What the New Interest in Saskatchewan Oil Sands Means For Oilsands Quest

Jul.21.08 | About: Oilsands Quest, (OBQI)

On Thursday, Canada.com posted a vague article that talked about CPC Corp's (one of Taiwan's largest state-owned petroleum refiners) interest in collaborating with Saskatchewan's Indian Oilsands Corp. in an oil sands joint venture. On Saturday, some more light was shed on the details.

CPC Corp. is planning to spend $800 million dollars over the next five years to acquire and explore potential oil sands leases in Saskatchewan. According to Ken Thomas (a Saskatoon-based economic development expert who has business connections in Taiwan and who connected CPC with Indian Oilsands Corp), there have been numerous discussions with the Saskatchewan government regarding an oil sands project for the CPC / Indian Oilsands joint venture. In August, the joint venture plans to aggressively buy Saskatchewan oil sands acreage.

As a reminder, Oilsands Quest (BQI) is essentially the only company pursuing oil sands in Saskatchewan (Petrobank has a small piece of acreage that is surrounded by BQI's acreage) with 618,000 acres of oil sands permits and licenses.

On the surface, the Canada.com deal may not seem to be of much significance. However, I think the implications are very significant for Oilsands Quest because:

  1. The new CPC / Indian Oilsands joint venture further validates BQI's belief that Saskatchewan's contains material amounts of oil sands, which can be commercially produced. As a reminder, only a few years ago, the Bears on BQI believed that Saskatchewan didn't hold significant oil sands. Less than a month ago (on June 26th), BQI put out an updated resource estimate of 6.6 billion barrels, 340% from the 1.5 billion barrel estimate only one year earlier. 
  2. If the CPC / Indian Oilsands joint venture does aggressively pursue purchasing Saskatchewan oil sands acreage at the August land auction, that will put out an updated valuation metric on Saskatchewan oil sands acreage. That should facilitate the more accurate valuation of BQI's Saskatchewan oil sands assets.
  3. The formal announcement of interest in Saskatchewan oil sands from a large and/or foreign oil company could be a wake up call for any Big Oil companies that have been considering partnering the BQI. In a nutshell, if they snooze, the may lose. This might be a catalyst to a BQI / Big Oil joint venture. After about three years of operating in Saskatchewan for BQI, it appears that, finally, other companies are starting to take notice of the province's oil sands potential. Looks like things could get even more exciting from here.

Next stop for BQI… test well results later this year, which should lift much or all of the remaining doubt about BQI's acreage commercial prospectivity. And then, by early-2009, a joint venture which should make transparent what industry players are willing to pay for BQI's assets and what the company is really worth. I think that figure should be $18-22.

Disclosure: Long.