|
 By James Winston
www.jameswinston.com
Winston Churchill said “truth is so precious that she should be attended by a bodyguard of lies.” When it comes to Saudi Arabia’s oil resources no truer words can reflect how Saudi’s power elite have hidden the truth about their misguided stewardship of our planet’s biggest oil deposits.
In a country where public beheadings are the norm – power, secrecy, control, and image are all important cornerstones to keep the elite royal class in the Kingdom of Saud both perversely rich and oppressively powerful over their subjects. Internationally, their status as an influential powerhouse is still apparent though light is now shining through their veil of lies which they have used to insulate the world concerning the truth of their oil resources.
As investors, the fragile nature of Saudi Arabia’s domestic problems should be enough for most people to buy “insurance” oil and gas stocks. However there’s another major problem brewing in Saudi. For nearly 60 years, Saudi Arabia’s seven largest oilfields have supplied almost all of the country’s production and is the biggest source of the global supply. Today these aging oil fields are becoming problematic despite their political stance that everything is OK in the land of Saud. Those in the oil and gas industry know otherwise.
In Matthew Simmons book, Twilight in the Desert, the author has done an extensive review of technical papers on the Saudi oil and gas fields as published by the Society of Petroleum Engineers.
The papers reveal that Saudi technicians were observing serious signs of aging as far back as 30 years ago. As the years have progressed, today the problems have grown to be acutely complex and require technical sophistication beyond the capabilities of their “in house” expertise.
Though the Saudi’s will tell you they can keep going strong for another 60 years or more, the fragile nature of their oil fields is being exposed along with their big lie.
I found an Asian oil expert - Hal Hemmerich, who previously built up a Middle Eastern branch of a company called High Arctic Energy Services in from zero to 250 people, doing oil & gas exploration & development work on assets all across Asia. He’s got 30 years experience in oil & gas around the globe and offered great perspective. Now he’s President of a Toronto Stock Exchange listed oil & gas company called Transeuro Energy.
He commented that “we all know the most prolific producer on earth is Saudi Arabia but today they are unable to continue to supply the world with energy in the same way. In the old days, they would just punch drill hole after drill hole after drill hole. They would just mud up, with such great pressure down below, they would drive a hole down and produce. They started with conventional drilling because their resource was so strong. But as their resources have started to wane, they now need to re-work these wells.”
Many of the world’s producing nations are now looking at western technology to help keep their dream alive. One of techniques they are looking at employing is the use of underbalanced drilling, a science which was developed and has been used with great success for the last 20 years in North America.
Underbalanced drilling uses a complex package of engineering techniques which basically brings the oil well pressure and the drill bit pressure to a close equilibrium – just enough to allow for a free flow of gas or oil. The idea here is to get away from the older methods of jamming down mud into the hole to prevent a blow out – though this works, it plugs up the flow of gas.
Just to keep up the status quo, Saudi is accelerating the number of drills pumping oil and older wells are getting tweaked to increase the production life.
Saudi remains an enigma. “They won’t show you how they calculate their reserves. I don’t know how the world has let them get away with this. They just come out every year and go, here we are. In fact their resource figures haven’t gone down. Everyone knows that if you produce hundreds of millions of barrels your reservoir goes down and your production becomes more difficult.” said Hemmerich.
So as investors, search out “High Technology” energy service companies who are entering the international markets, like High Arctic Energy Services – I’m sure they will be busy for years to come.
Hemmerich says that newer technology has been used in nearby Oman which has increased their production by multiple times. The science of underbalanced drilling is very much needed in the former Soviet Union (FSU) block countries as well. Early investors who can realize the potential in the FSU can stand to make big profits over the coming years.
Oil and gas fields in the FSU were basically raped and pillaged and left for dead - as easier prey was sought out. The opportunity to gain strong new production from old fields in this area was so strong that Hemmerich’s company Transeuro picked up several properties in Ukraine, which he feels has huge potential. Anytime a company can organically increase production (i.e. by drilling, not acquisitions) with no exploration risk, that’s a big bonus.
Hemmerich commented that “In the old Russian days they would just sweep through areas with rigs and drill, drill, drill. And they had a real high cut off for production. If the well didn’t flow at a high rate, they would shut it off and move on to the next one. And again, technology was non existent, some wells were drilled without the benefit blow out preventers. Talk about running naked.”
According to Hemmerich, the Russians would use a massive amount of heavy mud which would limit the flow and the potential of the resource.
Old Russian data which is on file at the Ukraine department of resources indicates Transeuro’s properties contain some 300 billion cubic feet of gas and another 32 million barrels of oil. It’s like virgin territory but with data. The Russian’s did a lot of 2D seismic and everything is nicely mapped and all the data is available.
Like Saudi Arabia, Ukraine was initially indifferent to Transeuro’s modern oil & gas technology. But now they are very motivated to get western expertise. They not only endured Soviet domination and mismanagement of their gas fields – last winter the country was blackmailed by their former masters who cut off the gas to the country. The message was, pay our price and do as we say - or else.
Needless to say, a major mandate for the Yushchenko government is to have energy self sufficiency for his country. To that end Transeuro has cut a 72/28 deal with the Ukrainians to develop their gas fields using underbalanced technologies.
What has been a major problem for the Ukrainians is going to turn out to be a win-win situation as western technology is brought to bear on a high potential resource. And again, investors who can position themselves in these ground floor, high technology re-work programs will be able to capitalize right along with them.
The reality is that oil resources around the world were mismanaged for long term benefits. And because of pride and political prestige, some of the biggest oil producers on the planet continue to deny this reality – oilfields are declining in production. Only now are we beginning to see glimpses of truth from the big OPEC countries that they are recognizing these issues and importing modern technology to extend the life of their reservoirs. But it is inevitable that truth will come out, and it’s companies like High Arctic and Transeuro who will benefit from this. Those who have the capital, technical ability, and connections to access to these fields will profit handsomely in this new high tech era of oil and gas exploration.
In this Issue:
- Transeuro Energy - New Pick
Another wild week for commodities saw prices for precious metals rebound on Friday as copper and zinc soared to record highs, gold rallied, and silver rebounded from its biggest drop in 23 years after a healthy correction earlier in the week. As exciting as the metal prices were, the biggest story this week was oil.
Oil’s latest spike to over $75 dollars was driven mostly by Iran’s announcement that they had produced its first batch of enriched uranium and will move ahead with industrial scale output. Despite U.N. demands to stop all enrichment work, Iran has threatened that blood will be spilled if any nation should try and stop them.
Nothing like a hateful zealot to spike up oil prices.
In more pleasant news, I am currently in Vancouver talking with a number of junior companies in order to hunt out more companies with triple digit return potential.
Transeuro Energy (TSU, TSXV) New Pick
On Friday afternoon I sat down with the management of Transeuro Energy.
Transeuro is an oil and gas company which has only been trading for about a year however the management depth is second to none. Many of the key players on the management team are from High Arctic Energy Services (HWO.UN.TSX).
High Arctic is a oil and gas drilling services company whose claim to fame is that they have a unique technology to extract oil and gas from “underbalanced” wells.
An underbalanced well is one where the oil formation has higher pressure then the borehole pressure. In the early 1900’s these were the gushers that you’ve probably seen in movies or on documentaries.
Though freely flowing oil from gushers is an easy way to extract oil, it does not maximize the potential of an oil field and a great deal of oil will be left underground unless flow control technology is applied. This is where High Arctic comes in to help oil and gas companies maximize the output of their oil fields.
Another important point about High Arctic is that they have drill rigs and crews who are hired out to various companies. Getting a drill rig these days either for hard rock mining or for oil and gas is not an easy task. Because Transeuro has many old hands running the company from High Arctic and the management of High Arctic own shares in Transeuro – you can rest assured that hiring drill rigs and crews won’t be an issue for Transeuro.
The management and the founders of Transeuro own 31% of the shares outstanding while institutions own 18% which leaves about 56 million shares in the public domain.
Properties
Generally, Transeuro’s business model is that they are going into older unbalanced producing fields and tweaking them with technology to expand the production life and profitability. This is the case in Beaver River, Canada and in the Crimean peninsula of the Ukraine. Papua New Guinea (PNG) presents a large high potential exploration play.
Beaver River
Beaver River is a natural gas field in northwestern British Columbia which is tied into a gas transmission pipeline. Re-processed 3D Seismic and other data have shown there are two gas formations here, the shallow Mattson sands and the deeper Nahanni formation.
The Matteson contains 6 to 10 distinct zones all of which have the potential to host gas reserves. This formation was originally drilled about 40 years ago but Transeuro believes they can apply their technology to profitably produce more gas from this formation. The company is re-working six gas wells here including the A-2 well which was tied in last month. Transeuro is applying their extraction technology know-how along with High Arctic’s specialized underbalanced technology practices to make this older field into a resurrected producing cash cow - exceeding historical production of 6.5 mmcf per day.
The deeper Nahanni formation will be drilled later this year. High priority drill targets have already been identified.
Ukraine
The old Soviet Union countries that had oil and gas were terribly exploited and managed by the former Russian regime. On the Crimean peninsula of the Ukraine, Transeuro is one of only two international oil and gas companies with operations in the region. Two gas condensate fields are now under re-development, the Karlavske and Krasnopolyanske.
The management of Transeuro have the complete backing of the Ukraine government under President Viktor Yushchenko whose mandate for energy consumption in his country is to become self sufficient. The income split with the Ukraine government will be 72/28 in favor of Transeuro.
Transeuro has a new gas treatment plant on site that connects the two fields with a pipeline. The plant will be connected to the gas mainline in the near future.
The re-working of the old Soviet wells has begun with the first gas sales anticipated in Q3 of 2006.
Papua New Guinea
Just north of Australia, Papua New Guinea will, in three years time, be connected to Australia by a 3,000 km long gas pipline. Transeuro has a massive land postion in PNG encompassing 6.8 million acres in an area where other operators have proven reserves in
place totaling 15 Trillion cubic feet of gas.
Transeuro picked up their 80 prospects over four projects in PNG before the gas pipeline
was announced. Today, they quite frankly couldn’t afford to buy into those properties.
Timing is everything sometimes.
Geological work in now underway so that specific drill targets can be identified.
Conclusion
Transeuro closed on Friday at $2.40, well off their 52 week high of $3.40. As their projects in Canada and the Ukraine start to take off, I am expecting the share price to rally accordingly. The prospects in Papua New Guinea offer a huge upside three years ahead – which collectively with the other projects should give strong triple digit returns.
Transeuro is a buy.
Call Investor Relations
866-898-0826
DISCLAIMER
Online Investors News and Winston's Growth Stock Advisor are an independent electronic publications committed to providing our subscribers with factual information on selected publicly traded companies, politics, business, and economics. All companies are chosen on the basis of certain financial analysis, and other pertinent criteria with a view toward maximizing the upside potential for investors while minimizing the downside risk, whenever possible with the added aid of technical analysis.
Online Investors News and Winston's Growth Stock Advisor and its editors do not accept compensation from public companies featured in this publication.
All statements and expressions are the sole opinions of the editors and are subject to change without notice. A profile, description, or other mention of a company in the newsletter is neither an offer nor solicitation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein. The staff of Winston's Growth Stock Advisor are not registered investment advisors and do not purport to offer personalized investment related advice. The publisher, staff, or anyone associated with, or associated to, the Winston's Growth Stock Advisor may own securities mentioned in this newsletter and may buy or sell securities without notice.
The profiles, critiques, and other editorial content of the Online Investors News or Winston's Growth Stock Advisor may contain forward-looking statements relating to the expected capabilities of the companies mentioned herein. The reader should verify all claims and do their own due diligence before investing in any securities mentioned. Investing in securities is speculative and carries a high degree of risk. The information found in this profile is protected by copyright laws and may not be copied, or reproduced in any way without the expressed, written consent of the editors of Online Investors News or Winston's Growth Stock Advisor. We encourage our readers to invest carefully and read the investor information available at the web sites of the Securities and Exchange Commission ("SEC") at http://www.sec.gov and/or the National Association of Securities Dealers ("NASD") at http://www.nasd.com. We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at http://www.sec.gov/consumer/cyberfr.htm.
Readers can review all public filings by companies at the SEC's EDGAR page. The NASD has published information on how to invest carefully at its web site.
|
Sections
