Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Cardium Oil Stock Valuations – Have We Seen the Peak?

Companies / Oil Companies Mar 24, 2010 - 02:40 PM GMT

By: Keith_Schaefer

Companies Aftermarket on Wednesday March 17, one of the Calgary oil and gas boutique securities firms, Peters & Co., issued an updated Cardium report – which in a nutshell said:


  1. They estimated decline rates on wells were higher than expected (meaning the production levels of the wells dropped faster than expected)…
  2. …which means operating costs are higher as costs get amortized over a smaller production base…
  3. …and once you factor in the very high land costs recently paid by some companies, the break even on “full cycle”, or all-in costs, in some of the Cardium plays (and there are several) were up to $75/bbl in some cases.

What this means for investors is that it’s quite possible the next few buyouts could be done at a lower valuation than the most recent three (Berens Energy, Result Energy and West Energy).

The Peters report rightfully pointed out that the Cardium data set is STILL so SMALL (only 35 wells over a huge area – the formation stretches 1000 km) that these results could be dramatically revised – up or down – in the next quarter as even more wells come onstream.

One big revision potentially happened today, Monday March 22, as Bellatrix Explorations (BXE-TSX) announced a boomer well of 910 barrels of oil equivalent per day (boe/d), in their Willesden Green Cardium play (81% oil, 19% natural gas).  There was no mention of how long the duration the production test was – 12 days, 12 hours, 12 minutes – investors don’t know.

This would belie the Peters’ report conclusion – but Bellatrix also noted that two Cardium wells hit only 100 boe/d, which is 50%-60% of average IP (initial production) rates in the Cardium so far.

Between the Cardium being SO popular, this negative report and my strong profit position, the Oil and Gas Investments Bulletin portfolio locked in profits of 60%, 70% (over 2 months) and 172% (over 6 months) on its remaining Cardium positions in the first two weeks of March, not including the West Energy take-over.

How future valuations will be affected, only time will tell.

As background, through the second half of 2009, analysts quickly moved the new Cardium horizontal well play up to #2 on their comparison of profitable plays in the Western Canadian Sedimentary Basin (WCSB) based on some initial well results. (Other plays (or formations) include the Viking, the Lower Shaunavon, the Bakken, the Pekisko etc.)

The market started smoking “hopium” and quickly convinced itself that with improvements in completion techniques (fracking), the Cardium economics could approach the Bakken, and that production levels would be consistent across every acre of Cardium lands. 
Stocks started to fly upward.  Then we saw three take-overs in the Cardium in the first three months of 2010 – Berens Energy, Result Energy and West Energy (which was in the OGIB portfolio).

When analysts backed out their estimates of the value of the production in those buyouts, they came up with some very high guesses as to what the value of the raw Cardium lands were for the acquiring companies. (And of course, it was to their benefit to have that # be as big as possible, so they could put the spin on that the rest of the Cardium players still had lots of room to move…)

That caused stocks like Vero Energy and Bellatrix in my portfolio to fly up and up, and I took profits on the day West Energy was taken out – which so far, was very, very close to the top. 

The Peters report said that from the limited number of wells to date, first year declines are 65%-80%.  Using a hypothetical example, if a well has an Initial Production (IP) rate of 200 bopd in the first month, in one year it will only be producing 40-70 bopd.

They estimated the break-even price per barrel on the play – depending on which part of the Cardium – was $58 – $66 on a half cycle basis.  Think of that as meaning just the operating costs, and not including or amortizing in land costs.  As comparison, the Bakken break-even price is more like $40. 

And once land costs are included – especially at some of the land prices being paid recently, up to $4 million per section – the break-even price goes up to $75/bbl.  There is precious little profit margin there!
(This is similar to what happened in the US shale gas plays.)

As an example, the report estimated full cycle economics in the East Pembina part of the Cardium – at $4 million per section land value – having only single digit return at US$80/bbl.

The Cardium has usually been ranked by analysts as #2 in profitability of the WCSB plays.  The Peters report estimated the median return of the 8 reservoir plays to be 44%, and the horizontal wells at Garrington in the Cardium were dead last.  The Garrington well profile (how long it will produce at what rate) was downgraded 15% by Peters, the most of any Cardium play.

About Oil & Gas Investments Bulletin

Keith Schaefer, Editor and Publisher of Oil & Gas Investments Bulletin, writes on oil and natural gas markets - and stocks - in a simple, easy to read manner. He uses research reports and trade magazines, interviews industry experts and executives to identify trends in the oil and gas industry - and writes about them in a public blog. He then finds investments that make money based on that information. Company information is shared only with Oil & Gas Investments subscribers in the Bulletin - they see what he’s buying, when he buys it, and why.

The Oil & Gas Investments Bulletin subscription service finds, researches and profiles growing oil and gas companies.  The Oil and Gas Investments Bulletin is a completely independent service, written to build subscriber loyalty. Companies do not pay in any way to be profiled. For more information about the Bulletin or to subscribe, please visit: www.oilandgas-investments.com.

Legal Disclaimer: Under no circumstances should any Oil and Gas Investments Bulletin material be construed as an offering of securities or investment advice. Readers should consult with his/her professional investment advisor regarding investments in securities referred to herein. It is our opinion that junior public oil and gas companies should be evaluated as speculative investments. The companies on which we focus are typically smaller, early stage, oil and gas producers. Such companies by nature carry a high level of risk. Keith Schaefer is not a registered investment dealer or advisor. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer to buy or sell the securities mentioned, or the giving of investment advice. Oil and Gas Investments is a commercial enterprise whose revenue is solely derived from subscription fees. It has been designed to serve as a research portal for subscribers, who must rely on themselves or their investment advisors in determining the suitability of any investment decisions they wish to make. Keith Schaefer does not receive fees directly or indirectly in connection with any comments or opinions expressed in his reports. He bases his investment decisions based on his research, and will state in each instance the shares held by him in each company. The copyright in all material on this site is held or used by permission by us. The contents of this site are provided for informational purposes only and may not, in any form or by any means, be copied or reproduced, summarized, distributed, modified, transmitted, revised or commercially exploited without our prior written permission.

© 2010, Oil & Gas Investments Bulletin

Contact Us:
Email: nichola@oilandgas-investments.com
Customer Service: 1-877-844-8606
www.oilandgas-investments.com


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in