While North American drivers are seizing the day at the pumps with unbridled enthusiasm, the oil and gas industry is in trouble; but this nimble junior explorer has quickly adapted to the new price environment and is embracing the unique advantages of low-cost exploration and drilling.
Many oil producers, especially those who were drilling deep, high-cost exploration wells, requiring fracking and horizontal drilling, took on significant debt during the boom times in their eagerness to grow production as quickly as possible. Cash was thrown at them by funds eager to participate in this growth, as any oil story, no matter how costly, was welcome in the funding boardrooms of the nation. Now as oil prices have dropped precipitously, the highly indebted, high production-cost sector of the oil and gas industry is in trouble.
But there are always exceptions, and Canadian-based Saturn Minerals (TSXV: SMI) had the vision to position itself for impressive success in one of Canada's major oil producing provinces, Saskatchewan, which is home to nearly half of the highly prolific Williston Basin.
The Williston Basin already produces 1 million bpd, and forecasts are that it will be producing 2 million bpd when new wells come online.
Dominant Land Position in a Safe Jurisdiction
1,500 square kilometers of Oil Rights – 376,800 acres
Saturn holds two of the largest exploration permits for oil and gas in Saskatchewan: Bannock Creek and Little Swan, totaling 376,800 acres. Just as significant, Saturn's acreage is an extension of the prolific oil-bearing formations of North Dakota and Montana, where top producers include major players such Whiting Petroleum Corp. (NYSE:WLL), Hess Corp. NYSE:HES) and Continental Resources (NYSE:CLR).
In the immediate vicinity of Saturn's acreage, top Canadian players such as Husky Energy (TSX: HSE), Questerre Energy (TSX: QEC), Tourmaline Oil Corp (TSX: TOU) and Cenovus Energy (TSX: CVE), also hold significant land positions in an area that is highly prospective for light sweet crude oil.
Saturn has the largest land position.
Low Cost Vertical Drilling
$500,000 per well
$20 production costs
The biggest selling point here for investors is that this is some of the lowest-cost exploration and production in North America. Drilling to 1,000 meters will cost only $500,000 due to the fact that expensive horizontal drilling and hydraulic fracturing are not necessary. Production costs are projected to come in as low as $20 per barrel. These are not just survival prices; they are prices that will turn investors a neat profit.
Shallow vertical drilling with low production costs could lead to potential netbacks of $40 CDN per barrel with WTI at $50 USD per barrel. With a low Canadian dollar, the economic metrics for this play only improve.
Investors should also note that Saskatchewan has some of the lowest-cost royalties in the world. A discovery in this area has a royalty of only 2.5% on the first 100,000 barrels.
Discovery Driven by Vision
Saturn is managed by true visionaries, who have assembled a top-notch technical team. Combining vision with technical expertise is setting up investors in Saturn for very good returns.
Saturn has just completed a third seismic program on its the Bannock Creek play, where several enticing drill targets have been identified and one of which the Company has selected for its first exploration well. The well will be drilled to a depth of less than 1,000 meters. Again, the math is brilliant. The newly identified, 480-acre closed structure has a reported potential for up to 38 million barrels of oil. Several nearby structures have also been identified, including a 1,920-acre structure, which will be further defined by additional seismic.
The Bannock Creek property encompasses 6.5 townships (123,000 acres). Seismic to date has concentrated on one township only, or 15% of the property. The property’s full potential is limitless for a company with true vision.
And what Saturn turns up in drilling at Bannock will give us some idea of what to expect at the larger play of Little Swan (253,000 acres) where seismic has identified many similarities to Bannock Creek where a third seismic program is underway. For investors, the window of opportunity to get in on this low-cost, undervalued play is shrinking as the Bannock drilling nears.
Saturn’s business model is what investors should be looking for in the current market atmosphere. Saturn primarily focuses on cheap, conventional drilling plays in the northern part of the Williston Basin. Because vertical wells are less expensive to drill and operate, the potential profits are significantly increased, particularly when conducted in low-royalty regions such as Saskatchewan. Larger companies can’t come close to this type of low-cost production due to high overheard.
The Real Winners Emerge
The new low-price environment favors small wildcat or exploratory drillers who rely primarily on investor capital instead of on sales of oil. This means that so far they have been exempt from the drilling cutbacks and other belt-tightening measures that have been forced on the larger, inflexible competition.
In an exclusive interview with oilprice.com, Saturn Minerals President and CEO Stan Szary noted how large oil and gas producers are at a distinct disadvantage in today’s oil price environment.
“The larger companies are like oil tankers; it takes a long time for them to slow down and change direction,” he said.
Even the ever-successful Bakken and Eagle Ford plays are feeling the weight of the extra expense of hydraulic fracturing and horizontal wells, where prices need to be in the $60 to $80 range in order to be profitable. Not so in Saskatchewan. Not so for Saturn.
Junior wildcat explorers are able to adapt more easily, particularly those permitted for areas that do not require expensive horizontal drilling and hydraulic fracturing.
“The next big move in oil prices is up, we are positioning ourselves for this”, says Szary. “Rig count is dropping like a stone, costs are coming down to levels that one can’t ignore and a discovery with these economic metrics already in place makes us very excited about our projects.”
“Investors can make great money here, we are not drilling a $20 million well. For $500,000 we can achieve the same thing and deliver value. Exploration is about combining vision, business savvy, science and good timing. The most exciting thing for me about exploration is the surprise factor, and the Williston has more than a few surprises left,” Szary elaborated.
“We are excited about the opportunity and invite investors to share our vision.”
This has been the key to success for Saturn—cheap, conventional drilling plays that yield returns.”
For Saturn Minerals, the price slump simply means tightening the capital reins, increasing scrutiny on risk analyses, and more selectively choosing prospective drilling locations.
For investors, we are seeing a shift toward new opportunity and a higher reward model as stocks for major players with proven wells and existing production continue to have some difficulty. Although prices are sure to rebound in the future, the market is seeing many skittish investors cut bait in search of other investment options. Right now, Saturn is one of the best deals on our radar.
10 Reasons we like Saturn Minerals:
1. Visionary Management
Management had the foresight, drive and vision to quietly assemble and apply a sensible exploration model to an area of a prolific basin which had up until now been largely ignored. Recent results have proven that the vision and strategy were both timely and gutsy.
2. The largest oil & gas rights package among juniors
Saturn’s exploration permits for the Bannock Creek and Little Swan properties make up one of the largest exploration packages in Saskatchewan, consisting of over 376,800 acres in what is undoubtedly one of the best wildcatting areas in North America.
3. Proven Success
Saturn has a successful track record in exploration, partnerships and fundraising. One of the largest coal discoveries in North America with a seam running 90 continuous meters of near surface coal and a technical team that has taken a wildcat play from 0 to 1,100 barrels of oil per day in 2 years.
4. Excellent business model
With potential netbacks of over $40 CDN per barrel at current oil prices the model is structured for success. Focusing on conventional low-cost vertical drilling at $500,000 per well in low-royalty areas combined with restricted overhead costs, Saturn Minerals’ business model is ideal for the current environment and has tremendous upside for an upward move in oil prices.
5. Potential for huge discovery
Saturn Minerals’ prospects are not limited to one or two pools. The potential here is for Saturn to uncover an entire oil field. With a land position of 1,500 sq. km and only a very small portion explored, the ultimate potential is very large indeed.
6. Excellent ROI potential
Saturn has estimated that a successful discovery could return seven times the amount invested with the ultimate potential reaching 20 times.
7. Safe Jurisdiction
Saskatchewan is one of the best jurisdictions in the world for explorers and producers to operate in. Low costs of $500,000 per well and low royalties ensure that downside risk is more than manageable.
8. No Debt
Saturn has no debt.
9. Low Overhead
Saturn is extremely well-managed with very low overhead and has a history of putting over 80% of its money in the ground.
10. Discovery Upside
Bannock Creek and Little Swan are in the very prolific Williston Basin, also home to the Bakken Shale, and spans two US states and two Canadian provinces. With production at 1million barrels per day and ultimate reported reserves of over 22 billion barrels the upside for Saturn’s properties is not in doubt and the next round of drilling at its Bannock Creek property may prove to be historic.
By. James Burgess of Oilprice.com
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