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

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.

Comments

[bowater:]

a Minnesota company can transport the oil sands slurry thru their pipes without harming them.

irproducts.com

2008 Jul 21 08:38 AM

[mygoals:]

with an estimated 6.6 billion barrels at even a reduced $100/barrel divided by roughly 227million shares outstanding makes your $18-22 extremely conservative. my guess was double yours, and with this news of asian interest over nearby land puts the value at who-knows-where.
my only concern is that BQI does not sell out for less than what they are worth in both land and oil commodities, and allow some big oil bully to dictate to them what they will or won't get.
6.6 billion barrels should assure them that they are in the driver's seat, and that there are plenty of big oil players out there that can help with the refining and distribution process that would want a piece of that action.
Position: LONG Bought at $3.68

2008 Jul 21 12:23 PM

[pansyed:]

You need to look at your estimated barrels and decide upon a recovery factor to make any estimation valid. Steam methods do not recover 100% of reserves.

2008 Jul 21 06:59 PM

[Paxmaker:]

This is an extraordinary opportunity to package SAGD with HTL technology for major benefit. I would think BQI and IVAN should talk about a possible linked deal potential to a possible investor. The benefit would be a projected $20/bbl reduced cost of production and would make the deal worth a lot more to a prospective partner if it were packaged at the front end, as an option.

2008 Jul 21 07:18 PM

[Dwight:]

Looks good if it all takes PLACE I guess it all takes time.

2008 Jul 22 12:38 PM

[Still_Learning:]

Don't forget - 6.6 billion barrels of bitumen doesn't equal 6.6 billion barrels of oil...
Position - Long, bought at $4.98

2008 Jul 23 02:37 AM

[fireball:]

position long 4.83. gbrc is in the testing stage of micrwave machinery which they believe will be of great use in the oil sands. apparently if all goes well the process will produce much cleaner oil as it is extracted. they were pleased with their first tests and are now building a larger prototype for testing for commercial use. i have a small position in gbrc and am watching closely as success will make me jump on a larger position in gbrc and bqi.

2008 Jul 23 02:10 PM

[PhillyD:]

I'd be happy to see my BQI shares for $22.00 per share right now! Any takers? :)

My target when I purchased the shares was $20.00 - $25.00 and this of course cannot happen until they begin taking oil out their sands and begin selling it.

If the market remains over $40.00 per barrell it's profitable. At $75.00 it's downright big money. I think this is one of the better "speculative" investments and am proud to be on the upside so far and waiting for more in 3-5 years.

2008 Jul 23 04:17 PM

[the Lipper:]

Yes I have heard that this BQI will trade higher.

Rival Technologies symbol RVTI has a better upgrading process for heavy crude oil like the type found in oil sands. Even Better than Ivanhoe.

2008 Aug 08 12:56 PM

[Steven Ward:]

I don't think BQI is in the driver's seat at all, whether it is 1.5 or 6.6 billion barrels of bit. At the current price and at already 220 million plus shares, BQI had better see 22.00 a share or better in order to fund anything.
Like it or not, Big Oil has the cash and is the driver here, particularly with skilled labor shortage, upgrading bottlenecks, etc.
BQI has too many shares, too low of a price to be a driver. Expect Saskatoon to do something if BQI gets stubborn and doesn't deal. Like put timeline on development such as use it or lose it.

However, an interesting speculative play.

2008 Aug 12 04:58 PM

[Joel Marple:]

BQI is currently in a strong position, they lie in a market where demand will increase substantially while supply at best will remain level. Many problems do exist which make this a speculative and long play such as labor shortages, a lack of infrastructure, in-situ recovery and Sasketchewans govt, but, in the end, oil demand will keep the price higher than the lower limit of profitability ad infinitum. The only real question is how much BQI will hold out for... because they really aren't in the driver's seat. With this much pressure and all the factors, they might have to settle for less than the analysis. I'd venture a guess at around 14-17$, which still will beat out any index's average annual return, even if it takes 4 years. Great buy, but be prepared to sit on it, and be very skeptical when you hear those extremely high estimates... It's possible, but it's a lot harder than price/total barrels. Disclosure: Very Long, Bought at 3.38

2008 Sep 04 02:51 AM

[iansane:]

BQI hit $1.68 today then recovered to $2.70.What's going on? I bought another 2000 @ $2.21

2008 Sep 10 08:57 PM