Goldman Sachs upgrades E&P Sector to Attractive

Goldman Sachs upgraded the E&P sector to Attractive and said that natural gas prices are near a bottom. They believe that prices could hit $6/mmbtu before the end of the year. They say that E&P stocks reflect low long term natural gas prices and see a 28% upside to their target prices. Reasons for their optimism include:

1) More coal to gas substitutions,
2) Broader demand appears to be improving,
3) A potential 100 to 140 rig count reduction that is unlikely to reverse until gas prices significantly improve, and
4) More moderate storage builds.

Goldman Sachs says "the Street is too bearish" and "E&P stocks are attractively valued after pullback." The Street is overestimating summer storage builds and prices will rise. They are upgrading E&P stocks to Attractive from Neutral because natural gas prices are near bottom and likely to rise in the coming months and they see limited downside to natural gas prices.

Canadian Spirit Resources Inc. (SPI) is one the companies that we expect to see improved share prices as gas prices and sentiment improve. We should see a reversal of recent weakness with:

1) The upcoming Sproule Resource Report to be released shortly,
2) The completion of the c-A48-I horizontal well into the lower Montney, and
3) The spudding of the c-18-I horizontal well into the upper Montney in June.

The risk/reward of SPI is still very attractive due to its exposure to some of the best Montney land available and a well funded JV partner in Canbriam. Analysts are saying that SPI's story is among the best out there and several have recently issued very upbeat research.

2010 Atlantic Hurricane Season Predicted to be Above Normal

The 2010 Atlantic Hurricane Season is predicted to pose an above normal threat to the Gulf and East Coast. Accuweather forecasts 16 to 18 named storms forming in the Atlantic with five becoming hurricanes. "This year has a chance to be an extreme season," said Joe Bastardi, chief long-range and hurricane forecaster. This prediction follows above average predictions by Colorado State University, WSI Inc. and Commodity Weather Group.

27% of U.S. oil and 15% of U.S. natural gas production is located in the Gulf of Mexico.

Dundee Capital Markets Releases Energy Watch Update: "Only a Matter of Time!"

Dundee Capital Markets has issued an update to their Energy Watch List (click here for the update). They conclude that it's "Only a matter of time!" before Canadian Spirit Resources Inc. (SPI) achieves full commercialization of its joint venture Montney program.

- "The company has also announced the engineering of the planned 20 mmcf/day compression and dehydration facility has begun and is expeceted to be completed and in operation during the fourth quarter of 2010." This demonstrates the confidence that SPI and Canbriam Energy Inc. have in the potential commercialization of their Montney land.

- "Canadian Spirit is an up and coming Montney player with plenty of potential production and reserve growth to look forward to."

- Talisman Energy has land adjacent to SPI and has achieved significant success in the Montney and expects to be producing 40-60 mmcf/day by the end of 2010.

- Dundee concludes that the "planning and engineering of a 20 mmcf/day porcessing facility is a positive sign for things to come," and with the significant success by Talisman on adjacent lands, SPI is an emerging Montney player with plenty of upside.

Terra Energy Announces Strategic Push into the Montney Fairway in the Farrell Creek Area

Terra Energy announced today that they will be making a "strategic push into the Montney Fairway in Northeast British Columbia." They own 17 net sections of land in the Farrell Creek area and will be targeting the Montney and Doig formations. The land is adjacent to and in close proximity to Taliman Energy's land and very near Canadian Spirit Resources Inc.'s (SPI) land. Terra's lands are "in close proximity to several high rate Montney horizontal tests." Terra hopes to advance the project to the commercial development stage. "The Company is now conducting preliminary engineering work to construct a 30 MMCF/day gas processing plant in the Farrell Creek/Altares area."

Terra's activity is more evidence that the Montney Fairway in the Farrell Creek area is a hotbed for exploration activity and another sign that SPI is located in the middle of one of North America's hottest natural gas plays.

Salman Partners Research Report released with a $2.50 target

Salman Partners has released a new Research Report on Canadian Spirit Resources Inc. (SPI) with a Speculative Buy recommendation and a $2.50 target price based upon "modest assumptions about recovery rates and the value of reserves in the ground." "That represents a 50% discount to our estimate of Net Asset Value, simply because of the early stage of development."

- "Land sale activity in 2008 and 2009, together with drilling activity conducted by Talisman Energy, Progress Energy and Crew Energy on adjacent properties has validated the prospectivity of Canadian Spirit's acreage."

- Salman Partners says Phil Geiger, President of SPI, was a pioneer in unconventional gas and was on to "unconventional gas long before the phrase crept into the lexicon." He and SPI surveyed all of western Canada in 2002 looking for gas in unconventional formations and chose the Farrell Creek area at a time when it was a "blank spot on the map" and when there was very little competition for land. "Today, NE B.C. is a hotbed of exploration activity driven by large quantities of gas that have been found in the Montney formation." "By being early on the play and establishing a significant toe-hold before the rest of the petroleum industry got really excited about the Montney, Canadian Spirit has been able to attract farm-in partners and is benefitting from drilling activity conducted by competitors on surrounding acreage." Because Geiger and SPI were able to lease land when there was very little interest in the area, SPI has been able to lease the best land that is suitable for development with a high gas resource potential.

- Talisman Energy has "drilled a number of very productive vertical wells" and is satisfied with the results. They estimate that recoveries will be 5 bcf/well able to produce at a stabalized rate of 4.5mcf/day after 30 days of production. Talisman "built a 23 mmcf/day gas plant, which is alread full and is being expanded to 60 mmcf/day." Talisman's success has significantly de-risked SPI's Montney play because the two companies' land is adjacent to one another.

- "Canadian Spirit and its partner, Canbriam Energy, are beneficiaries of Talisman's activity in the Farrell Creek area. They are able to look at the results of Talisman's wells that are more than a year old, and some of Talisman's 2010 wells will be on a little 'island' of Talisman acreage, which is completely surrounded by Canadian Spirit land holdings."

- "Canbriam and Canadian Spirit could have three wells on-stream and producing from the Montney by year-end, at a combined rate of 20.0 mmcf/day or approximately 6.0 mmcf/day net to CSRI. Assuming an Aeco gas price of $6.50/mcf, we estimate the company could generate $13.2 million in cash flow in 2011."

- "Assuming modest recovery rates and production volumes, the stock could be worth $5.00/share based on the Montney alone."