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Keith Schaefer

Keith Schaefer

Keith is the publisher of the Oil & Gas Investments Bulletin – an investment newsletter that looks at opportunities within the Canadian small cap oil…

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The Shale Oil Boom No One's Talking About (Until Now)

Shale oil & gas is the talk of many a newsletter writer right now.

But very few are talking about the region of Atlantic Canada.

You see, as the global shale revolution continues in the energy patch, prospective shale targets – once written off as a waste of time and money – are being dusted off and re-tested everywhere – including Atlantic Canada.

And it's reflecting in the share prices of the junior oil and gas companies.

The stock of Petrolia (PEA-TSXv) jumped from 50 cents to $2 in a week in early February 2011.  That's when they announced the results from an analysis of their and Corridor Resources (CDH-TSXv).  (They’re looking to partner up with a company to help them develop the Macasty shale on 250 km long Anticosti Island in the Gulf of St. Lawrence.  It looks downright enormous – covering almost 75% of the island.)

There's also Shoal Point Energy (SHP-CNSX), which is testing the Green Point oil in shale play at Port Au Port Bay on the west coast of Newfoundland.  What I find most intriguing about Shoal Point is the potential thickness of the shale formation here.

The Macasty shale on Anticosti Island has been known for years or decades – it is basically the same as the Utica Shale in Quebec, except the shale wasn’t buried as deep.  The deeper shales are in the “gas window,” and the shallower ones are in the “oil window.”

The Macasty shale also sits on top of another formation that has been produced from before – the Trenton Black River (TBR). So the industry has drilled through the Macasty many times to get to the TBR.

“We always knew it was organic rich,” says Tom Martel, Ph.D and Chief Geologist for Corridor.

“We took a core of the Macasty as we drilled for the TBR.  Since last summer we have been having that core analyzed by Weatherford.”

Martel says they take samples of the shale and put it in canister, and see how much gas is coming off rock.  They test the porosity and permeability, and they extract the fluids in the rock – oil gas and water, and do a rock analysis, checking the Total Organic Content (TOC) and the “vitrinite reflectance.”

All these numbers came back with values that suggest the Macasty shale could be a productive zone for oil.

Martel says they took it to Winter NAPE (the North American Prospect Expo, an industry conference in Houston each February) and to London England, and people are excited about the play.

“We have very good results and there is a lot of oil in place on that island,” says Martel.

“You can see that there’s oil in the rock,” he adds, and says the shale is quite brittle which is good for fracking.

“Our next stage is getting a partner.  (This play) is going to take some evaluation and some heavy lifting.  We have to do some testing on these rocks; drill a horizontal well.”  About 20 historical wells have intersected the Macasty on the island, so Corridor and Petrolia have a “fair idea” of what’s there, Martel says.

It has good aerial extent, and is only 1000 m depth.  It varies but is roughly 40 m thick.

“There are no red flags yet, that’s why we’re excited,” Martel says.  “For a piece of land that big and have no red flags is quite exciting.”

Petrolia has 50 million shares out and owns 50% of most of the 35 oil and gas exploration licenses, but only 25% on 6 of them.  Corridor has 88 million shares out.

Corridor was/is the leader in shale plays in Atlantic Canada – but for gas, not oil.  Their Frederick Brook Shale in New Brunswick has been independently assessed by GLJ Consultants to have a best estimate of 67 TCF (trillion cubic feet) of gas – a number so large it is off the charts for anything else discovered (that I’m aware of) in North America in such a small area.  It is roughly 1100 metres thick between the upper and lower shales.

Apache Corp (APA-NYSE) has an option to earn 50% net working interest in the heart of the play – 58,000 acres – but it must commit the next $100 million in less than two months – June 1, 2011.  Given the mediocre results in the second hole, that is not a certain bet.

We have several issues to consider here – the first well was fracked with propane vs. water on the second, and used ceramic as proppant vs. sand on the second, and the first well was vertical vs. the second one as horizontal.

So – like any new shale play – it is taking several wells to run down the checklist of variables to find the optimum fracking method.

At Shoal Point, the management team there was looking over historical data on the Green Point play, which has been around for years and nobody thought much of – and realized something:

“Historically, people were looking for deep conventional targets here,” says George Langdon, President.  “So not much attention was paid to the shallow and intermediate hole data.  We had a thorough look at that data and we realized it had good source rock potential.”

(This is exactly what's happening all over the world right now:  All the oil companies – the juniors, intermediates and seniors – are dusting off all their old files and scouring them for any mention of data that could now be interpreted to be shale or tight sand oil formations.)

In addition, Shoal Point's Langdon reports there was high TOC – Total Organic Content – in outcrop around the property.  Generally speaking you need 2% TOC to make an oil deposit commercial in shale.

Shoal Point’s exploration license is now roughly 250,000 acres, and they estimate that 60% of it is prospective for Green Point shale.  They are spending 100% of the current 3K39 well to earn 80.75% of Green Point on License 1070.


Regrettably, investors have very little to read or view about on this play so far.  Under REPORTS and PRESENTATIONS on their web site, there's a blank page.  However the site does say that in August 2010, AJM consultants of Calgary completed a report that estimated the discovered, in-place resource range from a P50 case of 1.5 billion barrels, up to a P10 case of 5.2 billion barrels.

But this lack of information didn’t stop the stock from rocketing from 30 to 60 cents recently.

Shoal Point's geological theory is that the rocks here have been piled over on top of each other so often that they have stayed in the “oil window” (a certain depth underground where the right amount of heat cooks the ancient marine organic matter into oil – if it’s too deep it turns to gas and too shallow it doesn’t cook at all).

The most recent drill hole has hit 1745 m depth (1194 m true vertical depth) but management did not say how much of that was shale – what was the shale thickness?

It’s an intriguing play because of the potential thickness – they believe the possibility exists for a productive formation hundreds of metres thick.

Logistics in the area are surprisingly good.  They are drilling right on the coast – the drill is on land but they are drilling out to sea.  Stephenville, a town of 6000 with an airport, is close and the Irving oil refinery is only 1-2 days by tanker away.

There are roughly 200 million shares out (fully diluted, i.e. including all the stock options and warrants) on Shoal Point already, and much more capital to be raised if the play is commercial. Another potential issue for management is that the stock is listed on the junior CSNX board in Canada – not the Venture Exchange of the TSX like most juniors.  That can make it hard for non-Canadians to buy the stock.

But that’s a problem that a productive shale formation several hundred metres thick could cure.

In another shale development in Atlantic Canada, Southwestern Energy (SWN-NYSE) announced in March 2010 that it would spend $47 million to explore 2.5 million acres in New Brunswick – its first big foray outside the US – searching for shale gas and shale oil. They spent $10.7 million in New Brunswick in 2010.  They expect to test their first well in the fall of 2012.

By. Keith Schaefer

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Leave a comment
  • Anonymous on April 22 2011 said:
    I don't understand why someone is talking about shale oil now. I wrote about it in my oil book a couple of hundred years ago, and at a conference in Vienna a business executive from the US called me a fool, saying that the water requirements for shale oil make it a non starter.I looked into this about ten years ago, and ended up believing that that gentleman was correct - and I DONT mean about me being a fool.
  • Anonymous on April 23 2011 said:
    Shale oil is the new 'miracle cure' for all those who don't dare to stare any other reality in the face and come to terms with it.
  • Anonymous on April 25 2011 said:
    @Mr. Phillip Andrews: Shale oil a miracle cure? Granted, shale may be a "miracle cure" if the only condition to be cured is shortage of oil from the sources we are accustomed to, i.e. the Middle East and other oil-producing regions. But what if the condition to be cured is buildup of carbon dioxide in our atmosphere? I don't think shale will cure that.
  • Anonymous on April 26 2011 said:
    I recently found out my great great grandfather owned a farm of 170 acres in Greene county, PA. He owned the rights to the land and now a company has notified me an oil company drilling the surrounding lands want to horizontally drill into my grandfathers land. The share will be split amongst his heirs. Has anyone ever heard of this happening? What kind of lawyer do you get to handle the situation so I don't get bamboozled?

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