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  • Big Oil Consolidates African Oil Assets

    By Resource News Report

    The recent announcement of the $1.35 billion Glencore Xstrata (GLNCY-LON) takeover of Chad oil producer Caracal Energy (CRCL-LON) and the $1.55 billion Al Mirqab Capital takeover of Heritage Oil (HOIL-LON) announced last week are the beginning of a big year for African oils consolidation.

    GMP Securities analyst Tao Ly commented recently: "following Glencore's bid for Caracal, we think the significance of this latest bid for Heritage again confirms that valuations in the sector are low enough to attract opportune M&A…"

    In addition to low valuations, the key driver of further consolidation in the African oil space will be access to rift basin assets. These basins have accounted for almost all of the billion-barrel-plus oil discoveries onshore Africa in recent years with the Kenya rift basins currently ranked as the hottest onshore exploration jurisdiction in the world

    With significant industry interest, low valuations relative to resource potential, and large rift basin acreage positions, Kenyan rift oil companies Africa Oil Corp. (AOI-TSX; AOIFF-US) and Taipan Resources (TPN-TSX-V; TAIPF-US) are primed for potential takeovers.

    The first major rift basin oil acquisition was completed by Tullow Oil (TLW-LON) in 2010 with the $1.45 billion purchase of the Heritage Oil Lake Albert Rift Basin assets in Uganda. Tullow then sold two-thirds of the Lake Albert assets to Chinese National Oil Company CNOOC (CEO-NYSE) and Supermajor Total SA (TOT-NYSE) in 2011 for $2.9 billion. Tullow estimates that there is 1.7 billion barrels of recoverable oil in the Lake Albert Rift Basin and is going to spend billions of dollars developing this asset with its partners.

    Tullow has also been a leader in the rift basin in Kenya where it farmed-into the Kenyan exploration assets of Africa Oil Corp. prior to the play-opening Ngamia-1 discovery that was made in 2012.

    Early entrants into the rift basins In Kenya have had huge exploration success and stock market gains. The market cap of Africa Oil Corp. increased from $250 million prior to drilling to $2.5 billion after the Ngamia-1 well. There have been a number of follow-on discoveries in Kenya and Africa Oil Corp. now has 7 rigs operating in the region with partners Tullow, Marathon Oil (MRO-NYSE), and Afren (AFR-LON) and is drilling six new basin opening wells this year.

    Over 368 million barrels of oil have been discovered so far in Kenya with expectations for the total amount of resources to be well above a billion barrels of oil. With large scalable concentrated rift basin assets, Africa Oil is firmly in the sweet spot to be acquired by larger oil companies like CNOOC and Total. The question is not if, but when and for how much.

    It is likely that Africa Oil Corp. has already had a number of approaches from Big Oil and is waiting for the right time to sell. This is likely to be later this year after the company has completed further appraisal wells and well tests to better determine the value of its discovered resources in the Lokichar basin. The company is also drilling a number of potential basin-opening wells this year that it may want to complete prior to a take-out.

    One of the other reasons Africa Oil is so attractive is that the company has a market cap of only $2.5 billion, making it an easy tuck-in acquisition for Big Oil companies. Most of the other companies operating in Kenya like Marathon Oil and Tullow have market caps of well over $10 billion, while mid-cap companies like Afren have an asset base that is too diversified.

    Taipan Resources is the fourth largest acreage holder in Kenya and has a two well fully funded drilling program in 2014 targeting over $1 billion of resources net to the company. Sproule International has also independently assessed that on Taipan's operated Block 2B alone, there is mean gross unrisked prospective prospective resources of 1.6 billion barrels based on 19 exploration leads. Taipan has a market cap of only $40 million, making the company the other likely takeover candidate in Kenya in 2014.

    Big Oil won't be interested in Taipan, they are willing to pay billions of dollars after a discovery is made. But mid-sized exploration companies can't afford to wait and will take the opportunity to make a cheap acquisition with two high impact oil wells fully carried and funded. With 19 exploration leads Block 2B would also give a larger, cash rich oil company years of drilling inventory in the hottest onshore rift basin exploration region in the world.

    While the market hasn't yet fully appreciated the potential of Taipan's assets, industry certainly has. Premier Oil (PMO-LON) is spending $30.5 million on one of Taipan's blocks this year to drill the Badada prospect after agreeing to a farm-in deal in 2013, and Afren is spending a similar amount on Taipan's other block to drill the Khorof prospect this year.

    Paul Logan, who was the Chief Geologist at Heritage Oil that made the original Lake Albert Rift Basin discoveries, also joined Taipan late last year. Logan discovered the 1.7 billion barrels in the Lake Albert Rift Basin, drilling six discovery wells in a row with 100% exploration success.

    At the recent Premier Oil investor day, Andrew Lodge Exploration Director of Premier also commented on Block 2B:

    "the trick to this is to attempt to identify the Tertiary Rift Basins within the Anza Basin which are analogous to Uganda and the Lokichar discoveries. We think we've found that through farming into Taipan's acreage. We took a 55% interest. We have just done some prospective seismic survey, verified the main prospect and will drill that prospect, Badada this year. The ultimate resource potential in the block is over 1 billion barrels but the key to this, the key unlocker will be the Badada well...."

    Taipan is now fully funded for the Badada and Khorof wells this year with an unrisked NPV net to Taipan of $1.34 billion. This equates to over $8 per share on a fully diluted basis. Taipan closed at $0.40 per share yesterday.

    The risked value of Taipan's two wells this year is $1.50 per share. This means that an acquirer could justify paying up to $1.50 per share pre-drilling.

    At $0.40 per share Taipan is an attractive risk/reward proposition for mid-sized exploration company. If the market doesn't close the Taipan valuation gap, industry will.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 08 1:42 PM | Link | Comment!
  • Catalyst Copper Adds $1.7 Billion In Gold And Silver Credits

    By Metal Guru

    Catalyst Copper (CCY-TSX.V) recently announced an updated Measured plus Indicated (M&I) Resource of 3.7 billion lbs of copper; 446,000 oz of gold and 31.7 million oz of silver at the La Verde copper project in Michoacán State, México.

    When CCY optioned the Mexican property in 2010, there was a non NI 43-101 compliant resource with insufficient data to include any gold or silver credits.

    The core from historic drilling had been destroyed so Catalyst began by twinning sufficient holes to bring the resource to NI 43-101 compliant standards.

    The Gold and Silver credits alone are worth $1.7 billion at today's spot prices.

    In addition, Inferred Mineral Resources at La Verde are currently estimated to contain 2.7 billion lbs of copper; 250,000 oz of gold; and 21.0 million oz of silver.

    La Verde consists of two proximal deposits referred to as East Hill and West Hill. The deposits are amenable to low-cost open-pit mining methods and are located in an area of excellent infrastructure; rail, power, water and highways all cross the property.

    A Preliminary Economic Assessment (PEA) of La Verde is expected to be completed during 2012.

    Catalyst has now completed more than 30,000 meters of drilling and 200 kilometers of geophysics (NYSE:IP).

    "Catalyst is very pleased with the updated resources at La Verde," confirms Terry Hodson, V.P. of Exploration. "We can now complete our Initial Economic Assessment."

    Despite the aggressive drilling program, and a rapidly growing 43-101 resource, Catalyst's market cap is only $16.4 million. The M&I copper resource is valued at less than a penny a pound. In fact, the M&I gold alone is valued at only $3.60 an ounce.

    Valuations like this are often indicative of political instability, lack of infrastructure or fervent environmental opposition, but none of these factors are in play here.

    Catalyst has been sold off because it is not completely in control of its own destiny.

    La Verde property is subject to an option agreement with Teck Resources (TCK-NYSE) whereby Catalyst's may earn a 60% interest in La Verde by making $10 million in exploration expenditures by December 31, 2012.

    "We've already spent about $11 million, subject to Teck review and agreement on the 2012 expenditures" explains CEO John Greenslade, "thereby earning the 60% interest in the La Verde. Very soon we are going to deliver Teck a technical summary of the work we've done, and an accounting of the money we've spent. Then Teck has 60 days to make a decision."

    If Teck elects to exercise the "back-in right" to the project, they must spend $20 million in the next 3 years to increase their stake from 40% to 60%.

    "If Teck decides not to exercise their back-in right, then we have 60 days to buy their 40% interest for $20 million," states Greenslade, "With the market in the state it is now, I have no desire to dilute the company, so we'll probably take on a partner. We're currently talking to various potential parties."

    China imported 321,000 tonnes of copper in October, 2010. The urbanisation of China will be a main driver of copper demand for the next 40 years. "I've been meeting with senior decision-makers in China capable of closing deals," states Greenslade, "They're serious investors, looking for assets who understand the geology and the numbers".

    The market does not like uncertainty, but with or without Teck - the La Verde project appears destined to become a mine.

    With a Chinese strategic partner, and a completed PEA, Catalyst (if it remains Operator) will continue to expand the resource while initiating an "all seasons" environmental study - which is precursor to preparing an Environmental Impact Manifest.

    If Teck backs in, CCY has a fully funded $20 million exploration budget with zero dilution.

    "We have a world class asset in a very good area" states Greenslade, "In Mexico, once you have the Environmental Impact Manifest, all the other permits flow from that. From then on it's basically procedural. All environmental permitting in Mexico is done to World Bank Standards."

    Power, rail and water cross the property the La Verde property. Lazaro Cardenas, Mexico's third largest port on the coast of the Pacific Ocean is 180 km from the site.

    With 3.7 billion lbs of M&I copper; 446,000 oz of gold and 31.7 million oz of silver in a mining-friendly district of Mexico, CCY is no longer a story. It's an asset.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Nov 13 11:32 PM | Link | Comment!
  • Pemex Embraces New Technology To Increase Output

    (click to enlarge)

    By Commodity Dispatch

    In 2011, state-run Mexican oil giant Petróleos Mexicanos "Pemex" pumped an average of 2.5 million barrels of oil per day, down 25% from its 2004 total of 3.4 million barrels of oil. Mexico has vast reserves of oil but Pemex is losing the technology battle to multi-national companies like Royal Dutch Shell (RDS-A-NYSE), Exxon Mobile (XOM-NYSE) and BP (BP-NYSE).

    An independent energy commission predicted that Mexico could become a net oil importer in the next decade if it cannot replace a drop in output from major oil fields with new discoveries. The commission observed that only 22% of Pemex's exploration projects were funded in 2011.

    Mexican President-elect Enrique Pena Nieto has announced plans to open up Pemex to the private sector. Upgrades to the shipping fleet are expected to top $1 billion over the next three years. Pemex has asked the Mexican Congress to approve a $25 billion capital expenditure budget for 2013.

    The mantra of partnership is already evident as BP recently announced an agreement to share technical information with Pemex pertaining to its deep-water well-capping equipment. Bechtel Hydrocarbon Technology has signed a $12.54 million deal to provide technical assistance in refining technologies and Pemex has adopted BMC Software's (BMC-NASDAQ) Business Service Management Program which standardizes infrastructure, applications and processes.

    On November 5, 2012, NXT Energy Solutions (SFD-TSX.V) (NSFDF -OTCBB), an Airborne Survey Technology Company, received a $2.9 million progress payment from Pemex pursuant to its first contract with PEMEX signed on September 12, 2012.

    Pemex's award of the contract was based on an extensive period of technical review, commercial review and validation and a test flight of NXT's patent pending technology.

    The project had an initial value of $4.73 million, which was expanded to $5.8 million shortly after completion of preliminary SFD® data acquisition operations.

    NXT Energy Solutions (SFD-TSX.V) has developed a patent pending Airborne Survey Technology, which significantly reduces the cost, time, risk and environmental footprint inherent with oil exploration.

    SFD (Stress Field Detection) technology remotely identifies trapped reservoirs at the first stage of the exploration cycle. Airborne sensors detect orientation changes in the horizontal gravity field.

    Competition for energy discoveries has driven companies to explore in hostile and environmentally sensitive locations where basic on-the-ground exploration is difficult, dangerous, and extremely costly.

    With deep-water drilling rig rates around $400,000 per day, and the cost of a single well up to $100 million - it is vital for oil and gas companies to make good early decisions which is where SFD technology brings value for its clients.

    Headline#1: Cost Of a Single Oil Well.

    (click to enlarge)

    Pemex spent $2.3 billion on exploration in 2011 so the contract with NXT Energy represents only 1/400th of their total annual spend. The SFD® project covers large offshore and onshore areas. An expanding role with Pemex could itself be a company-maker for NXT which has market capitalisation of $34 million.

    Current annual global geophysical exploration spending is around $12 billion. NXT's partnership with Pemex is an important milestone for the company. If the relationship goes well, expect NXT to be signing new contracts with international oil and gas companies looking to gain a technological advantage.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Nov 13 11:32 PM | Link | Comment!
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