Badiali: “The Oil Sands Story 60 Minutes Missed!”

By Travis Johnson, Stock Gumshoe, March 6, 2008

OK, here’s one that’s causing a massive wave of Gumshoe email — I guess the Stansberry & Associates email servers are heating up again now that oil looks to be solidly above $100.

This one is for an oil sands play, as you might imagine, but (if you read through the pages and pages of teaser copy) you’ll note that this is a Saskatchewan oil sands play, not an Alberta play. That’s what they mean by the “story 60 minutes missed” — 60 minutes did a show about oil sands, but focused on Alberta. Can’t blame them, really, since Alberta is the world center of oil sands extraction and technology (or maybe Venezuela is, if you want to expand your definition a little bit).

So the S & A Oil report will run you $99 for the first year. This oil sands play will cost you naught but time and the energy it requires to scan your eyeballs back and forth across this screen for the next few moments.

But the teaser goes into detail on the fact, which should probably be obvious to us, that the border between Alberta and Saskatchewan doesn’t extend underground — the bitumen that’s being mined in parts of Alberta also exists under parts of Saskatchewan. And with companies urgently pouring money into the oil sands with OPEC holding the line and production and oil staying near $100, clearly that money is going to go to where the oil is, so Saskatchewan has some potential to enjoy a boom.

Most of the teaser info is tiptoing around this point: That we’re just looking at another province from whence, with enough investment in infrastructure and a large enough critical mass of producers drilling holes, the next big oil sands output might come.

But a fair amount of it also consists of some clues — mmmm, clues! — about the company that holds some significant Saskatchewan rights — and the fact that investing in them will add quadrillions in cash to your bank account.

In Badiali’s words, this one “gives you chance to make 575% over [the] next 12 months.”

The big catalyst that’s very wordily described in the ad is the decision by Saskatchewan (after greedily watching their neighbors in Alberta experience a gold rush-like boom) to start seriously considering and allowing oil sands extraction on their side of the border.

Of course, Saskatchewan is already a pretty big oil producing region and has been for years — their oil sands business is still pretty nascent, but they did pass some new regulations last year and start selling oil sands parcels. Badiali quotes a Canadian oil & gas industry publication as saying that “The Government of Saskatchewan Industry and Resources… has introduced new fiscal and regulatory changes to support development [of its oil sands]” — you can read the whole article here, which is a bit more useful than that little quote (I don’t know anything about the source, but it’s an interesting read).

For some of you who’ve followed the story of this company as they’ve peaked and troughed over the past year, that might be enough — but for the rest, let’s look at a few of those clues:

We get the usual crop of newspaper articles, which serve to make it all seem that much more real and above board:

“The Regina Leader-Post writes, ‘[This secret province] is at the epicentre of a “new world oil order,” thanks to its vast reserves of oil sands, heavy oil and other unconventional resources.'”
The Saskatoon StarPhoenix reports, ‘This is a world-class discovery. This is as big as they get.’
The Edmonton Journal reports, ‘[This region] appears to be on the verge of following Alberta’s lead and seeing significant oilsands projects started in the northern boreal forest.'”

And some specific clues:

The shares trade for less than $4 per share (it’s gone up 5-10% since then, it’s now slightly over $4).

Some specifics on their activities:

“Already, phase one test drills have been completed…
Twenty-four holes were drilled into Saskatchewan’s thick oil-rich sand…
Nineteen came back with a pay grade RICHER than Alberta’s.”

And right now, “this small firm is finishing a second, much bigger test drill. This is the biggest oil sands test in Saskatchewan to date… a complete assessment of the land.”

And the copywriters went so far as to squeeze in some past quotes from company officials (insiders also own a bit less than 20% of the stock):

“‘We haven’t found any edge [to where the oil stops]. We’re in the middle of something and it’s extending in every direction. North. South. East. West. It doesn’t matter. On average it’s running 20 metres thick. That’s a good Alberta pay thickness.’
–Company Geologist
‘You know, last year at this time, we were saying that our [Saskatchewan] discovery could be the start of something big… Well, this year, we’re saying that it truly is the start of something-the birth of an oil sands industry for Saskatchewan.’
–Company’s CEO
‘I am convinced that we are dealing with a world-scale oil sands resource. Everyone involved in our program has a sense that we’re making history for the province of Saskatchewan and for Western Canada’s oil sands industry.’
–Company Engineer

So … there’s more, of course (there’s always more), but my eyes are sleepy and my fingers are stiffening up. The mighty Thinkolator churns briefly and discloses that this company is …

Oilsands Quest (BQI)

Those quotes really are from the various company officials, and they do have a big tract of land for potential oil sands extraction in Saskatchewan (you can download their pdf map of their holdings here).

And, even if you do accept the somewhat odd contention that 6o Minutes “missed” the Saskatchewan story, you’ll have to give them a break — their piece on the Alberta Oil Sands first aired in January of 2006, unless I’ve missed something more recent. And it did actually give a nice boost to all the oil sands companies back then, since public awareness of oil sands was fairly low at the time. You can watch part of it here and read the story if you’re interested, but it’s really just a basic overview of the Alberta Oil Sands.

Oh, and not to harp on Badiali — but as far as I know he wasn’t urging folks to look at Saskatchewan back in 2006, either, at the time he wrote about that 60 Minutes story. He was a pretty big cheerleader for the Alberta oil sands … which turned out to be smart, of course, with the potential for those companies back then there wasn’t any particular reason why you’d want to take a bigger chance on Saskatchewan (or even the smaller Alberta producers and explorers — Suncor, the big daddy of the oil sands, was a perfectly excellent choice at the time, and maybe it remains so).

I do own a small, speculative call option on Oilsands Quest — not because I’m absolutely convinced that this story will really play out, but because I agree it has a chance to do so.

The positives are probably pretty obvious — with oil above $100, almost any oil sands project can make pretty good money, even if they’re competing for very high priced talent and resources with their neighbors in the Wild West of Fort McMurray. Maybe they’ll start importing disgruntled Venezuelans like their colleagues in Alberta have, I don’t know (Venezuela’s heavy oil is in some ways similar to the oil sands).

And a fair amount of drilling and exploration has been done on both sides of the Alberta/Saskatchewan border, so there is evidence that the bitumen exists under the surface for BQI to extract — and in some ways, it may be easier than some of the current projects on deeper reserves in Alberta.

The negatives? Alberta’s got a 20 year+ head start on this, with companies like Suncor struggling away in the oil sands and developing infrastructure and projects way back when oil was below $30 and the projects were unprofitable. So while Saskatchewan’s government is pushing regulations for responsible extraction of the oil sands, there’s no guarantee that we’ll see fast development of all the roads, pipelines, refineries and such that they’ll need. I’m not an expert on this, so it might be that the existing infrastructure elsewhere in Saskatchewan (from conventional production) and across the border in Alberta can be leveraged and they won’t be building everything from scratch. Commercial production is being pushed for 2010 or 2011, according to the company (starting with their Axe Lake project), so there’s plenty that could happen between now and then.

It will certainly be very, very expensive to start up their extraction operations. They might have to raise a lot more debt, dilute shareholders further, or take on a partner.

And of course, if oil drops to $40 a barrel in the next five years, these guys and nearly all of the oil sands operators will be sunk — the projects will get dropped just as many of them (and the oil shale projects in Colorado, for example) were abandoned after the 1970s push following that decade’s oil crisis led into the cheap oil 1980s and 1990s. I have no idea where oil is going, but with demand continuing to grow globally I’d certainly be more inclined to beton $80 oil than $40 oil. Past estimates for “breakeven” oil prices for the oil sands have gone as low as $35 a barrel, but that was five years ago when costs were much lower in Alberta and I assume they’re significantly higher now. Certainly, any precipitous drop in prices is going to bring the producers down with it, even if the prices remain significantly above break even.

Finally, they’re not making any money. None. So there’s no cushion here from revenue yet, this is entirely a bet on the future — and it’s a “penny stock”, if you want to call it that because it’s priced under $5 a share, but it’s not a microcap. This bet on the future is riding on a company that’s approaching a billion dollar market cap. Certainly a small company, but not a teensy or undiscovered one, and they do trade on a major exchange in the U.S., albeit the “junior” one (AMEX), with decent volume and a not-inconsequential short position of around 6%.

So … an interesting company, probably not new to that many of you. It was a pretty hot story last year when it went from $2 to $6 (and a frustrating one before that, I’m sure, when it went from $9 to $2), and now it’s right about in the middle of that range at $4. We’ve looked at several other oil sands stories during the past year, including Connacher (which also seemed interesting to me back then — almost a year ago) and, more recently, Petrobank. In my opinion oil sands haven’t gotten nearly as much excitement and hype in the last few months as they did when oil was first making the big move from $60 to $80, but perhaps the investment thesis remains. Lots of risks remain, too, but maybe you’ll be interested in taking another look at this company … feel free to share your opinion here.

Oh, and — also thanks to $100 oil — it looks like they’re trotting out the American Oil Pension (A.O.P.) teaser again. I haven’t looked at these companies for many months, but here’s the Gumshoe take on them from last year.

full disclosure: as noted, I do own call options on BQI. I do not own any other company mentioned here and will not trade in any of them (including selling my aforementioned options) for at least three days.

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17 Comments on "Badiali: “The Oil Sands Story 60 Minutes Missed!”"

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Jackie
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Jackie
March 6, 2008 12:13 pm

It will be tradable in canadian $ soon!

A listing the TSX is still in the works. I can tell you that the application has been handed in and it is currently in the hands of the lawyers. Keep an eye on Oilsands Quest Inc. news releases for the update.

Regards,
Debra
Hedlin Lauder Investor Relations Ltd.
400, 707-7th Avenue SW
Calgary, Alberta T2P 3H6
Toll Free: 1 (800) 299-7823
Fax: (403) 269-7566

Ponce Nilo
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Ponce Nilo
March 7, 2008 1:21 am

Buy this with caution. This was CanWest Petroleum who had the largest oil sands exploration acreage in Canada but they let a large portion of their exploration rights from the government to expire. After which their stock tanked from $6+ to barely $2. They merged with their exploration subsidiary, re-named and changed ticker to BQI, I guess the “B” stands for Bitumen. I bought some @ $6+ 2 yrs ago.

Gravity Switch
Admin
11
March 7, 2008 7:01 am

Good point, Ponce — always good to consider that history, thanks for going back further than I did. CanWest owned a majority share of Oilsands Quest for years and it basically got treated as a land bank for those oil sands lands, they fully merged about 2-1/2 years ago.

sequential
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sequential
March 7, 2008 10:41 am

The Can West guys have moved on and their New company is Mega west (MGWSF) they have good management with Tar Sands experience and lots of ground with good blue sky potential.Another company to have a look at is MXM(TSX)they just received their permitt to drill in Trinidad and the first 4 wells are development wells so they should hit its good for a few $in your pocket
Sequential

Keith
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Keith
March 7, 2008 1:18 pm

Another plus for the industry in general is the recent change in provincial government – after 16 years of NDP communist rule, the new government is solidly behind development of the natural resources of the province… at least that’s what they say!!!

james walsh
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james walsh
March 8, 2008 1:28 pm

looks interesting but sadly all that glitters is not gold. no revenues in near future makes their
value even less than proven reserves. a lack of infrastructure is a killer near term. I takes massive amounts of water and natural gas just to extract this oil.Then you have to transport it to
a refinery. I`m into Petrobank though at to high a price. they have THAI propriatry extraction
technology for the lowest bbl cost in the
industry. and its GREEN/less water less gas.
probably a good buy below $54

Gravity Switch
Admin
11
March 8, 2008 5:16 pm

I mostly agree with you, James, but can’t help speculating on occasion. The Oil sands may theoretically have “more oil than Saudi Arabia,” but to extract it over the long term will kill every water source in Central Canada and use lots of natural gas that could otherwise be used profitably (and more efficiently) to generate electricity. I think plenty of oil sands will be extracted in the next 10 or 20 years, but I doubt we’ll every really put a dent in the possible reserves that exist in the ground, it’s too costly in to many ways.

Gravity Switch
Admin
11
March 10, 2008 11:24 am

Bad timing for this one: the Canadian govt. is trying to impose some stricter rules on emissions from oil sands operations (which are huge) … and they’re also noting that possible US laws might restrict importation of syncrude from Canada. May well come to nothing and some of this is in these stocks already, but worth a read if you’re interested. Here’s the Globe and Mail story:
http://www.theglobeandmail.com/servlet/story/LAC.20080310.BAIRD10/TPStory/National

NBKid
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NBKid
March 12, 2008 3:35 pm
Interesting enough, BQI used to be one of Doug Casey’s picks in his Energy newsletter. About 6 months ago, he sold out. Gumshoe discussion on costs hits the mark. I think if i recall, that was why Casey sold. Great job Gumshoe. I thank you very much. If you look at the stock, there seems to be an INVERTED head and shoulders forming (bullish). The price is right at the 50 and 200 day moving averages. If i were playing it, my stop would be 2.77.. Any close below that would eliminate the bullish head and shoulder. A short term… Read more »
Sniper
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Sniper
March 14, 2008 8:27 pm

Probably a better place to put your money is in the tire companies that outfit the rigs hauling the tar sands. I understand these tires cost upwards of $200,000 each, and the rigs have multiple tires per vehicle. Life expectancy of these tires is approx 1 year.

MLJ
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MLJ
March 18, 2008 12:35 am
Ah hah… Sniper nailed the one factor that is affecting all mineral, ore and tar sand extraction OTR tires. The tires that are utilized in the Tar Sands are the largest manufactured in the world and there are currently only two manufacturer’s making Radial style tires of this size although a third manufacturer currently has a prototype in test mode. These tires do not last a year, because of the extremely heavy payload 400+ ton (overall truck & payload 500+ ton) these tires only last half a year. Manufacturer’s cannot currently produce enough of these to supply the current demand… Read more »
Raylight
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Raylight
March 29, 2008 1:43 am

Hi,
Did u sell your options or still holding on? I just bought a few contracts of may 5.0 call before reading the posting here. BQI was mentioned in BNN (http://broadband.bnn.ca/bnn/?vid=40929) a few days ago and anticipates good results in the winter drilling program in the next few weeks. Hope this will send the stocks higher!
Thanks!

Gravity Switch
Admin
11
March 29, 2008 12:35 pm

Raylight, I’m still holding. Mine are further out, June and Sept.

RONALD KNIGHT
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RONALD KNIGHT
May 20, 2008 12:18 am

WHAT IS THE NAME OF THE STOCK THAT IAN WYATT WHOSE
NEWSLETTER IS GROWTH REPORT IS TALKING ABOUT? THE LAND WAS FOUND BY TODD MONTGOMERY. THERE ARE 685,000 ACRES AND 60 BILLION BARRELS OF OIL. THIS WOULD MAKE IT WORTH $6.4 TRILLION IN VALUE. IT COULD MAKE INVESTORS 1,572% ON THEIR INVESTMENT.
PLEASE LET ME KNOW WHAT $4 STOCK HE IS TALKING ABOUT. THANKS RONALD KNIGHT

Gravity Switch
Admin
11
May 20, 2008 6:17 am

Ronald: It’s the same stock as this one, BQI. Wrote about it here: http://www.stockgumshoe.com/2008/05/the-64-trillion-land-grab-growth-report.html

Iree
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Iree
June 13, 2008 10:37 am

Energy stocks for $4?
WOW!
Where does an can ordinary Canadian Joe like myself but some of these stocks? Is there a minimum? Unlike you pros, I would just like to buy some and hold on to them in the event Bill Gates wants to buy me out!
Thank you very much, I am open to all comments and especially suggestions.
Iree

LOBO
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LOBO
January 28, 2010 9:50 am

What about these “Navada Royalty” taunts. What is that?

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