Oilsands Quest Inc.: Undervalued Canadian Oilsands Play

Oilsands Quest Inc. (BQI) (formerly CanWest Petroleum Corporation) is engaged in a variety of projects with an emphasis on oil sands and oil shale exploration in Western Canada. Its lead project is its Axe Lake Discovery, an oil sands deposit the company has identified through exploration drilling success on its permit lands in northwest Saskatchewan. This is the first major oil sands discovery in the province’s history. Thursday management increased its estimated resource potential of the Axe Lake Discovery (area A in figure below) from 1.5 billion barrels (released early April) up to 2.5 billion barrels.

Management also released its estimate of resource potential for selected areas outside the Axe Lake Discovery area (areas B and C in figure below) and for the adjacent permits in Alberta (area D in figure below) which is 3.0 billion barrels and 4.5 billion barrels respectively.

On a fully-diluted basis the company has currently 250 million shares, of which management owns 19%. If we take the acquisition price of the former privately held North American Oil Sands Company paid by Statoil on April 27th this year at $0.91 per barrel recoverable reserves and apply it to BQI's 10 billion of estimated reserves (assuming 50% is recoverable), we get an estimated market value of $4.55 billion for Oilsands Quest, or $18 per fully-diluted share. Beside the favorable valuation the company has top notch management with a track record of building an oilsands company (CEO, Chris Hopkins founded Synenco [TSX: SYN]).

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The sharp price jump yesterday indicates that BQI could have reached its bottom at the $2.50 level (see chart below) because the move was accompanied by an extremely high turnover.

Disclosure: the author has currently no position in BQI, but intends to buy shares of BQI in the coming weeks.

Comments

[bobkimmerle]

One of the maajor problems with this stock is dilution----to develope this property will require-billions.

[c2]

bob,

I would normaly agree with you if BQI IMO had any intention of producing oil. In my estimation, it is looking to be bought out like North American Sands got bought or enter into a JV with a major. I don't think dilution should be a problem, or a big one, anyway.