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Discovery Investing: Good For Saskatchewan

Michael Berry
0 Comments|October 2, 2006

CanWest Petroleum is the major player in Saskatchewan's oilsands.

CanWest Petroleum is the major player in Saskatchewan's oilsands.

It is beginning to dawn on Americans (and Canadians) that Canada's oilsands are becoming strategically important. Our seminars last week featured presentations by CanWest Petroleum's (AMEX: BQI, BullBoards) CEO Chris Hopkins. He was able to reveal the ongoing discovery potential in the company. Chris believes there will be much more discovery on the company's Saskatchewan properties. Only 1.5% of the 508,000 acre position has been explored. This drilling season, 250 wells will be drilled. One hundred of those will be used to delineate the current discovery area. This could expand the resource to two billion barrels. An additional 150 holes will be drilled to discover new areas hopefully similar in size to the Alberta fields.

I have used the Enterprise Value ratio to value CanWest. Companies in Alberta are paying about $1 per recoverable barrel of bitumen in the ground for Alberta's oilsands resources. I am convinced that these ratios must increase in the next five years significantly. This means that CanWest's value should also increase significantly- both from further discovery and delineation, and from increased valuation ratios.

This AM I read in the National Post that the four candidates seeking the Premier's job in Alberta are using the issue of the over heating at Fort McMurray, which is the chief population centre adjacent to Alberta's oilsands, to try to slow things down. For example one of the pretenders to the Premier's chair has suggested allowing only one new mine to be developed at a time. Numerous other issues, mostly impractical, have been raised. These are all raised to stoke public fear of the overheating and "inflationary" oilsands and raise issues that create political clout.

They do, however, bring the oilsands of Saskatchewan back into focus. Saskatchewan has a long history of oil exploration and production. It has developed upgrading facilities (at Lloydminster) and infrastructure. There is an ample labor force in Saskatchewan with high unemployment in many of the remote areas. A major north south highway runs within 30 miles of BQI's property. This means that the Saskatchewan oilsands discoveries are likely to find additional value from the politics in Alberta. The unique feature about the Saskatchewan story is that one company -- and only one company -- now has a very large position in that Province's oil sands. That company is CanWest Petroleum. My suggestion is that there are many catalysts and much value-added for the CanWest story. Be advised.

Michael Berry has been a portfolio manager for both Heartland Advisors and Kemper Scudder, where he successfully managed small and mid-cap value portfolios. He was a professor of investments at the Colgate Darden Graduate School of Business Administration at the University of Virginia and has also held the Wheat First Endowed Chair at James Madison University. Dr. Berry is now a proponent of what he calls "discovery investing."

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