North America’s last highly accessible onshore oil and gas frontier is in Canada’s Saskatchewan province in the prolific Williston Basin, and the undiscovered sweet spot may be the Little Swan--a prospect with a little name, but massive potential.
The company to keep an eye on here is Bayhorse Silver Inc. (TSX Venture: BHS), which in early November entered into a farm-in agreement with Saturn Minerals Inc. to earn a 50% of Saturn's interest in Little Swan’s 253,000-acre oil and gas prospect.
While the Williston Basin already produces over 1 million barrels of light crude oil per day, projections are that it will be producing 2 million bpd as new wells come on line. The Williston basin’s top Bakken producers are Whiting Petroleum Corp. (NYSE:WLL), Hess Corp. NYSE:HES) and Continental Resources (NYSE:CLR).
Little Swan is situated in the Northern Williston Basin, which is an extension of the oil bearing formations of North Dakota and Montana.
With this in mind, all eyes are on Little Swan, and Saturn's adjacent property, Bannock--where drilling begin in early February--as the next big discoveries in this North American final frontier.
Bayhorse believes that based on seismic data, light sweet crude oil could be found as deep as 1,200 meters. These lands represent the largest exploration permits in all of Saskatchewan, and according to geological reports, they hold the potential for significant light oil accumulations.
But what makes Bayhorse’s Little Swan prospect particularly attractive in the current atmosphere of slumping oil prices is the fact that both drilling and operating costs are cheap, rendering any discoveries highly rewarding for investors.
To drill to 1,200 meters would cost only $500,000 because wells would be the less expensive vertical options, rather than the high cost horizontal wells, and there will be no need for hydraulic fracturing. The math here is fantastic, with operating costs projected to come in as low as $20/barrel.
This makes the economics brilliant for potential investors who are loathe to risk money in the current market on expensive drilling operations. Due to cheap drilling, the first discovery at Little Swan promises higher netbacks on production—much higher than investors would see from deep drilling of non-conventional wells and extraction through fracking.
It’s not just the Little Swan acquisition that has piqued our interest in Bayhorse. We like the revenue diversification in this time of oil price uncertainty.
Bayhorse now has three sources of potential near-term revenue: Little Swan for Williston Basin oil, a newly acquired silver mine with a historic resource of high-to-bonanza grades of silver with the potential for a substantial discovery, and three high-grade gold prospects in New Zealand.
Bayhorse’s flagship high-grade silver property, in which it acquired an 80% interest earlier his year, is in east-central Oregon and is part of the highly prolific Idaho silver belt. This historic silver belt has produced over 1 billion ounces of silver, and the Bayhorse Silver Mine is a significantly underdeveloped prospect with a huge upside potential. Bayhorse’s silver acquisition was based on the knowledge that compared to gold, there are fewer silver companies out there for investors and this gives them better leverage for shareholders.
Then in New Zealand, Bayhorse has three highly prospective gold projects in a small mining district that has produced over 8 million ounces of placer gold and 2.2 million ounces of hard rock gold.
What we’ve got here is a small company that understands first and foremost the need to provide top value for shareholders, and it’s doing this through highly diversified new acquisitions. Its newly acquired Oregon silver mine has near-term, low cost, revenue potential in a significantly underdeveloped area of an historic silver belt. Its New Zealand gold mines are also highly prospective, and its most recent acquisition—Saskatchewan’s Little Swan--is in the number one best wildcat well venue in North America.
10 Reasons for Our Interest in Bayhorse:
1. High-level commodities diversification: Bayhorse’s portfolio includes new acquisitions in silver, gold and oil prospects and this type of diversification is the smartest way for investors to play the uncertain oil market.
2. 3 near-term revenue streams: For silver in Oregon, gold in New Zealand and oil in Saskatchewan, Bayhorse is set up for near-term revenues streams from three different commodities, reducing risk and adding value for shareholders.
3. Best wildcat location in North America: Little Swan is in a multi-stacked, highly prospect area of Saskatchewan where wildcatting has met with massive success.
4. Drilling will be cheap: Little Swan will be drilled vertically and with no hydraulic fracturing anticipated, making the risk-to-reward ratio an extremely favorable one for investors. A 1,200-meter well would cost only $500,000 to drill!
5. Highly favorable economics at Little Swan: Royalties applied to new discoveries in this area are extremely favorable and would further enhance netbacks. In addition, the current strength of the US dollar against the Canadian dollar makes this even more attractive for investors.
6. Seismic data, seismic potential: Additional seismic data acquired in 2013 and 2014 has already identified several basement structures on Little Swan lands. Little Swan lands are in the prolific Williston Basin which is now turning out over 1 million bpd and is on track to double that with new wells.
7. More seismic underway: Proceeds being acquired will undertake 32 kilometers of additional 2D seismic data to validate stratigraphic and structural closures related to current basement highs.
8. Drilling set to begin soon: The new data acquisition will be followed by the drilling of up to three vertical wells to a depth of 1,000 meters each—and by then the window of opportunity to get in on this game will have closed.
9. Company valuation is highly attractive at the current trading levels. Getting in on Bayhorse now means getting in on three highly prospective near-term revenues streams—and all their contained diversification. The market is undervaluing this company and has so far failed to factor in the value of this neatly packaged silver/gold/oil play in today’s turbulent market. Graeme O'Neill, the Company's CEO states "over 55% of the Company's 21 million issued shares are held by 10 shareholders, including myself, so management has a significant interest in ensuring the success of the Company in the long term."
10. Intuitive management: Bayhorse’s CEO, Graeme O’Neill, has a uniquely successful business model for running a junior mining and oil and gas company. In the past four years he has delivered to his shareholders two share dividends in the form of spin-offs from the parent Company. For every four Bayhorse shares held, shareholders received one new share in a new company, a 25% share dividend, and by doing so made sure his shareholders participated in the ongoing development of the Company's projects. When times are tough, O’Neill has consistently worked to deliver value to shareholders as quickly as possible, stepping out of the spending cycle and getting to near production at a reasonable rate. Highly pragmatic and realistic, O’Neill has a knack for going with the flow of the market, and Bayhorse shareholders have greatly appreciated this. They have particularly appreciated Bayhorse’s ability to keep operating costs down, as they will in Little Swan, and focus on multiple revenue streams.
We project the New Year will be a stellar one for Bayhorse, and we’re just around the corner from silver production and drilling at Little Swan, so the window of opportunity for investors on this one won’t be open much longer.
By. James Burgess of Oilprice.com
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