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.

Canadian Spirit Resources Inc. announces public offering

Canadian Spirit Resources Inc. (SPI) announced today that they have filed a short form prospectus for a public offering at $1.70 per share. This offering does not include warrants and is incentivized by an approximate 5% discount to the current share price. This offering appears to show the company's confidence by the fact that they are not offering warrants. If the company can indeed sell this offering at this price, we may have seen a share price bottom and can expect future upside potential.

Newfield announces plans to purchase 50,000 acres

Newfield announced that it plans to buy 50,000 acres in the Marcellus Shale. They are purchasing the land from EOG Resources for $405 million. There is limited production of 7 mmcf/d on this land from 11 wells that have been drilled but not completed.

This deal equates to $8,100 per acre and $20,000 per hectare. This is viewed as a positive news item demonstrating continued strength in the natural gas market. Companies are continuing to make purchases and are paying high prices for unbooked resource potential.

Analyst Updates on SPI

Three analysts released updates on Canadian Spirit Resources Inc. (SPI) today. Indications are that all three analysts are still very bullish on SPI and believe in SPI's longterm upside potential.

Wellington West reiterates their strong buy rating and says that industry data substatiates their project valuation of +$3/share.

Dundee Capital Markets says long term story remains positive. They state that although the initial results are slightly below company expectations, they are not at all discouraged. They still believe in SPI's asset base and exposure to the Montney play over the long term and see a lot of activity coming down the pipe. They are maintaining their Buy rating and feel SPI offers significant exposure to the Montney play. They conclude saying this is a buying opportunity and "their is no disputing the evident upside potential from their Montney land base."

Salman Partners Morning Note maintains SPI as a Top Pick with a target price of $2.50.

SPI announces 4.7mmcf/day initial flow rate from Upper Montney Horizontal Well

Canadian Spirit Resources Inc. (SPI) announced today that they have achieved an intitial flow rate test of up to 4.7 mmcf/d from their c-18-I upper Montney horizontal well. Although the release states that the flow rates are inconsistent with expectations, conversations with management indicate that they are not discouraged at all. The well received an 8 stage frac and the fracture mapping indicates that there may have been issues with the 7th and 8th frac stages. These two fracs may have gone back into the 6th stage resulting in two understimulated stages and one overstimulated stage. With the possibility of issues from three fracs, the intial results were within industry expected rates. Talisman has been achieving between 600 mcf/d to 1 mmcf/d initial rates and 450 mcf/d to 700 mcf/d rates after 30 days of flow. It should be noted that this was SPI and Canbriam's first upper Montney well and results should improve with more experience in completing those zones.

Additional news contained in the release indicate that they will be fracture stimulating the b-17-I lower Montney horizontal well prior to the c-A18-I upper Montney horizontal well due to a casing issue. SPI indicates that they plan to stimulate the c-A18-I upper Montney horizontal well before year-end.

Lastly, consturuction of the gas processing facility has commenced and is expected to be completed in January. This slight delay is due to a delay in regulatory approvals. Because of this delay, year end reserve data may be affected.

We believe that the tone of the news release is not indicative of management's enthusiasm and see this as being a buying opportunity.

Chevron to Buy Shale-Gas Owner Atlas Energy

Chevron Corp. agreed to buy Atlas Energy for $4.3 billion giving it access to the Marcellus Shale formation. Including assumed debt, the deal is worth approximately $0.47/mcf as Chevron estimated that Atlas has 9 tcf of net natural gas resource.

This deal demonstrates the positive long term view of natural gas that the large oil companies have. Together with firming natural gas prices, we see believe there is long term potential in natural gas companies.