Who’s The Next Wildstream in the Saskatchewan Oil Patch?
POP Assets In Relation To CPG / WSX Dodsland Viking, Shaunavon & Cantuar
After the Wednesday January 25 CPG / WSX buyout news, I revisited the datasets on both WSX and POP, which are both core holdings in my portfolio, with Petro One being my top pick for aggressive exploration, production and land base growth.
I’m pleased with the WSX takeout terms, which have lifted the stock 11% since my last buy point. WSX and I had a good run over the years, but now it’s time to say goodbye and look to the next one in my portfolio, which is Petro One Energy (TSX-V: POP, Frankfurt: C6K1, CUDBF.PK).
It’s no secret that WSX has been on the hunt for new grounds in the Dodsland Area in Western Saskatchewan, as well as the Upper and Lower Shaunavon, and Cantuar formation, as per closed property acquisitions in the June 15, 2011 financial highlights.
Wildstream’s latest land acquisitions in this area resulted in sizable 137,000 net acres.
In fact, almost all of WSX’s most recent exploration, development, and production has come out of these three key plays. As you can see on page 5 of the November 2011 WSX presentation, Southwestern Saskatchewan has been a virtual business obsession for the company over the past few years—yielding over 90% of Wildstream’s production and upside. The Strategic Rationale outlined in the April 25, 2011 press release decisively states WSX’s goals: The property acquisitions allows Wild Stream to continue the exploitation of underdeveloped Upper Shaunavon pools and to extend the boundaries of the Company’s Lower Shaunavon (proximate to Petro One’s Antelope / Gull Lake assets) and Dodsland Viking resource oil fairways (proximate to Petro One’s Smiley Milton J5 assets, featuring the 10A-15 discovery well).
I have been contending for a long time that Petro One’s 10A-15 Viking discovery well on their new oil pool is among the best I’ve seen in Southwest Saskatchewan, and in fact it just might end up being the best Viking well drilled in the province ever. Right now 10A-15 continues to free flow, without swabbing, stimulation or pumping from a vertical well at a 3 month IP rate of 82 bbls /day light oil and 1.49mmcf/day gas, bringing is up to 330 BOE/day. The entire 10-metre thick payzone is porous and oil bearing.
Downhole pressures confirm that it is part of an extensive hydrocarbon system, in a regional Viking sand fairway. The oil is very light at API 30, and the pool has excellent porosity up to 23.5% and 3,976mD permeability over the perforated interval. Most surprisingly, the well has increased steadily as it has cleaned up, as opposed to declining—and bears all the hallmarks of a gas drive. A rare and amazing find indeed.
Following the Wildstream model, Petro One’s asset here, and others elsewhere are 100% owned, and under the 3% Saskatchewan royalty regime. In other words, this pool is a bona-fide money maker and an outstanding start for this emerging junior company.
How can I say these results are so exceptional?
Take a look at page 13 of the November 2011 Wildstream presentation to see what average “good” wells look like in the Dodsland Viking, where 450 horizontal wells have been drilled to date, with an average 30 day IP of 40 bbls/day (!)
With POP’s exceptional 82+ bbls/day flow rate emerging from a highly porous and permeable chert pebble conglomerate that cuts across the main thins sand fairway, it stands to reason that Petro One’s next two horizontal development wells into this oil pool have the potential to unlock, within a few months, numbers approximating 500-600 bbls/day of light oil from this one oil pool alone, not to mention all the other targets on J5, and the multiple horizontal development wells planned at POP’s J1 Rosebank discovery.
I have owned Wildstream for some time and have nothing but accolades for the management team. Indeed it was a close study of WSX some time ago that led me to first consider Petro One Energy, as the emerging junior most likely to be “The Next Wildstream”. But all things considered, I make the contention that Petro One has accomplished more, at an earlier stage in its growth curve, and for only about $9M dollars. Petro One is essentially still a new company, with 54 million shares out, and only 6 months since the initial discovery. Petro One will need to continue to aggressively push the envelope on J5 and J1 in terms of rapid exploration and ongoing development. But there’s no doubt they’ve studied the WSX playbook closely and purposefully modeled much of their business practices, as well as exploration and development philosophies in accordance with Wildstream’s demonstrated success.
Clear cut evidence of POP’s savvy can be found in their skillful takedown of key assets in the heart of Wildstream’s latest acquisition push in the Shaunavon Area and Cantuar Formations. Wildstream’s goal in the Shaunavon was to push the boundaries of their known assets and actively acquire key targets in the Upper Shaunavon and in particular, expand aggressively in the Cantuar Channel Trends. The new Cantuar Channel Plays were not led by Wildstream, but rather a number of disparate operators, of which the most notable is Petro One with it’s J9 holdings, strategically staked between Wildstream’s assets in the center of a Cantuar asset cluster. So far, J9 has seen very little exploration activity, yet in-depth geological mapping shows that a prolific Lower Mannville channel oil play extends across Parcel J9 from an adjoining oil pool. Adjacent producing wells are located only 95 and 130 m from Petro One's acreage, and have produced over 140,000 and 95,000 bbl respectively from a thick sand that is indicated to extend under the J9 parcel. Subsequent economic evaluation and risk analysis confirms very favorable economics for this parcel, and seismic evaluation is planned to site drill holes. In other words, the project is a winner, with pending 3D seismic leading the way, and wells soon to follow.
Investment Case Summary
Petro One Energy’s thirteen oil prospects, comprised of 13.9 sections in Saskatchewan and Manitoba total approximately 8,900 Acres (3,600 hectares). Manitoba and Saskatchewan are ranked 1st and 2nd best jurisdictions in Canada for oil exploration and production by the Fraser Institute.
The industry’s most recent successful buyout, Wildstream derived 90% of production and upside from fully owned assets based in Southwest Saskatchewan, most notably the Dodsland Viking and Upper and Lower Shaunavon. With only a few months work, Petro One has unlocked a new Dodsland Viking oil pool featuring a free flowing horizontal well that outstrips any Viking well in recent memory, and all those found in the entire WSX portfolio. Petro One’s savvy takedown of key assets in these areas must be seen against the backdrop of WSX’s massive multiyear acquisition strategy in Southwestern Saskatchewan. All of POP’s 100% owned assets are subject to Saskatchewan and Manitoba’s maximum 3% royalty regime, ensuring maximum bottom line value from dollars in.
Petro One has ongoing production, development drilling, and exploration underway at this time on a number of high potential assets. The company starts this year with a mere $32M market cap, and pending horizontal wells on J5 and J1 have the potential to unlock hundreds of bbls/day within a number of months, while at the same time, multiple targets will undergo exploration this year and beyond.
After WSX, I looked all over the Saskatchewan patch for the next big winner, and I am strongly confident it will be Petro One Energy. People can do whatever they want with their money, but everyone knows where I stand, which is 100% behind my portfolio picks, for the long term. If you aren’t sure what they are, take a look at my Stockhouse profile, see my images and graphics on Flickr, or connect with me on Facebook and Twitter to find out more.
James Hudson, AlphaFlight Portfolios Inc.