Sproule's estimate for Montney is 8.4 tcf using 3% limestone porosity

Sproule has also included an estimate of natural gas on SPI's lands to be 8.4 tcf based upon a 3% limestone porosity cutoff. SPI's 35% net interest equals 2.94 tcf. At a 20% recovery rate, SPI's net asset value is $7.00/share. With a 30% recovery rate, SPI's net asset value is $10.00/share. Net asset value calculation ranges for additional values per mcf will be shown soon.

Sproule releases estimate of gas in Montney Formation

Canadian Spirit Resources Inc. (SPI) announced today that Sproule has estimated the total gross discovered and undiscovered resource in the Montney Formation to be 3.6 tcf on SPI’s lands at Farrell Creek. SPI has a 35% net interest in the Montney equaling 1.26 tcf. With a recovery rate of 20% and $0.49/mcf value, SPI’s net asset value is $3.55/share. With a 30% recovery rate, SPI’s net asset value is $4.80/share. Clearly, SPI is an undervalued company with a lot of upside potential that will be realized once the market sentiment for E&P natural gas companies improves.

Shell sees natural gas demand increasing 2%/year and 50% by 2030

In a speech given by Malcom Brinded, Executive Director of Shell, he states that "global gas demand is likely to grow by around 2% per year." He adds, "by 2030, we’re looking at a rise of almost 50%."

Shell sees demand growth coming from the electricity sector. "Natural gas is the cleanest burning fossil fuel and has many other advantages that make it a highly attractive fuel for the electricity sector."

M&A Activity Leads to GS Attractive Coverage View on E&P Stocks

Goldman Sachs (GS) says that the “potential for M&A activity via corporate acquisitions and joint ventures adds another leg to our Attractive coverage view on E&P stocks.” They see a bottom and rise in natural gas prices. They reiterate their Attractive coverage view on E&P stocks based upon higher natural gas prices and the potential for additional corporate M&A.

With recent corporate acquisitions, GS says that “valuations of recent transactions suggest buyers are looking through weak North American natural gas prices and are willing to assume mid-cycle commodity prices while still paying for unbooked resource potential.” Three recent acquisition announcements involving Encore, XTO and Mariner Energy were all close to GS’s mid-cycle net asset valuations assuming $6.50/MMBtu long term natural gas prices. The values include unbooked resource potential as well. The recent M&A activity supports valuation floors even if natural gas remains low.

GS believes that natural gas prices are bottoming and that they are at a cyclical bottom. They believe that natural gas prices will move towards the high end of their $4.00 to $6.50/MMBtu trading range in the next 6 to 9 months. Although Street sentiment is negative, GS believes that small improvements in data points can be a positive catalyst for E&P equities.

With Canadian Spirit Resources Inc. (SPI) in a period of lower acitivity due to road bans in northeast British Columbia, now may be a time start buying at these prices. Furthermore, SPI has initiated a buy back of their stock because they believe that recent trading does not accurately reflect the value of their company. As Dundee Capital Markets says about SPI, “It’s only a matter of time!”