Malcolm Shaw

Oil & gas, small-cap, commodities
Malcolm Shaw
Oil & gas, small-cap, commodities
Contributor since: 2012
blueice,
I agree in some respects. Management has lost all credibility in the eyes of investors and the market. Having said that, even a market darling like Emerge (EMES) is down from highs of $140 to a current level of just over $20. For perspective, that's an 85% loss from one of the most favoured names in the silica sand business.
After having read the preliminary economic assessment, I still believe that the Firebag project has the potential to be a significant Canadian frac sand source, but it will take a different market and execution by management.
The company has been public for far longer than 20 months. ABM was listed on the TSX Venture in late 2006.
Insider sale filings are readily available on canadianinsider.com should you wish to review them.
Like many resource companies, ABM is being left in the dust during this commodity bust cycle, but I intend to follow the project through to the next cycle.
Best of luck, but for now most will simply view ABM as a capital loss.
I do still follow it, yes. It's been hard to evaluate how successful the most recent TdF drilling program was, as I haven't seen updated production numbers and the well tests from the company were inconclusive in many instances. The company seems to believe that Puesto Quince is a discovery, but it appears they want to frack the PQX-3 well to confirm that. There may be better reservoir nearby but it will require further drilling. The recent placement that you are referring to was with a relatively new financial backer/investor based in Argentina. Country politics remain challenged. There is an election this October which could bring about some positive change. CWV has been disappointing over the last year, but the TdF acreage remains intriguing.
Well, you got your answer on February 13th with the release of the Firebag PEA. Clearly the project appears to be highly economic. Sentiment in the oil sector is poor and I suspect that many will write off Firebag as a project that requires too much capex in a company that is just too small to raise it. There are others who will recognize the potential value on the table and will rub their hands together at the prospect of being able to quietly evaluate the merits of the operation while everyone else is too busy wondering where the money will come from. With the labour and materials slack in the region/sector, it's a great time to build a project in Fort McMurray… as long as your time horizon is measured in years at the very least. Real investors are hard to come by these days, which is why good investors tend to make their best decisions in uncertain times, while momentum players and traders are too timid to enter the fray.
No need for more capital yet in my view. Valeura needs to complete the 3D on the 100% Banarli license this summer to firm up targets, then drill those targets. That's all internally funded, as is a modest "base" program on the 40% joint venture lands. Perhaps once the Banarli 3D survey is complete this summer, more capital could be deployed, but at this time Valeura is well positioned to self-finance its way to the cusp of what could truly be an inflection point in the company's history. As I've said before, I sincerely doubt that the new play type ends at the block boundary that is less than half a mile from the Gurgen discovery well. Valeura has 15 leads from existing 2D seismic already identified at Banarli… if even 1/2 of those turn into prospects, and half of those again into discoveries, Valeura's fortunes could look completely different a year from now. It's worth noting that the market currently ascribes zero value to the shale gas potential of Banarli, which is substantial in my view… in the order of trillions of cubic feet. If that shale gas potential captures even a hint of market attention, the effect could be impressive. Gas resources in continental Europe are hard to come by and history has shown that when a new European "tight gas" play hits the radar and captures the attention of energy investors, the valuation re-rate can be substantial. Time will tell, but at 1.3x EV/CF by my estimates, VLE is one of my favourite risk-rewards in the market, which is why I'm long the stock.
Great summary Kevin. I've followed VLE for years and I think that the recent Gurgen discovery may be an inflection point. It establishes a new play type (3-way closures on the down-thrown side of faults) and I sincerely doubt that play type ends at the boundary between the 40%-owned land they are on now and the 100%-owned land (Banarli block) that starts less than half a mile away. There are numerous "leads" on the Banarli block which are already covered by 2D seismic, but the 3D survey planned for this summer will really set the table for Q3/Q4 drilling. If successful, with recent Gurgen wells doing ~ 3 mmcf/d (500 boepd) per well, Valeura could look very different a year from now. The VLE team did a great job when they were in Libya, sniffing out structures that had been overlooked by prior operators… are they on the cusp of doing that again now? Time will tell. Management has been making efforts to cut G&A recently, though I find that most international juniors have stubbornly high G&A. The good news, as you say, is that G&A is relatively fixed, so as production ramps up, it becomes less relevant on a percentage basis.
I wrote a brief note on VLE last November (http://bit.ly/1zaFgDq) and a brief update in January (http://bit.ly/1BURnZM).
It'll be an interesting year. The shale gas option is currently valued at zero. That's usually the case until it isn't. If the market latches on to the upside exposure associated with the shale gas, this 1.5x EV/CF valuation could re-rate quite quickly… especially if there is success on the Banarli license.
Should see a reserves update in early March. I'm long and I'll be watching closely all year long on this one. Thanks again for an interesting read.
For those wanting to keep track of other names that I write on from time to time, please feel free to follow my blog at the following link: http://bit.ly/1BJUzpQ
Not much to say there other than what the company has already said. Greenfield exploration is incredibly difficult. It's nice to see that they are getting some alteration in these early holes, but it's very early days indeed.
In my opinion, CNE's poor performance is 100% due to the price of oil dropping. The valuation at current levels is verging on "shocking". This is not unique to CNE, as it covers the entire sector, domestic and international oil companies alike. It's worth noting that a large portion of CNE's revenue is tied to natural gas contracts, which are not indexed to the oil price. I have a very hard time seeing current levels as anything other than good value over the long term...
There's no doubt that it's a positive as it shows POE is able to transact on their assets at valuations higher than those reflected in the market. What more can an investor ask for?
I think that today's news regarding the farm-out of East Jabung is a welcome development as well.
Those are some great comments. Thanks for that.
Just a final note blueice... Athabasca HAS received their permits! The receipt of permits coincided with the high in the stock price. Perhaps the preliminary economic assessment will be the next milestone to watch for...
blueice,
Your sentiment echoes that of many. Pressure on the oil price has dampened drilling expectations, which has impacted the U.S. silica sand producers, and is a double whammy on a small/micro cap like ABM.
The good thing about silica sand in my mind is that it is kind of like wheat… there is ALWAYS demand of some sort, and the "weather" (weather being the oil and/or gas prices in the silica sand business) determines times of feast or famine, but make no mistake, you will always need it. The only real question in my mind is one of economics, which a PEA (preliminary economic assessment) should shed some light on in a couple/few months. If it's economic, it is a multi-decadal asset in close proximity to the core of the Western Canadian Sedimentary basin. That's quite a potential prize.
With that in mind, the value of the silica sand operation as determined by the market at any point in time is irrelevant to me, as long as the company can survive without any excessive dilution while waiting for the "weather" to improve.
Can Athabasca survive a dip in drilling activity? History would suggest "yes", based on the company's tight share structure and profitable history. I look forward to seeing the quarterly results near month end and perhaps an update on the plan for Firebag. Athabasca does not have fancy offices or high salaries... and with the aggregate business, you're only a few quarters away from being a "just in time" supplier, so there's not too much working capital required unless you are scaling up (in which case business shoould be good).
Western Canada absolutely needs to increase domestic silica sand supply. Rail border crossings are limited and traffic is heavy. To use the wheat analogy again, it makes little sense shipping wheat an extra 1500 miles when you have access to wheat from a local (closer) source that will serve the purpose.
That pretty much sums up my thesis on Firebag. A lot of things have to come together for me to be right and management has to execute, but I think that to suggest it's game over at this point has little to do with fundamentals and more to do with which way the wind is blowing right now. Time will tell.
Amen! Having the sand resource is just a part of the battle. Management has a real test ahead of them. I'll be keen to see how their aggregate business is doing when they report at the end of next month and I hope to see them make moves firming up the commercial value throughout the rest of 2014 and early 2015. A bit of a rout in the markets today. Almost nothing that I follow was spared.
Thanks for the questions blue ice and no_idea…
No_idea: Yes, we have the same sand supply issues in Canada as you guys do in the U.S. Most of Canada's sand is imported from the U.S., which is one of the reasons that Firebag could be so important - a large, domestic, silica sand source. As for the rest of your questions, most, if not all, should be answered when the company completes a PEA (preliminary economic assessment). The PEA will include estimates of capital costs, operating costs, revenue potential, logistics details etc.
I would argue that the frac sand project is "free" at this point, depending on your view of the value of the existing aggregate business. I look forward to seeing the results from the aggregate business in the latest quarter when the company reports in about a month.
blueice: Your sentiments and observations regarding the trading are echoed by many. I believe the current lack of interest (reflected in price and volume) has to do with a few things: 1) The whole Canadian resource market is under pressure, which tends to put pressure on all materials stocks as negative funds flow persists; 2) the market is waiting for ABM to finance in order to build the project, which can create overhang as new buyers take a "wait and see" approach before stepping in ahead of a potential deal (I tend to believe that this is putting the cart before the horse, as a PEA will be needed before the company and market can point to a 43-101 compliant document detailing capital costs, and hence capital requirements); 3) the market is waiting for customers (frackers) to give some kind of official "green light" to the use of Firebag sand… To me, it appears that Firebag sand stacks up well against Brady Brown sand in terms of physical properties, and the industry pumps millions of tons of Brady Brown into frac'd wells in Texas every year, so I'm fairly optimistic in that regard. So far the samples that ABM has sent for testing are literally just washed and screened. With a little bit of additional processing, there's a good chance that the quality can be raised further, but time will tell.
One last point. I've spent a fair amount of time trying to figure out what sand sizes are used in which formations in Canada, but it's been an uphill battle. One good data point that I did get was from a Montney-focused E&P company. I was told that they pump a 50/140 sand mixture into their wells… that would include ABM's 40/70 fraction and 70/140 fraction. If that's the case for other Montney operators, ABM could be well positioned given the scale and longevity of the Montney play in the Western Canadian Sedimentary Basin.
Not much to say other than that I hope they are more successful this summer in terms of getting holes down than they were last winter!
It's been a successful summer for FCU with the drill bit and I would hope to see an initial resource estimate sometime this winter. On another note, for those still following the area, NexGen Energy (NXE on the TSX Venture) also had some very interesting drill results in their "on trend" Arrow zone yesterday. The company reported over 50 metres of "off-scale" uranium mineralization. That was certainly enough to grab my attention, as I did end up buying a small starter position as a result. It's hard to know just how the PLS area will play out over time (never mind the uranium market), but I firmly believe that PLS area is going to be nucleus for a whole camp on the western side of the Athabasca Basin at some point.
Looks like the receipt of the Firebag permit was well received by the market. My view on the project remains unchanged, but I expect that the fact that the permit has been granted may play well in terms of investor psychology. Cheers!
Thanks for the comments. I do still follow VLE and would attribute the retracement in the share price to lack on investor interest in illiquid small cap resource companies in general. Operationally, they look to the doing exactly what they said they will do, but small cap names have a funny way of going into and out of favor in the eyes of the market. It still appears cheap to me and I look forward to seeing what the next quarter brings in terms of production. Banarli remains a "call option" on the deep gas potential.
Hard to say. With the credit line announced recently, Oklahoma appears to be on track. Poland is encouraging, but appears to be inconclusive.
Looks like my musings may be put to the test...
It's been a long and painful road thus far with POE. At $2, I think it continues to provide long-tail optionality, but remains speculative. As per prior POE press releases, H2 2014 could/should see SAGD pilot well-pair results, exploration drilling in Thailand, and possibly some kind of JV on the Indonesian properties.
My math yields a similar result. From conversations I've had, it's my belief that the market is in "show me" mode with respect to Turkey for PLG. Possible permitting issues for other industry players in the country are a factor in some people's minds, which leads them to heavily discount the Turkish assets. Time will tell whether or not that is a fair stance, but for now it appears that Kinsley is the most likely driver for the story going forward.
For those following….. Some results today out of PLG/NEV. Confirmatory of the fact that the system is fertile and open to expansion laterally and in multiple horizons. They are half-way through the drilling program with 9 holes in the lab right now waiting for assays. More drilling is required, but PLG appears to be quite positive on the project in light of the CEO quote in today's press release. The market reaction was muted, but Kinsley has produced spectacular results in prior holes and statistics would suggest that there's more to find.
Thanks for the comments. I've looked at Claim Post. My main questions are that: 1) the sand requires processing, as there are fines associated with the deposit that will need to be processed out (ABM has almost no fines), 2) it is still a long truck haul before it gets to rail (it appears to be longer than ABM), 3) First Nations consultation is required (ABM already has a JV with the local First Nation), and 4) it is still in Manitoba, which is still a lot farther from the WCSB than Firebag is. I'm keeping an eye on it, but I just haven't delved to the next level of due diligence beyond the questions that I have listed above.
For what it's worth, the recently published Dundee Capital Markets research report report has estimated all-in costs per tonne of $57 during start-up, declining to $53/tonne by 2020 and beyond.
I figured that it was probably just a case of mistaken identity… cheers!
Vixed,
That is completely false. You need to find more accurate sources of information. Athabasca Minerals was formed by a qualifying transaction through Hali Capital late in 2006 and the company began trading as Athabasca Minerals in early 2007. The company has been interested in industrial minerals since its inception, including halite (salt/road salt), gypsum, limestone, aggregates, and silica sand.
With all due respect, to suggest otherwise (as you have) is either disinformation or confusion on your part.
Yesterday Mackie took their target down to $1.30 from $1.55...
Hard to say. It's hard to imagine that 50% of the company's market cap was/is dependent on a single well, but right now that's what sellers are saying as they all rush for the exit at the same time.
Some disappointing news out of Crown Point this morning. I posted a comment at the bottom of the initial article for those who are interested (http://bit.ly/1jcCBmn)
Crown Point has reported on La Hoyada-1 and results (http://on.mktw.net/1jc...) showed possible "emulsion blockage" in the wellbore. Recovered oil was minor and certainly not enough to get excited about.
The stock will obviously sell off, but TdF drilling continues, with Puesto Quince to be drilled in about 6-8 weeks.
TdF provides a value backstop in the 40-50c range, with Puesto Quince having the ability to double ‎that.
It's too bad... They had a real shot at Hoyada and the nearby fields with production from similar intervals makes this a bit of a head-scratcher. Obviously, the Vaca Muerta shale is still a target in the block, which covers over 300,000 acres, 100,000 of which is in the oil window.
Crown Point can fund themselves from cash flow for TdF drilling, which should ramp production in the second half of the year. If I assume an expected 2500 boepd run-rate coming out the back end of the current 10-well drilling program, CWV will generate about $13mm pear year from TdF under the old pricing platform (using $15/boe netbacks). If/when CWV gets "New Gas" pricing in Tierra del Fuego (which the government has apparently started to roll out to producers within the last month or so), it has the potential to increase netbacks anywhere from 50-100% on incremental production volumes.
Some news out of PLG/NEV this morning… here is an excerpt from Pilot's press release:
======================...
Pilot Gold Inc. (PLG - TSX) (“Pilot Gold” or the “Company”) is pleased to announce that step-out drilling at Kinsley Mountain’s Right Spot target has returned long runs of predominantly oxide gold mineralization. The Right Spot target is located along the 2 kilometre-long NNE Western Flank trend, 1 kilometre south of the recently discovered high-grade zone.
Highlights from the Right Spot area include:
3.35 g/t (grams per tonne) gold over 41.1 metres in PK144, including
- 5.11 g/t gold over 4.6 metres;
3.08 g/t gold over 19.8 metres in PK138;
2.43 g/t gold over 19.8 metres in PK139;
1.75 g/t gold over 22.9 metres in PK142;
“We are at a tipping point in the evolution of Kinsley Mountain, with compelling near surface oxidized mineralization complementing the high grade Western Flank zone,” stated Matt Lennox-King, President and CEO.
======================...
Near-surface oxide gold is the bread and butter of Nevada open pit mining operations as it is typically cheap to mine and process. Between the high-grade zone at the Western Flank and this expanding mineralized near/at surface zone at the Right Spot, investors have plenty to be optimistic about.
It's still early days, but with 3 drills working on the property, the 2014 drill program is off to a good start.