with their two joint ventures proceeding at no cost to SPI, they are well leveraged to take advantage of a natural gas price recovery.
According to estimates made by Talisman at a Peter's & Co. conference in New York, there could be 300 bcf/section of gas in place in the Montney alone. According to Gardner, this is a "huge number." With SPI's 44 sections and their 35% net interest in the Montney, there is the possiblity of SPI having 4.6 tcf of gas in place in the Montney. Engineers are looking at 40% to 50% ultimate recoveries in the Montney east of Farrell Creek so SPI has a possible 1.8 to 2.3 tcf of recoverable gas.
Other highlights from the conference include 4.2 tcf of gas in place over 150 sections of land that is part of the potential pooled lands with Shell. If Shell elects to proceed, SPI would have a 25% interest equaling 1.1 tcf of gas in place in the Gething.
Just adding up SPI's share of gas in the Montney and Gething equals 5.7 tcf of gas in place. They have not even mentioned the possibility of productive gas from the Doig or Debolt zones which would only make their prospects even brighter. It's easy to see why SPI is so excited about their 2010 prospects.
SPI has financial strength as demonstrated by having almost $10 million dollars and no debt. Coupled with their two joint ventures proceeding at no cost to SPI, they are well leveraged to take advantage of a natural gas price recovery.
Monday, December 14, 2009
Exxon's enormous bet on natural gas
A Globe and Mail article says that Exxon "is making an enormous bet on a commodity most had counted out". The Exxon/XTO deal "serves as a major validation of a strategy pursued by smaller companies who have bet that gas reserves trapped in dense rock will profitably underpin the North American energy sector for decades to come." This could include companies like Canadian Spirit Resources Inc.
The article further states that "the Exxon purchase has already raised the value of nearly a dozen compnies with major shale gas holdings, including Encana and Talisman Energy, whose profile could now be elevated in the eyes of other global energy superpowers."
"You couldn't have a more credible enterprise sanctifying the unconventional industry in North America," said Martin Molyneaux of FirstEnergy Capital Corp. "It pretty much revalues the whole industry up and down the value chain both in Canada and the United States."
Exxon CEO Rex Tillerson said the acquisition is meant to "complement its foreign unconventional gas assets, including its participation in the Montney and Horn River shale plays in northeastern British Columbia." Exxon is forecasting natural gas demand to significantly outpace demand for both oil and coal over the next two decades. He says that natural gas is increasingly the fuel of choice for power providers becuase it emits less greenhouse gas pollution than coal.
The article further states that "the Exxon purchase has already raised the value of nearly a dozen compnies with major shale gas holdings, including Encana and Talisman Energy, whose profile could now be elevated in the eyes of other global energy superpowers."
"You couldn't have a more credible enterprise sanctifying the unconventional industry in North America," said Martin Molyneaux of FirstEnergy Capital Corp. "It pretty much revalues the whole industry up and down the value chain both in Canada and the United States."
Exxon CEO Rex Tillerson said the acquisition is meant to "complement its foreign unconventional gas assets, including its participation in the Montney and Horn River shale plays in northeastern British Columbia." Exxon is forecasting natural gas demand to significantly outpace demand for both oil and coal over the next two decades. He says that natural gas is increasingly the fuel of choice for power providers becuase it emits less greenhouse gas pollution than coal.
October 22, 2009 BC Land Sale
At the October 22 British Columbia Land Sale, Parcel 018, which is directly adjacent to the northwest corner of Canadian Spirit Resources Inc.'s (SPI) west block, sold for $61 million. This parcel is 3,738 hectares which equates to a price of $16,315/hectare or $6,605/acre. This sale further validates the value of the Montney in the Farrell Creek area.
Parcel 018 is not only contiguous to SPI's land, but is also very similar in topography and geology. Parcel 019, which is to the west of Parcel 018, is west of the disturbed belt and has more geologic folding leading to more expensive development and consequently sold for a lower price. Parcel 018 and its higher price is a much better comparison to SPI's properties.
The October '09 land sale is a great follow through to the November '08 land sale which generated land prices over $6,000/acre for lands adjacent to SPI and demonstrates continued interest in the Montney shales in northeast British Columbia.
Unconventional gas companies are acquisition targets
Exxon's offer for XTO today could be the beginning of more acquisitions of unconventional gas companies. More deals are expected by the experts.
"Exxon is clearly showing its belief in unconventional resources and shales as a very economic source of development that can compete with other projects," said an analyst with Macquarie Group.
Exxon's senior vice-president Andrew Swiger said "Exxon predicts the global population will consume 50% more natural gas by 2030 than now."
Royal Dutch Shell, which recently bought Duvernay for its Montney play in northeast British Columbia, could be a buyer according to Richard Wyman, a senior oil and gas analyst at Cannacord Adams in Calgary.
A logical place for Shell to look is the Farrell Creek area if they want more exposure to the Montney shales. Shell already has a working relationship with Canadian Spirit Resources Inc. (SPI) through their Farrell Creek Gething CBM joint venture. Although SPI has a joint venture with Canbriam Energy Inc. for SPI's deep rights including the Montney, it's possible that Shell could expand into that area making both Canbrium and SPI potential targets.
"Exxon is clearly showing its belief in unconventional resources and shales as a very economic source of development that can compete with other projects," said an analyst with Macquarie Group.
Exxon's senior vice-president Andrew Swiger said "Exxon predicts the global population will consume 50% more natural gas by 2030 than now."
Royal Dutch Shell, which recently bought Duvernay for its Montney play in northeast British Columbia, could be a buyer according to Richard Wyman, a senior oil and gas analyst at Cannacord Adams in Calgary.
A logical place for Shell to look is the Farrell Creek area if they want more exposure to the Montney shales. Shell already has a working relationship with Canadian Spirit Resources Inc. (SPI) through their Farrell Creek Gething CBM joint venture. Although SPI has a joint venture with Canbriam Energy Inc. for SPI's deep rights including the Montney, it's possible that Shell could expand into that area making both Canbrium and SPI potential targets.
TLM's Montney wells
Word has been spreading around that Talisman (TLM) has tied in two wells and has been flowing gas from them through their gas plant in the greater Farrell Creek area and sweet gas from those two horizontal wells have filled the plant’s current capacity of 23 mmcf/d. The two wells are from their c-87 and/or c-85 locations immediately north of Canadian Spirit Resources Inc.'s (SPI) west block. These two well locations have horizontal wells with horizontal legs extending within one half mile of SPI’s land.
This is very significant due to the proximity of TLM's land to SPI’s and it appears that these horizontal wells are flowing in excess of 11 mmcf/d at the moment. TLM has designed their greater Farrell Creek plant to be expandable up to the capacity of their Spectra pipeline tap of 60 mmcf/d.
TLM has stated in their latest news release that they are achieving early success in the Montney Shale with initial test rates that are exceeding expectations and they are expecting to move into the development stage. TLM also calls their Montney lands “One of the largest economically viable resource plays in North America”. In addition, TLM has stated that their focus in the Montney Shale is in the greater Farrell Creek area which they have derisked.
It is possible that TLM was the winning bidder on the lands that sold at the October BC sale for $60M ($16,300/hectare) and success by TLM significantly derisks and increases SPI’s value because of the similarity in their properties/topography and their close proximity.
This is very significant due to the proximity of TLM's land to SPI’s and it appears that these horizontal wells are flowing in excess of 11 mmcf/d at the moment. TLM has designed their greater Farrell Creek plant to be expandable up to the capacity of their Spectra pipeline tap of 60 mmcf/d.
TLM has stated in their latest news release that they are achieving early success in the Montney Shale with initial test rates that are exceeding expectations and they are expecting to move into the development stage. TLM also calls their Montney lands “One of the largest economically viable resource plays in North America”. In addition, TLM has stated that their focus in the Montney Shale is in the greater Farrell Creek area which they have derisked.
It is possible that TLM was the winning bidder on the lands that sold at the October BC sale for $60M ($16,300/hectare) and success by TLM significantly derisks and increases SPI’s value because of the similarity in their properties/topography and their close proximity.
Shares of EnCana, shale firms, jump on XTO offer
Reuters says that ECA "rose as much as 8.7 percent Monday as invesotrs bid up shares of unconventional gas producers in the wake of Exxon's $30 billion offer for XTO".
"Analysts said that the Exxon offer will boost the value of companies with shale gas assets."
"It's re-pricing unconventional gas in the United States," said Martin Molyneaux, an analyst at FirstEnergy Capital. "The largest oil company in the world thinks there's a ton of upside in unconventional gas."
"Analysts said that the Exxon offer will boost the value of companies with shale gas assets."
"It's re-pricing unconventional gas in the United States," said Martin Molyneaux, an analyst at FirstEnergy Capital. "The largest oil company in the world thinks there's a ton of upside in unconventional gas."
Exxon to Buy XTO in Bet on U.S. Gas
According to a Bloomberg article released today, Exxon has "agreed to buy XTO Energy for $31 billion in a bet that U.S. emissions restrictions will spur increased demand for natural gas".
Exxon is acquiring XTO "for its exposure to shale gas and other unconventional gas discoveries that have reshaped North America's natural gas industry", according to a Reuters' article.
Exxon is expecting demand for natural gas to grow with U.S. legislation that prompts power producers to switch from coal to natural gas. Seeing them step up their exposure to natural gas is certainly a positive sign being that it's coming from such a large oil company.
Exxon is acquiring XTO "for its exposure to shale gas and other unconventional gas discoveries that have reshaped North America's natural gas industry", according to a Reuters' article.
Exxon is expecting demand for natural gas to grow with U.S. legislation that prompts power producers to switch from coal to natural gas. Seeing them step up their exposure to natural gas is certainly a positive sign being that it's coming from such a large oil company.
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