Friday, January 28, 2011

Altius Minerals

Could be interesting.  From the Corner of Berkshire board


Stock is up about 40%.

Rick Rule (a major owner of Altius) has been bought out by Sprott.

From April 13th

"Alderon is the one with the greatest near term potential. Their value in the market on conversion (not guaranteed) is in the $80m range. $2.50-they would own 34m shares on conversion if drilling supports what Alderon thinks. Alderon is made up of the former managment of Thompson Consolidated (iron ore) which is located very close to the Alderon sites. I wish we had owned Thompson it has gone from about 20 cents to over $10 bucks! They are producing iron ore this year."


Alderon has converted Altius shares and they now own about 45% of the company with a 3% royalty on future iron ore production...the 45% is worth about $90million and the royalty???we will see...this is what Leucadia did with Fortesque.

The nickel Royalty is paying low amounts because of the Voisey bay strike but it appears that may be coming to an end.

$400m market cap now...they now have approx $300m in cash and $100m for the other 12 projects.

The oil refinery is still the massive call option...there has been no new news there.

Yes. We have doubled our position in the last month..We love the managemnet...The CEO recently added to his position through the purchase of his opitons...He has about $20 million in the company of whihc he is the co founder..all options are long term and performance based...

It basically trades for cash if you include the Voisey Bay royalty with marketable securities.

This year there are 3 catalysts playing out.

Alderon could be just huge. They will be news driven all year and already are take out candidate from their neighbours in Labrador...Labrador is the iron ore hot spot of north America right now.

Royalty- The strike at Voisey bay will end soon.

The oil refinery project has to be concluded by Oct we will see news even if it is a liquidation Altius will get money out of it...a sale is good but A partner would double the stock over night. Take a look at the project on their website.

Total equity does not include the approx $90 million unrealized gain on Alderon....The shares were issued

to Altius in Decemeber...we expect that the Alderon investment and cash will equal...the $400 million market the rest of the very valuable assets are free. I do not have a target price...and I do not have a time frame but the company is worth much more than $400m.

The numbers will look stupid with $100m gain in the quarter...we expect the market to give the management the appropriate multiple once the Alderon project gets more attention. They have about $3m invested in Alderon. disclosure we bought Alderon (ADV-venture) at $1.50 and sold it recently...we are more comfortable holding the bigger Altius postion.

*The $200m is moslty cash or short term Canadian government paper...The Alderon investment has not had a reporting The cash and marketable securities would be closer to $300m...that is what the balance sheet will look like next quarter.

The refinery project approvals are the intrisic value...Altius put about $100 million of equity and debt into the project...they carry it at 0....and it really is a call could be worth very little...but in a liquidation scenario...Altius as the only debt holder would get something back.

Biglari at it again

Petrominerales partner in Peru

Petrominerales in on La Colpa and Sheshea

Old Petrobank THAI Article - 2006

Source: Oilsands Review

Fired up

Combustion commences on the first-ever field application of THAI

Deborah Jaremko

Air injection is officially underway at the first ever field pilot of a technology that proponents say could replace steam assisted gravity drainage (SAGD) as the production method of choice for unconventional oil in situ. However, although toe to heel air injection (THAI) could hold great promise for the future of Alberta’s oilsands, if successful its potential applications could stretch far beyond the borders of the Western Canada Sedimentary Basin (WCSB).

“[THAI] is a global technology,” says John Wright, president and chief executive officer of Petrobank Energy and Resources. Petrobank is the majority owner of Whitesands In Situ, operator of the THAI pilot, which is located in the oilsands corridor south of Fort McMurray. Wright says that initially testing THAI on some of the most viscous oil in the world, rather than on conventional heavy oil, was a targeted decision. “It’s the torture test right off the bat. We wanted to make sure it would work in the place where it would be most difficult.”

Petrobank, through another subsidiary called Petrominerales Columbia, currently holds rights to about 2.5 million acres of exploration land in Latin America. The company reports that about 1.5 million of these acres are currently being evaluated for heavy oil potential, and the application of THAI.

Whitesands In Situ CEO Chris Bloomer says unconventional oil production in Latin America is far behind where it is today in Alberta, but the immaturity of the industry could actually be beneficial. He explains that Latin America has the opportunity to significantly raise production levels without going through the many trials and errors that eventually matured into Canada’s successful unconventional oil industry.

“They don’t have to go up the learning curve [in Latin America],” Bloomer says, adding that although there is much interest in the THAI pilot from Canadian oilsands producers, the international market is also paying close attention. “This is very much being watched.”

Petrobank says that with early success of the Whitesands project, it will seek to rapidly deploy THAI technology globally, both to acquire further resources to develop and to license it to third parties.

“A key part of Petrobank’s business strategy has been to introduce THAI to various state oil companies, as well as large international oil companies with interests in heavy oil,” the company says. “To date we have signed technology-sharing agreements with Petrobras, Ecopetrol, PetroEcuador, and Petro China.”

The THAI process was initially developed in the early 1990s by University of Bath improved oil recovery chair Dr. Malcolm Greaves and Petroleum Recovery Institute (now Alberta Research Council) researcher Dr. Alex Turta. Combustion is not a new technology for the oil and gas industry around the world, but the THAI well configuration and process has never been used before.

“(THAI) is promising and I hope we can see some progress in that area because it will open a lot of doors for us,” says Soheil Asgarpour, oil sands development business unit leader with the Alberta Department of Energy.

In lab testing using five litres of oil in sand within three-dimensional cells at the University of Bath, the THAI process typically recovered over 80 per cent of the original oil in place, as well as increasing its API gravity by as much as eight degrees.

“We recovered a very high percentage of the oil. When we took that and started the numerical simulations in a field reservoir setting we saw the same thing,” Bloomer says. “We had very effective heat generation and very effective sweep across the reservoir. It reinforced what we saw in the lab.”

Here is how THAI works: similar to SAGD, production comes from a pair of wells. However, instead of employing two parallel horizontal wells, a THAI pair is made up of one vertical well and one horizontal well. The horizontal well, placed near the base of the reservoir, serves as the production path, while the vertical well, placed high in the reservoir, is used to inject air. Like a human foot, the horizontal well has a toe and a heel – where it bends is its heel, and where it ends is its toe. The idea is to effectively melt the bitumen through combustion, pushing it along the horizontal well. In order to get the process going, steam is injected to preheat the reservoir and soften the bitumen – a process called the pre-ignition heating cycle (PIHC). This is done to initiate communication between the horizontal and vertical wells.

Air is then taken straight from the atmosphere and is compressed, then injected. Ignition occurs and a combustion front develops, intended to sweep across the reservoir from the horizontal well’s toe to its heel at about 20 centimetres per day. The company says that in the context of THAI, the term “combustion” refers to a high temperature oxidization of the heavier parts of the bitumen, also known as coke, which is left behind as the process proceeds.

“This oxidation does not produce flames, but rather is like charcoal burning in a barbeque. With low air flux, the coals turn grey and burn slowly, whereas when one blows on the coals they burn more rapidly and glow red.”

Bloomer explains that what is left behind is basically metals in sand, allowing for efficient production of the resource.

“You get a very permeable, porous reservoir left behind.”

After oil production stabilizes, the design calls for constant air injection to be maintained to ensure a relatively constant production flow through the horizontal well. THAI is seen to be a potentially attractive alternative to SAGD because it substantially reduces requirements for natural gas and water.

“It’s a good thing we don’t have steam generator envy,” Wright jokes. “We have the world’s smallest steam generator.”

There are three well pairs at the THAI pilot site, complimented by 19 vertical observation wells to monitor temperature and pressure. The company is initiating the process on one well pair at a time – the PIHC cycle is now complete on the first well pair, and air injection was initiated on July 20. Since that time, air injection rates have been increasing, and temperatures within the combustion zone have reached as high as 700 degrees Celsius, which Petrobank calls a “significant milestone.”

The initial phase of production will be dominated by recovery of condensed steam from the PHIC process. So far, Petrobank reports the horizontal production well has achieved total production rates of up to 1,000 barrels of fluid per day, with up to a 15 per cent oil cut of 11 degree API bitumen.

Although the THAI pilot is in its early stages, Petrobank is already looking at ways to improve it in the future. The unconventional oil industry is all about technology evolution, Wright and Bloomer explain.

“When SAGD first came out, no one thought it would work,” Wright reminds, adding that was largely because horizontal wells had not yet been determined reliable. There is much skepticism about the viability of THAI today, but that could change in the imminent future.

“We believe that THAI will kill SAGD, and for all the right reasons,” Bloomer says. However, he adds, “Someday something will kill THAI. There are always advances in technology.”

But, right now the company is focusing on its pilot project, something Bloomer says has been somewhat like checking off items on a to-do list.

“It’s the reality phase now.”

Sterling Resources

From Pescod yesterday.  My ears perk up when I see very little risk and untold upside.  Much different than the ATP lots of risk and lots of upside.  More like the Petrobank little downside, lottery ticket upside (with decent odds).

I'll try and find the time to have a look at Sterling.  Pretty much focused on making myself a Petrobank specialist at this point.

Find a really good analyst out there...and then follow him

closely, particularly when he seems to be making changes

on his top three list. You know we are big admirers of Kevin

Shaw of Wellington West who has come up with a long line

of winners over the past 18 months, so yes we follow him

and whenever he does seem to be making changes, we

watch closely.

Over the last while with Madalena Ventures (MVN) the

high risk/high reward player in Argentina tripling since Shaw

has followed it, now it seems to be working its way not so

much down the list as some easy money has been made, and

Shaw is pointing out that one of those three high risk/high

reward plays that start shortly, now has to hit.

Equally, Bellatrix Exploration (BXE), another of his favorites

has been working its way up nicely over the last while

because of successful plays on its Cardium plays and the

stock has responded smartly. Sometime in late February,

Bellatrix should have some new resource reports out and

some suggest that might well put the company into play.

Both those two stocks have done well, but suddenly Shaw’s

top three now looks something like this…

At the top of his list remains his favorite by far and that’s

Sterling Resources, a story we have written about probably way

too many times, but why don’t we do it one more time...just

in case. There are probably four significant plays in Europe

this coming year and Sterling seems to be involved in three

of them. The first of course is in the North Sea where their

Cladhan play will have two additional horizontal and two additional

vertical wells. The question is, does Cladhan have

the hundred million barrels it looks like it has now? Or will

they be able to prove it has 200, 300 or heaven forbid 400 or

even 500 million barrels? Needless to say, if those higher

numbers are true, Sterling has a lot of traveling to do.

Meanwhile, the analogy is to the Gulf of Mexico, one of the

richest oil and gas-baring waters in the world and over gazillions

of years, the Mississippi River has brought down all

those resources. The analogy is to the Black Sea where the

Danube River has theoretically deposited some of the same

riches and some time this summer, Sterling will be taking a

poke at those riches that some analysts have absolutely

enormous expectations for.
Meanwhile, if there is one play that is getting a lot of

attention by the speculators these days it’s the Paris

Basin and guess who has one of the biggest land holders

there….you got it—Sterling Resources.

That remains number one on Shaw’s list, a company

he describes as having little risk, but untold upside and

that’s what exploration is all about.




(As of January 4, 2011)

We are here with George Kesteven who does public relations and investor relations

for what we think is going to be one of the most intriguing oil and gas

exploration stories of the coming year and that is Sterling Resources.

David Pescod: I guess we have to start with a look/see at the Cladhan play. If

you could give us some background and just how big do people think it

could be?

George Kesteven: Cladhan was originally discovered with

an exploration well back in late 2008 and at that time people

may recall the markets were not particularly healthy. We

didn’t have a sizeable amount of cash on our balance sheet,

so we made the discovery and we capped the well and indicated

we would have to come back later. We managed to

come back in August of 2010 and we drilled two side-tracks

off that original vertical bore, both of which were very successful

and far exceeded our internal expectations. I can

certainly say that we were very pleased with what we found.

The challenge at this point is that we really don’t know how

big Cladhan is because of two factors. One, we have no oil/

water contact yet and two, there is about an 1800 psi ambient

pressure which is a bit of a mystery to us technically.

We are not entirely sure where that pressure is coming from.

So, what we did do was to have RPS Energy, our reservoir

engineers, conduct an analysis for us and update the Prospective

and Contingent resource numbers, just for the

Cladhan prospect back in October. We published those figures

and depending upon how you interpret those numbers,

the indication is probably somewhere between 150 and 250

million barrels of original oil in place (OIP) – based on what

their assessment says. And that is an extremely attractive

number obviously, but again, it only covers what we have

drilled up to this point of Cladhan.

Looking forward, we are planning to drill four wells at

Cladhan in the first half of 2011. The program will likely

start in February or March, depending upon weather and

regulatory approvals. We want to drill two vertical wells

and we want to drill two side-tracks off the first of the two

verticals to try and delineate how big Cladhan truly is.

So it’s an exciting discovery for us. It’s oil – it’s relatively

light oil, we have a good base of partners there and we

have now raised the money to move forward with the offering

that closed back in December. So I think this is an

exciting discovery for us which we operate and hold a

40% interest.

DP: Now the talk is – you mention 150, maybe 250 million

barrels, but people are using only 93 million barrels.

GK: You have to be very careful with Contingent and

Prospective resource numbers because those resource

numbers are highly risked. I reiterate you have to be very

careful. For instance one of the mistakes that people often

make is to take the Contingent and Prospective resource

numbers and add them together which is not the

correct approach because the stochastic probabilities (in

other words, risk) of the two categories are sizably different.

So that’s why I’m giving you such a broad range.

There are people out there who have come out with estimates

that are twice that and we can’t comment on that

because obviously we want to rely specifically on what

RPS says. The 93 million barrel figure that you refer to is

the RPS Prospective Resources (P50) number for the

channels only – RPS’s analysis in October attributed a

further 74 million barrels of Prospective Resources (P50)

to the fan formation at Cladhan. We want an independent

view, not just an internal view. Until we do some more

drilling, we really don’t know how big Cladhan is. That’s

a really important point to get across.

DP: As well as Sterling’s conservative assets like Breagh

in the North Sea, you have another big, high risk potentially

high reward play and that’s in the Black Sea, which

has been delayed for some time. Once again, when do

you hope to get at it and how big might it be?

GK: The two wells we want to drill in the Romanian Black

Sea this year are located at Eugenia and Ioana and I

should note here that all of the offshore fields there are

named after Romanian women-they are all Romanian female

names. The first of the wells is Eugenia. Eugenia is

an oil target and it’s up in the Pelican Block which is the

northern of the two blocks that we hold.

We hold the Pelican Block which is the northern block and we believe oil prone, and the Midia Block which is the

southern block and gas prone. This is the first well we will drill in the Pelican Block because as some people may recall, a portion of it was at one point, involved in a border dispute between the Ukraine and Romania. Well that has

now been resolved, so we know it’s entirely in Romanian waters, so we feel more confident going in.

We hope to drill the Eugenia well – the oil well target some time in the second quarter and we hope to drill the Ioana

well which is the gas target immediately to the east of the Ana and Doina discoveries which we’ve already drilled up. We hope to drill the Ioana well during the third quarter. So those are our plans for the Romanian offshore going forward. We did announce a change back on November 1st, 2010 We had signed an agreement with a UK based company Melrose Resources back in late 2008 to farm out half of our interest , which would have taken our interest from 65% to 32½%. We chose not to renew the farm out agreement with Melrose simply on the basis of the fact that Melrose couldn’t get the administrative approval for the license transfer from the Romanian government. Our decision on November 1st seems to have broken the log jam a little bit and we will see how things move forward. Our other two partners there which hold collectively 35% between the two of them – Petroventures and Gas Plus, which is an Italian publicly traded company –are very eager to get going and get Eugenia and Ioana drilled up in 2011. So we are thinking we are now full speed ahead in Romania. We have applied for permits and plans are underway to drill Eugenia in the second quarter – and Ioana in the third quarter

DP: Now the interesting thing is that some of this area already has production on the Ukrainian side and the suggestion again is that this is a sizable target.

GK: These are very sizable targets. The Eugenia well is a four-zone targeted well and if our seismic is even partially

correct, we are pretty excited about that. Directly to the east of the Eugenia target is a field called Olimpiskiyi which

was in Ukrainian waters and has been producing for some time and then there’s also an oil field to the southwest of our block that’s called Lebada. This is in Romanian waters and it’s a producing oil field. . It’s been operating for

some time as well, so there is oil production on both sides of our block, so we feel pretty confident that with production in close proximity to the Pelican Block and the four zone nature of the Eugenia well, this looks like it holds tremendous potential.

DP: If that’s not enough, you also have interest in another play that is getting an awful lot of attention for Torreador

Resources and that’s the Paris Basin.

GK: Torreador/Hess will be commencing a three-well program there shortly and we want to see the success that they

have before we consider drilling a well in our blocks. We are in a joint venture with Torreador/Hess and Petroventures on three of the blocks and then the other 6 ½ blocks that we have are 50% with Petroventures. The 6 ½ blocks are on the North side of the major Torreador/Hess block and the remaining three blocks are on the south side of the major Toreador/Hess block. In particular, there is one well of the three that we are really interested in, as it will be drilled on the southern edge of the Torreador/Hess block directly adjacent to one of the blocks we hold. We will see how successful they are in terms of this particular play. This is an oil shale play by the way – this is unconventional and for people familiar with the Bakken geology in Canada and in the US Williston Basin, this is analogous to that kind of geology.

DP: They are using some pretty highfalutin numbers like 90 billion barrel potential target…is this dreaming or does

this have a dose of reality?

GK: With unconventional oil fields, you have to be very careful because until they actually drill it up and do the delineation work in terms of what’s there, it’s really hard to come up with a number. So we wouldn’t subscribe to that type of number yet. I’m not saying it’s not possible, but we wouldn’t want to go out on a limb with that kind of number. That’s a fairly aggressive number. We will see the success of their drilling program and then we’ll decide going forward what kind of program we want to launch on our blocks.

DP: With all that exploration, obviously you’ve got one heck of a year to look forward to. We are curious about your

guesstimate for the price of oil down the road and other than your own stock, what would be your recommendation?

GK: Depending upon which commentary you read and the fundamentals, oil could be as low as $80 and as high as

$120 during 2011. I guess the point I would make is even at the low end of that range, the economics of what we are proposing to drill are still very good. So it’s really not an issue for us at these kinds of prices. In the unlikely event oil drops below $50, we will probably have some questions, but based on what I am reading and what the current commentaries are saying, the bearish level seems to be about $80 and the bull level seems to be $120. So I think that is probably a fair range.

DP: I guess we might as well get an update on the Netherlands because it’s new to most people and the assumption is that it’s fairly small.

GK: It is fairly small. What it is for us is a niche play which we’ve entered at a minimal cost. It’s in an area that is gas

prone, but the oil is in a shallower reservoir and what we have determined as we look at this particular prospect is that the oil is fairly compartmentalized and there may be a substantial amount of oil there. However, it is in compartmentalized reservoirs and what we would really like to do is probably drill a well there some time late in 2011 and turn it into an oil-producing area as well.. So it’s a bit of an interesting play from our perspective as there are already oil discoveries on four of the five blocks. So it’s really a matter of managing the logistics of delivery of that oil. And I think that is something internally we certainly have the expertise to do.

DP: Thank you for the update George!

P2G, following SR's Bought Deal Financing they stated:

"The net proceeds of this Offering of approximately $85 million, after fees and expenses, are intended to be used towards: (1) the planned appraisal program on the Cladhan discovery in the first half of 2011; (2) other exploration and appraisal activities in the United Kingdom, Romania, France and the Netherlands; (3) initial pre-development work on the offshore Romania gas projects; and (4) for other corporate purposes."

So Cladhan was number 1 on their list...... a priority for them IMHO.

However, there has been interesting coverage of SR and upgrades recently..... this from scissors14 over on stockhouse:


Giving Sterling Resources an enormous boost a few days

ago was a report by Kevin Shaw of Wellington West as Wellington

West put out their Top 11 for 2011. Shaw didn’t write

much about Sterling, but one thing stood out. He changed

the target price on the stock to $7.20 from $5.00.

He writes, “Huge Optionality & Big Game-changers as

Sterling Enters Busiest Yr in History in ‘11.”

• Up to 11 high impact wells in ‘11 with Cladhan to spud

~mid Feb. Active program with E. Breagh appraisal

(currently drilling), 3+ Cladhan appraisals (H1/11),

Eugenia, Iona, Grian, Netherlands appraisal, etc.

• Paris Basin OIL SHALE coming in ‘11 w/Net ~1.2 Billion

bbls OOIP. We now incorporate Paris Basin oil shale

(11.8 mmbbls OOIP per section) w/an EMV/sh est. of

$4.82/sh risked or $13.82/sh unrisked on a 10% RF.

• Potential “rerate” on Romania in ‘11 as 460 Bcf Ana/

Doina moves fwd. Min. value in stock for Romanian

assets: 460 Bcf Ana/Doina dev (65% SLG) and gamechangers

Eugenia (1 Billion bbl target) and Iona coming ‘11.

• Target goes to $7.20 from $5.00; huge upside in risked

EMV/sh ~$17.43. For Cladhan, our EMV/sh holds 600

mmbbl OOIP, driving unrisked $6.99/sh in value; catalyst

rich, reiterate Strong Buy and Top Pick for ‘11.”

Value Of Petrobank's May River If Sold as Undeveloped Land

Petrobank has about 700 million barrels of SAGD oilsands reserves.  I would like to know what these are worth if they chose to sell them without ever developing to get a low end range of value for them.

I'll try and document some info under this title and add to it.  The most recent oil sands transaction is likely most useful where the Thai oil company paid $1.46 per barrel to Statoil as that property is very near May River.

At that metric PBG's oilsands property would be worth over $1billion or $10 per share.  Combine that with the $22 per share of PBN (mkt value not intrinsic value) that PBG owns and you are already over $30 per share in value assuming they don't develop May River and that THAI is completely valueless.


Thailand’s PTT Exploration and Production PLC is to buy 40% of Statoil ASA’s Canadian oil-sands project for US$2.3-billion, joining an Asian investor rush into this energy source.

Norway’s Statoil will remain majority owner and operate the Kai Kos Dehseh project in northern Alberta, which it bought in 2007, according to the deal announced Tuesday.

The investment by PTTEP, the exploration and production unit of state-owned PTT PLC, is Thailand’s first in Canada’s oil sands, the largest crude oil source outside the Middle East.

Asian state oil firms have invested billions of dollars in oil-sands projects as they seek to fuel their booming economies.

This latest deal will be the largest offshore investment to date by a Thai company, surpassing the US$1.9-billion purchase of Australia’s Centennial Coal by Banpu this year, according to Thomson Reuters data.

“We view them as a new player with a fresh set of ideas,” said Lars Christian Bacher, Statoil Canada’s president. “Technology development has always been part of Statoil’s DNA and both companies are on the same page when it comes to driving technology development.”

Kai Kos Dehseh will use steam-assisted gravity drainage to recover bitumen and upgrade it into higher-quality oil.

The industry as a whole wants to improve production techniques and cut costs as well as boost the environmental performance of oil sands, which are a heavy, high-carbon energy source that needs extensive processing and refining.

PTTEP, valued at $20-billion and 65% owned by its parent, is among Asia’s Top 10 explorers and competes with big Chinese oil firms such as CNOOC and Sinopec.

It plans to finance the deal with $800-million of bonds and seeking $500-million in loans this week from four foreign banks, chief executive Anon Sirisaengtaksin told reporters.

It will also use $1.5-billion in cash, he added, noting PTTEP’s cash flow of about $3.3-billion a year.

“The acquisition will obviously be a major boost to PTTEP,” said Adithep Vanabriksha, chief investment officer at Aberdeen Asset Management, which oversees $900-million in Thai assets for its U.K.-based parent and owns about 8% of PTTEP’s stock.

“The key growth opportunity for PTTEP mostly derives from overseas acquisitions,” he added.

Some industry analysts questioned the value of the deal for PTTEP, whose shares were down 2.5% to underperform a 1.6% loss in Thailand’s stock market.

“It’s quite expensive,” said Supanna Suwankird, analyst at Thanachart Securities in Bangkok, referring to the deal’s enterprise value as a ratio of production.

“The project will have initial production at 10,000 bpd in early 2011. But the company plans to ramp up output to more than 300,000 bpd,” she said.

Analysts in Norway saw the deal as good for Statoil.

“It is very positive that they have made a significant profit,” said Arctic Securities analyst Trond Omdal, who estimated Statoil’s gain at around $900-million.

“This is showing that their investments in unconventional [oil and gas production] are commercial,” said Mr. Omdal.

Statoil was up 1.5% to 126 crowns, while an Oslo benchmark index was down 0.9%.

State-controlled Statoil entered Kai Kos Dehseh in 2007 when it bought Canada’s North American Oil Sands Corp. for $2-billion. Statoil has since invested a further $1.5-billion. The name of the project in the Chipewyan Dene language means Red Willow River, the name for the Christina River, which meanders through the lease area.

Having a partner in the project was part of the firm’s strategy from the beginning, Statoil said.

“[It] gives you a bit of a challenge as an operator — you get a second look on things and you spread your risks,” Peter Mellbye, Statoil’s head of international exploration and production, told Reuters.

Leismer, the first phase of the Kai Kos Dehseh project, is expected produce 10,000 barrels a day of bitumen early next year. The company is awaiting regulatory approval to double that capacity. The second phase — Corner — is due to start up in 2015 or 2016, to produce up to 60,000 bpd.

Chinese and South Korean firms have also invested billions of dollars in mining and thermal oil sands projects. The largest was in April, when Sinopec paid $4.65-billion for ConocoPhillips’s stake in a Syncrude Canada venture.

The Statoil deal, subject to Canadian regulatory approvals, is expected to close in the first quarter.

Read more:

Jeff Rubin - Articles

I think he has gone a little overboard at this point on some things but there is no way to get around the fact that he called oil prices 10 years ago before the idea of peak oil was anywhere in the media.

Article on Crescent Point Waterflooding

Petrobakken is now testing injecting natural gas to enhance recovery in the Bakken.  The other big company in the Bakken is Crescent Point and they believe waterflooding is the way to go and believes up to 33% recovery is possible.

I think what I am trying to get my head around is whether or not the ultimate recovery in the Bakken is likely to be significantly more than is currently expected by both reserve engineers and companies making acquisitions.

If so, it certainly provides some upside optionality into PBN's share price and even better downside protection for an investment in PBG.   And that is really all I want.  Make sure PBN covers the downsid here and don't lose money if THAI and the HBU don't pan out.  Because if they do I'm going to make a lot of money so getting exposure to them for free is quite attractive.

PBN is going to get a reserve lift this year thanks to their bilateral wells outperforming the Sproule expectations.  Here is the article:

Scott Saxberg´s office reflects the confidence, order, and level-headed professionalism he conveys in spades as president and chief operating officer of Crescent Point Energy Corp., this Oilweek´s 2009 Producer of the Year. The centrepiece of this domain is a prominent desk set against a curtain of glass. Off to the side, there´s a meeting table with chairs. But if you´re looking for something as a conversational icebreaker-say a wall of family pictures or a personal artifact-you won´t readily find it.

Yet, let your gaze linger on any of the three impressive landscape oil paintings adorning the walls, and Saxberg´s demeanor softens. He says his father painted those.

The canoe floating in reflective stillness is of Shebandowan Lake in Ontario´s Canadian Shield, west of Thunder Bay. It´s where his father, a former disc jockey, radio announcer, and educator, now lives. In another painting of the lake´s pristine shoreline, hidden somewhere amongst the trees, is Scott´s own family cottage backing onto a dirt road called Crescent Point.

"And Shelter Bay [the name shared by a private company Crescent Point Energy Corp. owns and manages internally] is a bay down the lake," Saxberg adds.

In collecting clues to Crescent Point´s success in Saskatchewan´s Bakken and Shaunavon tight oilfields, these paintings are a bit of an "ah-ha" experience. Yes, the company is in the right play at the right time. Yes, it has a talented team. But the stamp of its top executive, an engineer by training, sets a course that is equal-measure brains and conscientious care. Crescent Point Energy is close to Saxberg´s heart.

The numbers

In 2001, Scott Saxberg and Paul Coburn started a private oil and gas company, which sold into Crescent Point Energy Ltd. and, in the same year, went through an Initial Public Offering. Coburn became the public company´s president and Saxberg its vice-president of production and engineering. Their focus was big oil in-place and growth through drilling and acquisitions. Then in 2003, with the purchase of Tappit Resources, Crescent Point converted into a royalty trust, Saxberg took over as lead and Coburn moved on to Starpoint, which eventually was sold and became TriStar Oil & Gas.

Saskatchewan was of intense interest for both men, but to say Crescent Point or any other producer operating there "discovered" the Bakken isn´t accurate because the industry knew the oil was there all along. It was just locked up in a low-permeability/low-porosity formation.

The initial breakthrough in the Bakken came four years ago with horizontal drilling and Halliburton´s SurgiFrac completions system using coil tubing and multi-stage fracturing. But what put the play on the map was the application of horizontal drilling in combination with the Packers Plus StackFrac system of open-hole multi-stage fracing.

A similar combination of technologies launched the U.S. shale gas revolution that would flood North America with natural gas. That development would conspire with a global economic recession, oil and cash would become king, and Saskatchewan would emerge as a Canadian economic champion.

With its abundant reserves in uranium, potash, and oil, Saskatchewan was determined not to make the same mistake as Alberta. It maintained a stable tax and royalty regime and was rewarded with companies like Crescent Point, who all but threw in the towel on Alberta and focused on the bountiful Bakken.

Today Crescent Point, a 90 per cent oil-weighted company, produces more than 85 per cent of it from Saskatchewan. It still has about 6,000 barrels a day in Alberta, but 95 per cent of its capital programs are directed at Saskatchewan, where it produces 21,000 barrels a day from the Bakken, plus another 8,000 barrels a day through Shelter Bay and about 5,000 barrels a day from Saskatchewan´s other hot play at Shaunavon in the southwest corner of the province.

The Shaunavon kind of surprised everyone as horizontal well/multi-stage fracing migrated there from the Bakken. The Shaunavon is now considered the third-largest conventional oilfield in western Canada, after the Bakken and the Pembina in Alberta (the largest). This year, Crescent Point paid $665.3 million for privately held oil and gas producer Wave Energy, whose land holdings provide access to an estimated one billion net barrels of oil. The total Shaunavon field is producing about 8,000 barrels a day, and Crescent Point is by far its dominant player.

"There´s a total of about 4.3 billion barrels of reserves in the Shaunavon," Saxberg says. "And four [billion] to five billion barrels of proved and probable in the Bakken."

The work Crescent Point has done in the Bakken gives it an enviable reserves life of 13.7 years, which Saxberg says is a conservative calculation. Crescent Point has drilled over 400 wells in the Bakken from an inventory of 3,700 drillable locations (2,800 net). Drilling eight wells per section, each well costs about $1.5 million. The payout per well is within six or seven months at current oil prices-it was half that last year during the run up in oil prices.

"Our total cost for a well used to be $2 million," Saxbeg says. "We´ve driven our cost down through the drill bit, improved technology, and [that´s] because of the drop in service costs due to the economy. So we saved a half million dollars per well from last year to this year. That adds up."

Last year, Crescent Point/Shelter Bay spent over $1 billion in the Bakken. It plans to spend a more moderate $475 million this year and in 2010 expects to spend at least $500 million, not including acquisitions.

"We haven´t set our budget yet, but this year we´re looking to drill about 170 wells and next year it will be close to 200 wells," he says.

The Bakken also produces about 12 million cubic feet a day of solution gas for Crescent Point. That would be more exciting if natural gas prices were something better than $3 per thousands cubic feet, but still, the plans to grow gas production to 18 million cubic feet per day and once its Saskatchewan gas plant expansion is completed in 2010, it will ramp production to 30 million a day with the help of outside parties.

Shifting into overdrive

It is difficult to speak of the Bakken without touching on PetroBakken, the newly formed corporate entity that emerged following Petrobank Energy´s $580-million acquisition of TriStar Oil and Gas. PetroBakken plans to drill some 130 bi-lateral horizontal wells a year in the Bakken over the next five years. By the end of this year, it expects to be producing 30,000 barrels a day, making it the most powerful entity in the Bakken and prompting Oilweek to dub John Wright and Gregg Smith the "Barons of the Bakken" in its October issue.

That title doesn´t sit particularly well with Saxberg, who ironically laments nobody ever called him a "Baron" when Cresent Point was the dominant player. But joking aside, Saxberg isn´t ruffled by the combined strength of the competition. Actually, he sees PetroBakken as a positive development. Two powerful players in the play is good for attracting investor interest and, besides, Crescent Point and PetroBakken are partnered on numerous projects in the area.

But there are also some important differences between PetroBakken and Crescent Point, in particular, their view on waterflooding. PetroBakken expects between 20 and 25 per cent oil recovery in the Bakken and has said the formation is not amenable to waterflooding because of its low permeability. Crescent Point believes it is.

"The reason [PetroBakken doesn´t] think waterflood is prospective is because they haven´t done the work," Saxberg says. "We´ve had three years of waterflood pilot projects. Crescent Point has been the only company testing the waterflood potential in the Bakken since day one."

For Saxberg, waterflood is the big prize, providing the highest recovery and best economic scenario. Based on some of this preliminary work, he thinks waterflood could yield upwards of 33 per cent oil recovery in the Bakken. And while Crescent Point and PetroBakken currently use the same technology to drill and complete wells in the Bakken, these different ends are already dictating different means.

"We use the Packers Plus system but we´re now moving towards the cement casing," Saxberg explains. "The advantage of cemented casing is that we can go in later and do additional fracs, which is in keeping with our longer-term view of waterflooding. With the Packers system you can´t go back and refrac."

The concern is that after 5 or 10 years, open-hole injector wells will plug off and will need to be refraced, or they may need refracing just to move water around differently. So as Crescent Point ramps up its waterflood pilot programs-a second pilot comes on this November and two or three more are planned for 2010-it may mark a technical divergence in how the two heavyweights operate in the play.

"The biggest risk for developing this Bakken pool is overcapitalization," Saxberg says. "You want to be certain you have the right completion technique, the right construction for your facilities, the right infrastructure, and that you´ve set up a proper drilling pattern for waterflooding."

The early days with Halliburton´s SurgiFrac provided a valuable lesson. Those initial wells fraced with SurgiFrac had to be fraced again with packers, which meant producers had spent twice as much on completions.

So besides the cased hole/open hole dilemma, Crescent Point is analyzing all the options. "Is 15 fracs per leg valid?" Saxberg questions. "It may be that eight is optimal. Nobody has the data yet to show that 15 stages is better than 8 or 10. A year ago, we went from 8 to 11 stages and, right now, we have data that shows there´s no difference between going from 8 to 11 stages. Yet each stage costs about $20,000.

"It sounds really good to do 20 fracs or more but, at some point, there´s a crossover of too much capital to get the same reserves out. That´s your risk. If you jump in with both feet and don´t test the waters on different completion techniques, you can then destroy a great project."

Saxberg likens current Bakken development to a gas play: producers try to get as much upfront initial production as possible. "But if waterflood works out, you don´t need that high IP necessarily to get the better economics because we´ll have wells that produce 200 barrels a day for a year versus a short window of one month at 300 barrels a day going to 50 barrels a day."

With the economy in tentative recovery, Crescent Point´s future is bright. It has sorted out its conversion from royalty trust to corporation this summer and continues to pay out healthy dividends.

"On after-tax basis our shareholders actually get a 40 per cent increase because of the dividend tax credit," Saxberg says. "Before that, we handed out $0.23 a month and [unit holders] got $0.14 after tax. We still give out $0.23, but now you get $0.20 instead of $0.14. It´s a huge lift. Most companies would have to cut their dividend to pay for the tax, but we set ourselves up with tax pools and enough room in our cash flow to not have to cut our dividend."

The same strong balance sheet has also allowed Crescent Point to make strategic acquisitions. Earlier in the year, it partnered with TriStar to acquire Talisman´s massive land position in the Bakken. As for having paid too much, as some analysts claimed, Saxberg says, "We bought at the low [point] of the market. We paid $325 million for our share. TriStar sold to Petrobank just now for twice that. So we either pay too much for Talisman or Petrobank paid twice as much for TriStar."

As Crescent Point moves ahead into this bright future, it does so with an impressive tool kit. It hedges a portion of its oil and gas production as far as three and a half years forward to better manage cash flow, taxes, and to ride out any other downturns in commodity prices; it maintains a large fracing inventory to grow production, even if it has to claw back drilling again to save money due to commodity price swings; and it keeps a debt-to-cash flow ratio of less than one but maintains a large under-utilized credit within its bank lines just in case the company gets squeezed.

"We recognize that oil prices have been good to us compared to some other companies," Saxberg says. "But we have a healthy dose of fear that drives us to succeed and to manage our business in a way that protects against downturns while also providing strong growth."

Thursday, January 27, 2011

Notes from 2006 Petrobank AGM

Found these on a message board.  Good to read what management has previously said to determine how credible they are or if they are always selling.

Notes on Annual Meeting -5/.5/06 –

Chairman Jim Tocher efficiently handled the business portion of the meeting. Jim then turned the meeting over to CEO John Wright (JW) who then chaired the remaining portion of the meeting.

Gregg Smith handled the discussion of the Legacy Canadian assets . In general most of the projects have a 20-40% more aggressive drilling program for 2006. One new project (Innes,Sinclair)was discussed . After listening I had a feeling that the depth of the projects was greater than I had originally believed. This management continues to be very conservative .After following this company for 10 years , it is clear to me that as we get closer to monetizing each of the projects the value gets bigger rather than smaller.

When Gregg discussed the Princeton project I now feel that the potential for this project is much bigger than I originally perceived. However, with the size and remoteness (not much infrastructure in the immediate area) of this project it appears to be years from commercialization. Continued testing will take place in 2006. The resource potential needs to be confirmed. The potential will need to be large to justify the large infrastructure investment.

Additionally it appears the scope of all the existing projects are growing. The land size of most projects is also growing. Existing land owners and neighboring land owners are pleased with PBG. It is apparent that they do what they say and when they say they will do it.The land owners trust PBG. In summary, PBG is a good operator! Gregg concluded his remarks with a statement that the 313,000 acres of undeveloped land base is an extensive opportunity for a company of this size . This potential will allow PBG very good growth for a number of years even if no more acreage is ever added(which isn't going to happen as no grass will grow around the feet of this management). Gregg, further emphasized that these projects are low risk ,well understood resources that will give the company continued stability while the high return Pertrominerales , Whitesands, and THAI/CAPRI projects are being brought closer to a monetized value.

What was most impressive about Gregg was his humbleness towards his contribution to the company ,his willingness to credit his staff ,and his excitement and respect for the companies high return high profile projects/Managers.(no jealousy here ) This is truly a team of people that really like each other!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Gregg then turned the meeting over to Chris Bloomer

Chris discussed the current status of the Whitesands project. He showed slides which confirmed that the project is fully constructed and that they are 30 days into pre steaming . They now refer to this phase of the project as the Pre-Ignition Heating Cycle (PIHC) internally pronounced as "pic" .

With respect to some of the recent discussion on this board about the project being delayed and /or behind schedule BAH HUMBUG . IMO these reported rumors are at best from industry experts or competitors who like to be negative or are skeptics at heart. Some of this industry confusion may be a result of the delays which have occurred since 2004 but are in no way recent concerns. For the record, for those that have been around for the last 2-3 years, this project was originally to be built in 2004 . The project was first delayed 12 months as acceptable terms for a JV money partner had not been finalized. For those that do not remember the original plan was to sell between 30-40% of the project for at least a $30 Million money commitment . Apparently , when PBG sold some mature assets in late 2004 , for approximately $100 Million ,it appears to me that it became apparent to the potential money investors that PBG could go it alone if acceptable terms were not offered. As we all know today the Richardson group put up $24 Million for only 16% of Whitesands. This deal did include 3 Million shares of PBG stock . The $3/share would now be considered a great price (at the time the PBG shares where priced at market). As a side bar I am very confident that in a year people will look back at today's price of $14-16 as an unbelievable missed opportunity.

The project was further delayed in 2005 . PIC was originally scheduled for DEC 2005. Completion of PIC is now scheduled for middle of June 2006. This six month delay was caused by the incredible run in commodity prices. I do not think very many oil companies anticipated the extent that the rise in WTI would create such labor shortages and huge price increase for oil field services. This inflationary pressures did adversely increase Whitesands construction costs ( I kind of recall the original budge at $30 Million thus a $10 Million over run was experienced. ) Chris explained that the completion of Whitesands in 18 months for only $40 Million is Light speed when compared to other Tar sands projects. I feel this is a fair and accurate statement. Other Tar sands projects are very labor intensive and require much more engineers and moving parts.

For comparison purposes I have listen to presentations from Sun who support that it has cost them roughly $2 Billion to develop a 50,000 BBL /day capacity project . Their projects usually take 5-7 years. From previous PBG presentations it has been projected that a 45,000 BBL/day THAI project could be produced at a cost of $500 Million in 2-3 years .Of note all of these past estimates would be higher today as a result of the oil patch inflation. Nevertheless it is believed that a THAI project would have ,virtually no water handling facilities , at least 50% less GHG emissions,and 70-80% of OOIP recovered. (can't resist reminding everyone of our strengths).

Chris says PIC will conclude in June and thus the moment of truth COMBUSTION WILL BE INTIATED. It is my understanding that they will know immediately (less than a day) if combustion was successful. I still do not know if in June they will report API , quantities or an indication if the front appears to be performing as planned.The successful completion of combustion is all I am anticipating..

Chris Identified that The amount of resource of Whitesands will be increased once their delineation work is completed . PBG has already completed 4 exploration wells and acquired 17 km 2 of 3 d seismic on the newly acquired 15 sections (PBG paid $20 Million for these new 15 sections in 2006.) He said as a result of these new 15 sections , under SAGD assumptions ,Whitesands bitumen resource will increase substantially. He later fielded a question on would the resource be larger upon THAI success?. He confirmed that it would. He said with respect to the 1.3 Billion currently being reported (on existing sections )(DOES NOT INCLUDE NEW 15 sections) it would NOT double but the resource would be MUCH larger than the 1.3 Billion currently being supported.

When asked questions about anticipated THAI results I recall his responses as follows:

The site selection for this first field test was one of the best they could find .This site had a 20 Foot rock cap (substantially limits the risk of air breakthrough). The resource also had very little show of heat thief zones such as shale lenses ,bottom water, and/or top gas . Also, the Bitumen content located at the site ,of this first field test, is of very high quality. After listening to these comments it became clear to me that the risk of failure in this first field test is very small. Management picked the best site for this first field test. As this site has many very favorable attributes its main purpose ,to PBG, is not to prove "proof of concept". IMO Management is very confident and believes it has already completed sufficient work to prove "proof of Concept".The engineering, computer simulation, and lab tests have already shown that THAI will work. Therefore, for PBG's engineers this field test will provide the data necessary to design future THAI projects on sites which are more proablmatic.For us non- engineer types (which I think would be most of us investors) this field test will be yet one more piece of evidence as to "proof of concept " .

The data from the observation wells will contribute to the final plans for a commercial scale project (50,000 BBL/DAY).

Another impressive characteristic of Mr. Bloomer is his willingness to discuss's areas that can already be improved upon. If management was not confident would they be as willing to discuss things they would do different? Chris said that on the next THAI site that they would most likely move the air compressor equipment closer to the vertical air injection well. Man hours and money can be saved by not having an air injection pipe running the length of the project. By moving air compression equipment to the toe ,less site work would be needed. This design improvement will increase the amount of potential sites .Those sites which have terrains that are rough in the middle will now be possibilities.

When Chris was pressed with some skeptical questions he replied with some of the following information. Once the lab tests confirmed THAI's favorable computer simulation results management began running variations trying to induce failure. They performed lab tests where air injection occurred within sixteen inches of the horizontal production well.No air break through occurred . With respect to excess heat they could only get the lab test up to 900 degrees. As steel only begins to melt at 1200 degrees and sand turns to glass at 2000 degrees the potential for excess heat problems appears well controlled. Chris emphasized that if air breakthrough did NOT occur at 16 inches than the distance of the field scale test,an equivalent of a six story building (distance between vertical air injector well and horizontal production well ) should not be a air break through problem.

Chris also again explained with multiple levers of THAI :

1)Back pressure on horizontal well

2)Ability to provide steam down horizontal well, if needed

3)Volume of air into vertical air injection well

4)Location of air injection in relation to horizontal,i.e. 16" or six stories

5)Ability to put steam down vertical air injection if needed

The project has a lot of means to be successful.

PBG's project is NOT like a SAGD where you put the steam down the hole and hope it finds the bitumen . Our project is much more dynamic and thus the anticipated 70-80% OOIP recovery. Chris turned the meeting back to JW.

JW explained that PBG's 2 P reserves , to date, do NOT include any value for Whitesands Bitumen , or any of Colombia's exploration lands .Thus IMHO (GOPBG) PBG's NAV is very understated. (I think he said this @ the beginning of the meeting )

JW explained that this would be the last time he referred to the Colombia projects as the "Latin American Business unit". The IPO is scheduled to be completed in the next six weeks. JW could not ,for legal reasons tell us yet what % of Petrominerales stock would be sold or what will be the amount of cash raised. He said we will know these amounts very soon.Upon successful closing of this IPO PBG will in next 12-24 months decide if another offering to raise more cash or a stock distribution of remaining Petominerales shares to all PBG shareholders of record will maximizes shareholder value. Management will do whatever they feel maximizes PBG shareholder value. JW is confident that this IPO will be the first step in unlocking value which he believes is already present in these Colombia projects.

With regard to a question about the risk of COLOMBIA nationalizing their resources JW responded. President URBIE has already chosen the path of soliciting foreign investment . He is scheduled to be re-elected on May 8 . He stated that their are a large number ( I think it was over 30) of companies which have recently made large financial commitments to continue exploration in Colombia. He said the current government wants help developing their resources.

It is very apparent to me that strategically management is going to pursue a successful IPO offering in the next six weeks. Upon results of this offering they ,in turn , will apply the air to Whitesands and initiate combustion. First things First.

In the end JW fielded a question "that with so many SAGD projects around Whitesands does he think people will convert over to THAI?" The question was also laced with some thoughts about the general scientism that exists in the market over THAI. JW stated that with his experience in the industry he is very confident that their will be many who are sceptics today who will be first in line to say they that they always said THAI would work. He then showed a news clip which shows how awareness of THAI is growing . This is a must see as soon as it is posted on PBG's web site.

Well I am tired now. Many of these thoughts are out of order and some of this post commingles presentation items with audience question. I did my best to be fair. The meeting had over 100 attendees but less than 200. I would guess 50% more in attendance than last year .

Sprott likes gold, loves silver

I'm agnostic.  But I have enjoyed having me some Sprott Resource Corp !

Grantham Jan 2011 Letter Summary

For those too lazy to read the whole thing.  Grantham had a point form summary at the end of the quarterly letter:

Looking Forward

 Be prepared for a strong market and continued outperformance of everything risky.

 But be aware that you are living on borrowed time as a bull; on our data, the market is worth about 910 on the

S&P 500, substantially less than current levels, and most risky components are even more overpriced.

 The speed with which you should pull back from the market as it advances into dangerously overpriced

territory this year is more of an art than a science, but by October 1 you should probably be thinking much more


 As before, in our opinion, U.S. quality stocks are the least overpriced equities.

 To make money in emerging markets from this point, animal sprits have to stay strong and not much can go

wrong. This is possibly the last chapter in a 12-year love affair. Emerging equities seem to be in the early stages

of the “Emerging, Emerging Bubble” that, 3½ years ago, I suggested would occur. How far a bubble expands is

always anyone’s guess, but from now on, we must be more careful.

 For those of us in Asset Allocation, currencies are presently too iffy to choose between. Occasionally, in our

opinion, one or more get far out of line. This is not one of those occasions.

 Resource stocks, as in “stuff in the ground,” are likely to be fi ne investments for the very long term. But short

term, they can really ruin a quarter, and they have certainly moved a lot recently.

 We think forestry is still a good, safe, long-term play. Good agricultural land is as well.

 What to watch out for: commodity price rises in the next few months could be so large that governmental policies

in emerging countries might just stop the global equity bull market. My guess, though, is that this is not the case

in the U.S. just yet.

Things that Really Matter in 2011 and Beyond (in one person’s view) for Investments and Real Life

 Resources running out, putting strong but intermittent pressure on commodity prices

 Global warming causing destabilized weather patterns, adding to agricultural price pressures

 Declining American educational standards relative to competitors

 Extraordinary income disparities and a lack of progress of American hourly wages

 Everything else.

I knew Greenwald Would Regret This

Buffett sits on  $30 billion for a decade.  Then uses it to buy Burlington.  Do you think he would do that if he didn't know what he was doing ???

Gasparino and others Call Out Meredith Whitney on Muni Bonds

Marc Faber Saying Not Nice Things

Tell us how you really think

I bet there are a few folks down in Houston who share his view of Mr. Obama

Wednesday, January 26, 2011

How Big Will 2011 Be for Petrominerales

I just went back and created a spreadsheet for myself that details the exploration results for PMG since they got seriously drilling in 2011.  The results are pretty impressive.

Corcel block

18 wells
15 found oil with an average IP of over 6,000 bopd
3 were not commercial
83% success rate


6 wells
5 found oil with average IP of over 11,000 bopd
1 not commercial

Central Llanos

11 wells
5 with oil average IP of over 1,700 bopd
6 not commercial

Over 70% success rate for the company

In 2011 they will be drilling 45 exploration wells, 16 on the Corcel/Guatiquia where they are batting 83% with some prolific wells.

Imagine they only hit 50% of the 16 and average the 8k.  That is 64k IP from there alone.  Entire company is currently 40k.

Plus 2 big wells in the foothills.  Plus 2 in Peru.  Plus the heavy oil blocks.  Any of which if successful could double the reserve size of the company.

Should be interesting.  And a great start with 10k per day at Yatay and 10k per day at Caruto.  I wonder if there are follow ups for each of these ?

Tuesday, January 25, 2011

Pulse Data Inc

From Above Average Odds.  Haven't seen him post anything that isn't worth reading.  So this is a reminder for myself to read this one.

Monday, January 24, 2011

Yukon Nevada strikes.....GOLD !

Before I can get comfortable with valuation here they off and do something that pops the share price.

I will not buy until I'm certain I understand though.  And I'm not close to that although I suspect this would be a good investment.

Some doubt about Meredith Whitney Muni Bond Call

Hopefully at the end of 2011 she comes back on TV to either gloat or eat crow about the amount of muni bonds that default.

She likes the TV cameras a little too much for my taste, but she is far from alone in that.

Nice Reserve Increase for Sprott Resource (Orion)

Value growth inside of Sprott Resource continues.  This one felt like a no-brainer in the early summer when I first wrote about it.

With this success and Stonegate it appears I should have bought more than I did.  I will not make the same mistake with Petrobank.

Former Buffett stock picker Simpson joins CHK board

I hope he likes expensive maps !

Sunday, January 23, 2011

Notes on Petrominerales

I went into this weekend thinking I should sell my PMG and roll it into PBG.   I leave the weekend thinking I should be adding to PMG.

This is a company that is really just getting started.  Here are some notes from the investor village message board which for the P family has some very intelligent contributors.

List of Follow Up/Developmnet locations

Cande-5 Guadalupe (expecting thicker sands than Cande-4)

Cande-6 Guadalupe

Cande-7 Guadalupe

Caruto-2 -followup to Caruto 1

Yatay-2 -LS3 stepout

Yatay-3- Guadalupe test



So if they devote the 2nd rig to followup drilling they will only be able to drill a handfull of exploration wells on the Corcel block with the other rig in 2011. If any of those wells are succesful then that further compounds the problem. I expect if Celeste or Cardenal hits they will seriously consider running a 3rd rig at Corcel.


The Candelilla flow lines to the Corcel CPF have been completed some time ago. They have been using them to get rid of the produced water from Candelilla. The permit delay is entirely a regulatory issue related to the different royalties paid between the 2 blocks. The ANH wants to make sure everything ($) is accounted for properly before the oil gets mixed.

The Caruto facilities were set to get upgraded by mid Jan so I think Caruto production was being held back in Decemeber.

There was some mention of having additional offloading access at the Cusiana . I don't know if this is still the case.

I have a feeling that bottlenecks might be a bit of a headache going forward. Alange is beginning to truck directly to the coast. The trucking costs are significant but this is partially offset by the higher premiums paid at site compared to the discount at the pipelines. PMG did try trucking small volumes directly to the coast in 2010. Look for them to explore this option going forward rather than curtailing production/exploration.

Rio Ariari

Look for the Mochelo horizontal to produce in excess of 2 or 3 thousand bopd at a 40-60% watercut followed up by plans for commerciality starting from a small base and growing forward. The light stuff makes for good headlines and cashflow but significant heavy oil reserves is what will bring in the big Colombian funds once the Colombian listing is done. Just look at PRE.

Each well tests a play targeting a min of 50 million barrels recoverable. So far they have Rio Ariari, Asarina, Mochelo and now potentially Borugo. Each prospect is equivalent to the company's entire 2009 2P reserves.

Ecopetrol recently drilled 2 succesfull stratigraphic wells just north of Rio Ariari on the Cano Sur block (50% Shell interest). Hopefully they will share in PMG's success in the area so the 2 companyies can coordinate activities on a pipline in the area.

Every well bore in the 20 km x 20 km western edge of PMG's Rio Ariari block has found heavy oil. Mochelo-1 just tested 600 bopd 10 degree API crude from a vertical.

Well Control across the Block

(1)SA13- vintage stratigraphic well , oil stained Carbonera

(2)Rio Ariari 1- drilled late 2009, 14 ft Mirador pay, long term production test @ 150 bopd 10 degree API crude

(3)Rio Ariari 2- drilled early 2010, stepout of RA-1, 40 ft Mirador pay, well bore/cement issues, equivocal testing results

(4)Asarina 1-drilled late 2010 near RA-1 and RA-2 but I think it tested a seperate lower Mirador interval, logged 79 ft pay, tested 100 bopd 10 API crude @ 85% watercut

(5) Mochelo 1-drilled late 2010, 69 ft net pay, tested 600 bopd 10 degree API crude @ 80-90% watercut

(6)Borugo-1- TD by Christmas

-7 more exploration wells to follow drilled one after another

600 bopd of 10 degree API from a vertical is truly exceptional. The short term plan going forward is to whipstock Mochelo 1 and see if a lateral increases productivity while decreasing the water cut. Then they shoot 3D to delieneate Mochelo and then they can plan commerciality. Rio Ariari is starting to look a whole lot like Quifa.

They are already spitting out cashflow from the light oil blocks and now the heavy stuff will add significant reserves to appease the critics that keep pointing to the reserve #s as an argument against the company. If they get reserves value on top of cashflow valuation then the SP could have a nice move going forward as you get the best of both worlds.

Thats 3 discoveries in 3 seperate news releases since Nov 30th and they only plan to increase the rig count going forward. Truly spoiled to be a shareholder.

PetroMinerales – Opportunity Rich

In the December 2010 Petrominerales presentation, down near the end of it ( page 23?), is a slide titled -“Opportunity Rich”.

*Growing multi-year prospect inventory; planning to acquire over 1,300 km2 of 3D seismic in 2011

* 2011 drilling program includes 6 rigs working continuously plus additional rigs for Foothills and Peru exploration programs

* One rig operating at each Neiva and Orito

* With success, prospects could have multiple follow-up appraisal locations

I’m looking at the 2011 drilling plan laid out in the slide above and trying to estimate where this might bring us production-wise by the end of the year.

I’m also to a lesser extent thinking about reserves, but, unlike some, this has never been a big factor to me in evaluating PMG. In my mind, they are not your normal E & P as they have demonstrated that they can increase their prospects year after year to keep up with expanded drilling and thus have the base to continue to grow production, revenue and free cash flow.

So back to potential production. In my mind two factors need to be weighed most heavily.

One is management’s comment in a recent conference call that they are having a 90%+ success rate in exploration drilling when using 3D seismic.

The second is their historical information on the southern Corcel block – 6500 b/d being the average IP rate and an exploration hit rate that was quite high. Although I don’t have the exact numbers, from memory it was >70%, and it might even have been 90%. I’m sure the 3 big Cande wells would bump this IP number up substantially but the Cande Guadalupe wells would perhaps bring it back down to 6500 b/d, so I’ll leave it there.

From reading this same December 2010 presentation, it is pretty clear to me that all the 42-46 wells mentioned above except for the 2 in Peru and maybe the 2 in the Putumayo will be drilled off of 3D.

So 38 to 42 wells will be drilled in 2011 with 3D, with, potentially, a 90% hit rate.

16 of these wells will be in the Corcel/Guatiquia area. The track record here says 11 (70% success) to 14 (90% success) of these wells will be discoveries. If we use the 6500 b/d average, we get 71,500 to 91,000 b/d of IP.

If we take the 2 wells drilled in the adjacent Foothills and assume we hit just one of them, it seems the chances of it being a 10,000 b/d well is likely, since the target size (25MMBBL+) is as big as the biggest Corcel/Guatiquia wells (2-25MM).

Then we have the 10 -12 wells in the Central Llanos, again being drilled with 3D. I believe we have 6 more Yenac wells and 2 Mantis wells in the 10 -12 number but could be wrong – these may be classified as follow-up appraisal wells or development wells.. Yenac-1 was 1800/bopd and Yenac-2 was 2,900. Mantis 1 has 90 feet of pay. It seems fair to assume we will hit on 7 to 11 of these wells and assigning 2500 b/d seems conservative. This would give us another 17,500 to 27,500 in flush production.

Stopping for a little addition, we are at, on the low side, 71,500 + 10,000 + 17,500 or

99,000 b/d. On the high side, we are at 91,000 + 10,000 + 27,500 or 128,500 b/d.

We haven’t even factored in the 12 heavy oil wells (we hit a 600 vertical at Mocheto and should see some significantly larger horizontals there), or the 2 wells targeting 25MM+ in reserves in Peru or a well or two in the Putumayo basin.

We also haven’t factored in multiple follow-up appraisal locations (footnote at bottom of slide) but I guess we’d need more rigs to hold to the plan if we wanted to consider them in our count.

W also didn’t count the 55 development wells planned for Orito, Neiva and Las Aguilas.

Anyway, you get the picture. “Opportunity Rich” is a great name for this slide.

100,000 to 125,000 b/d of new discoveries seems very possible in 2011.

Berkshire looking attractive

Someone e-mailed me an article from Barrons:

With cash pouring in, Warren Buffett's Berkshire Hathaway may do something big this year -- maybe even pay a dividend.

A flush Berkshire Hathaway is in its best shape ever and piling up cash so quickly that it could be sitting on close to $50 billion at its core insurance operation alone by year end, and might even begin paying a dividend. Berkshire's profit recovery, aided by some smart acquisitions and investments by CEO Warren Buffett -- notably its purchase of the Burlington Northern railroad -- has gone largely unrecognized on Wall Street, where Berkshire's Class A shares (ticker: BRKA), now trading around $121,000, haven't budged in nearly a year. Berkshire's Class B shares (BRKB) trade around $81; each equals 1/1500th of a Class A share.

Berkshire's operating profits are on track to hit a record $12 billion to $13 billion after taxes in 2011, up from an estimated $11 billion in 2010, buoyed by Burlington and many of the company's manufacturing and industrial units, whose earnings fell sharply during the downturn.

Combine that with the likely repayment of some lucrative investments in Goldman Sachs (GS), General Electric (GE) and other companies that Buffett made during the financial crisis, and Berkshire's insurance units could be holding $20 billion more by year end than the $30 billion they had on Sept. 30, 2010. (We focus on cash at Berkshire's insurance operations and not in other divisions because insurance cash is readily available for investment. Other units held about $3 billion in cash.) Berkshire's market value is $200 billion, fifth-largest in the U.S. stock market, behind only ExxonMobil (XOM), Apple (AAPL), Microsoft (MSFT) and Google (GOOG).

The flood of cash could prompt Berkshire to finally start paying a cash dividend in the next 12 to 18 months, particularly if the 80-year-old Buffett is unable to find what he calls an "elephant," or a large acquisition. Locating one could prove difficult, given rising asset and equity values, as well as Buffett's refusal to participate in corporate auctions. Buffett, who declined to comment to Barron's, also hasn't been thrilled by the stock or bond market in the past year, when Berkshire has been a net seller of stocks.

Buffett's fans think Berkshire shares look appealing, trading for a reasonable 1.3 times estimated year-end 2010 book value of $95,000 apiece, and that the stock could surpass its 2007 record of $149,000 within the next 12 months. Book value, or shareholder equity per share, may hit $105,000 by the end of this year, assuming a decent performance by Berkshire's famed equity portfolio, which was an estimated total of $62 billion at year-end 2010. Thus, the shares trade for just 1.15 times projected year-end 2011 book, providing significant downside support.

LONGTIME BERKSHIRE INVESTOR Whitney Tilson of T2 Partners pegs Berkshire's "intrinsic value" around $160,000 a share and sees it surpassing $170,000 by year end. To reach that lofty level, the stock would have to shake off investor concerns about Buffett's longevity and about Berkshire's sheer size. Intrinsic value is the discounted cash flow of Berkshire businesses.

Buffett is in good health, but he may not run Berkshire for much more than another five years -- his actuarial life expectancy is eight years. He probably will keep at it for as long as he can because he loves his job, saying he "tap-dances" to work each day in Omaha and would pay to do it. His pay remains restrained at just $175,000 a year, although his 23% stake in Berkshire is valued at $46 billion. He continues to donate stock annually to the foundation run by Bill and Melinda Gates. Berkshire is due to report its fourth-quarter results in late February.

Wall Street is lukewarm on Berkshire; no analyst has a Buy recommendation on it.

David Rolfe, chief investment officer with Wedgewood Partners in St. Louis, the manager of the new Riverpark/Wedgewood mutual fund, considers that a mistake. "Berkshire's earnings are booming, and the Burlington acquisition looks like a masterstroke, yet the market doesn't give a whit about it," he says. Rolfe sees the stock topping $140,000 this year.

As its adherents regularly note, Berkshire is no longer the insurance and investment outfit it was up until the late 1990s. Insurance and investment income now account for less than half its profit.

Over the years, Berkshire often has traded markedly above its book value, getting a premium for Buffett's incomparable investment skills. The stock has averaged 1.6 times book value in the past 10 years. That premium has melted in recent years, partly reflecting Buffett's advancing age. In fact, Rolfe argues, "There's no Buffett premium in the stock now."

It's true Buffett's successors will face big challenges, both in making investments and in retaining and motivating the managers of the more than 80 businesses under the Berkshire umbrella.

The good news is that they will be sitting astride a cash-spewing conglomerate with annual revenue exceeding $135 billion and some top-notch businesses, including Burlington Northern; Geico, the No 3 U.S. auto insurer; and MidAmerican Energy, a utility conglomerate that owns U.S. and U.K. electric companies and two natural-gas pipelines.

Geico and MidAmerican could each be worth more than $15 billion.

Berkshire's insurance operations also include General Re, a large reinsurer, and the specialty-reinsurance unit run by underwriting genius Ajit Jain. It has made billions for Berkshire over the years by shrewdly handling big-ticket risks like potential damage from hurricanes and earthquakes. (It did, however, suffer losses from BP's Deepwater Horizon disaster in the Gulf of Mexico.)

Berkshire also houses a grab bag of other businesses, including Benjamin Moore, Dairy Queen, Fruit of the Loom and See's Candies.

BUFFETT'S STRATEGY of steadily adding unrelated businesses runs counter to the trend in Corporate America, where companies such as Fortune Brands (FO), ITT (ITT, see Follow-Up), Wendy's/Arby's (WEN) and others are breaking apart to form more manageable businesses and eliminate "conglomerate discounts." Many investors like focused companies. Buffett doesn't buy that idea.

Then there is Berkshire's hands-off approach, with "minimal involvement" by Buffett and Berkshire's tiny corporate staff in the day-to-day activities of its businesses.

Operating units are unfettered by the head office, but this can also let problems fester before they get Buffett's attention. For example, Berkshire's NetJets unit, the leading purveyor of fractional ownership of private jets, overexpanded during the boom years of 2006 to 2008 and got stung when the recession hit, resulting in losses of $711 million in 2009. NetJets was subsequently slimmed down under the leadership of David Sokol, MidAmerican's chairman. It earned $158 million before taxes in 2010's first nine months.

For years, we've speculated Sokol will succeed Buffett as CEO, and he's now the consensus pick. It's less clear who will run Berkshire's investments after Buffett's departure, but one clear possibility is Todd Combs, the little-known money manager that Buffett brought on board last year.

The reality is that the investment role probably won't be so important post-Buffett because some of Berkshire's largest equity holdings -- Coca-Cola (KO), American Express (AXP), Wells Fargo (WFC) and Procter & Gamble (PG) -- are unlikely to be touched, owing in part to large embedded gains. That will leave the chief investment officer with the job of investing the part of Berkshire's annual cash flow that isn't going toward acquisitions and a likely dividend.

Our guess is that the stock will fall 10% whenever Buffett steps down. But it could appreciate substantially before then and resume its ascent in the post-Buffett era, as book value grows and Wall Street gets comfortable with his successors.

The Burlington deal looks like one of Buffett's best, done in November 2009, when the economy was just starting to recover and there was little competition from private-equity or other buyers. Berkshire offered a 33% premium, paying $26.4 billion for the 77.4% of the company that it didn't already own. That initially looked overly generous, at about 20 times then-current estimates of 2010 profits. Yet Burlington's earnings -- and those of the rest of the railroad industry -- surged in 2010 and are expected to increase another 15% or so this year. Burlington could earn $3 billion after taxes in 2011 -- it netted $706 million in the third quarter. So, Berkshire paid only about 11 times projected 2011 profits for Burlington. Burlington probably is worth $40 billion to $45 billion now.

BUFFETT ALSO SCORED with roughly $50 billion of investments made during the 2008-2009 financial crisis. Some are likely to be repaid this year, including $5 billion of 10% preferred stock from Goldman Sachs and $3 billion of 10% preferred from GE. Both companies will pay a 10% premium to get rid of the high-cost preferred. In addition, Berkshire got equity warrants on both stocks. Those on Goldman are worth $2 billion now. Swiss Re, a European reinsurer, just repaid $4 billion to Berkshire from a very lucrative investment by Buffett. These repayments will swell Berkshire's coffers.

Berkshire also holds $7.5 billion of junk debt and preferred issued by Wrigley in connection with the gum maker's purchase by privately held candy giant Mars in 2008. Berkshire's investment income probably will decline because of the investment repayments, but that could be partly offset by higher dividend income on its equity portfolio.

Buffett hasn't paid a dividend on Berkshire shares since he took control in 1965, preferring to invest the company's profits. That's been the right move, given the 6,000-fold increase in Berkshire's stock since then. Buffett's aversion to dividends could change if cash continues to build and he can't find a big acquisition. A dividend also could take some pressure off his successors to invest the company's profits.

Berkshire's initial dividend, whenever it comes, is expected to be modest, at 2% or less.

INVESTORS GENERALLY TAKE a long view and don't pay much attention to Berkshire's quarterly results, but T2's Tilson has said a strong fourth-quarter earnings report next month could act as a catalyst by highlighting the company's earnings power. Tilson called it the "mother of all earnings reports" in a note to MarketWatch, which, like Barron's, is published by Dow Jones.

Profits this year could run at $7,500 to $8,000 per share -- or $12 billion to $13 billion -- up from an estimated $6,700 in 2010. Berkshire trades for about 15 times forward earnings, in line with the Standard & Poor's 500, which is valued at 14 times projected 2011 net. It's rare for Berkshire to trade near a market multiple rather than at a big premium.

Barclays analyst Jay Gelb sees Berkshire's fourth-quarter profit rising 43%, to almost $1,800 per Class A share, boosted by strong gains in manufacturing, Burlington Northern and other divisions. Nonetheless, he carries a Neutral rating on the stock.

One reason for Wall Street's attitude toward the stock: The analysts who cover Berkshire tend to be insurance specialists, and this may color their thinking. That's because conditions in the property-casualty insurance market are tough, with pricing in many segments under pressure.

With little revenue growth and soft pricing, most P&C insurers and reinsurers -- including Travelers (TRV), Chubb (CB) and Ace (ACE) -- trade close to book value. To some P&C analysts, Berkshire therefore looks unexceptional at 1.3 times book.

Yet insurance underwriting is a relatively small part of the company, and Berkshire is on a roll, led by a CEO still at the top of his game. That's why its stock could hit an all-time high this year.

Friday, January 21, 2011

Upside in Large Resource Plays - Waterflooding Bakken

I'd never factor this into a valuation, but the likely truth is that the amount of oil that companies like Petrobakken will recover from the Bakken and the Cardium will be considerably more than we currently expect. 

Consider this from CPG discussing doubling their Bakken reserves from waterflooding:

With the BP gulf floor oil leak making the news – all bad even if they get it stopped, some good news is worthwhile. Especially when the Obama tribe has frozen the major U.S. controlled North American resources of oil development for political appeasement to ‘do something.” Meanwhile the Bakken formation in the north of the U.S. and southern Canada is growing production and growing in importance. Crescent Point Energy of Canada has tested their Bakken wells with fracturing and water floods tripling the recovery making the estimate move up to recovering 30% of the oil in place.

It’s worthy news. This writer hasn’t addressed the BP gulf floor leak – you’ve noticed, and maybe won’t at all. It’s simply a media frenzy and political positioning structure while the people and environment take the hit. Blaming and leveling responsibility takes precedence over imparting resources, something the big oil industry has to do alone while coping with the public relations cost of stupid media and useless political power. Enough for now – but that’s an idea of why the post hasn’t been written.

Scott Saxberg, chief executive of Crescent Point Energy Corp. told the company’s annual general meeting the application of water flooding, along with infill drilling, could allow the company to more than double reserves within five years.

Water Flooding Oil Reservior - A Simple Example. Click image for the largest view.

In an interview, Saxberg said two years of tests at an initial pilot project in the Bakken – and more recent results from a second test – show that injecting water into formations being tapped by nearby horizontal wells with multiple fracture stimulations can help boost recovery from about 10 per cent to 30 per cent of oil in place.

For Crescent that would mean, “These mainly untapped resource pools provide Crescent Point with over 5,000 drilling locations and the potential to add over 500 million barrels of reserves, which could potentially double our current net asset value,” Saxberg said.

Saxberg explains, “We’ve seen very strong results. What it’s done in the pilot over the past two years is give us flat production. Without it, it’s 10 per cent, and with infill drilling you might get to 20 per cent. And then with water flood it’s 30 per cent. That’s huge.”

It’s because normally, after an initial “flush” of production in the first year, Bakken oil output drops off by about 70 per cent.

But Analyst Kyle Preston of Canaccord Adams cautioned that Crescent Point’s water flood strategy is promising, but not necessarily proven in all areas of the Bakken saying, “This water flood technology is not really new. What’s new here is applying the water flood to a tight rock reservoir which, to my understanding, hasn’t been done very successfully in the past.” Preston points out PetroBakken, the second-largest player in the Bakken, doesn’t believe in water flooding.

Here’s a look at how Canada treats new resource development. Trent Stangl, Crescent Point’s vice-president of investor relations, explained the company’s strategy is to let a central well produce for about a year to take advantage of Saskatchewan’s royalty holiday on new horizontal wells before converting it into an injector well. Then forcing water into the well builds pressure underground to push more oil out of surrounding wells, a technique commonly used in conventional oil fields.

Saxberg adds, the company is also experimenting with cemented liners on the horizontal part of the wells instead of steel pipe, allowing adjustments in the number of fractures as the well ages. He added the company is pleased to hear about the Alberta government’s new royalty incentive plans, including lower royalties for deep wells and horizontal wells, but he has no immediate plans to spend money in Alberta.

We’ll see how long that lasts in Alberta. One nation’s dumb move can be another’s windfall. As the U.S. administration plays media politics and undermines the national economy the neighbors, bless ‘em, can make good use of the capital. And why not? Our Canadian neighbors can use the capital, jobs and economic growth as well or better than anyone else.

The only concern then is, can the Canadian effort stay profitable at lower oil prices? With the Athabasca oil sands under political assault the Alberta and Saskatchewan provinces need a fall back. The irresponsible and capricious political neighbor brings risks, as the U.S. economic recovery isn’t driving lots of oil consumption.

Crescent Point plans four more pilot projects throughout the Bakken field over the next year. With U.S. offshore drilling at a standstill, the capital going inert, worker layoffs imminent, and a sure increase impact on the world price of oil, the BP leak looks to grow far beyond a single company’s disaster and ecological calamity.

Irresponsible and capricious political conduct might be media savy – but the impact will be long and costly for consumers the world over. But hey, only about 75% of American’s are catching on – throwing in with BP to get the oil escaping contained, stopped and the ecology and economy protected, sustained and supported could have been the job. But leftism doesn’t even think to cooperate with business. Leftism needs commercial disasters to participate in the economy. Commercial disaster gone far enough is an ‘opportunity’ to bail something out and take over making the capital, jobs and eventually, the management their own.

The Bakken oil field and the Canadian firms leading the technology are refreshing in the current U.S. situation. Thanks neighbors, we wish you well. Thanks to the Calgary Herald for kicking up the story. Americans need a little good oil news about now.

China Oil Demand Hits A New Record - Up 18% Year on Year

SINGAPORE, Jan. 21, 2011 /PRNewswire/ -- Platts – China's apparent oil demand* in December rose 18% year over year to a record 40.73 million metric tons (mt), or an average 9.6 million barrels per day (b/d), with both crude throughput and net oil product imports rising, according to just-released Platts' analysis of the latest official data.

Oil demand in December was also up 7% from November's 38.09 million mt, or 9.3 million b/d, the previous record high.

For all of 2010, China's apparent oil demand rose 11.43% year over year to a record 434.40 million mt, or an average 8.71 million b/d, Platts' analysis showed.

Chinese state-owned refiners processed 38.72 million mt of crude oil in December, up 11.92% year on year and a rise of 5.64% from November, according to data released Thursday by China's National Bureau of Statistics. In 2010, Chinese refiners' crude throughput rose 12.89% year on year to 423.05 million metric tons.

FACTS Global Energy expects China's oil demand to increase to an average 9.5 million b/d in 2011 as the Chinese economy continues to expand and the consumption of transportation fuels increases.

"The last two months when China has hit oil demand records are proof in point of the country's apparent insatiable appetite for oil and transport fuel," said Thomas Hogue, Platts news director for Asia.

"First, in November and December there were high refinery runs and imports as Chinese state-controlled companies tried to meet diesel and other motor fuel demand, and since then it appears that runs have remained high as refineries seek to make sure they have enough product to meet demand during the Chinese New Year holidays in February," Hogue added.

China's net oil product imports in December came in at 2.01 million mt, which compares to net oil product exports of 0.08 million mt in December 2009. Total net oil product imports in 2010 stood at 11.35 million mt, down from 15.24 million mt in 2009.

China's oil demand is expected to continue growing this year, albeit at a slower rate of 4.4-5.5%, with average oil demand in 2011 seen at 9.3-9.5 million b/d, analysts said earlier.

Wood Mackenzie is forecasting total oil demand to increase to 9.3 million b/d in 2011, with steady demand growth in transportation fuels like gasoline and diesel and healthy demand in naphtha because of a vibrant chemical sector.