🕐23.11.10 - 03:27 Uhr

Well Backed O&G Junior Has Ingredients To Become Major






Well Backed O&G Junior Has Ingredients To Become Major

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THE RIGHT ADDRESS

3P International Energy Corp. (TSXv:DOH) was formed to concentrate on the unique opportunities presented by the combination of the energy supply/demand situation in the Ukraine and Europe, as well as the Ukraines prolific natural resource patrimony which has been starved of attention, in recent history.

Remarkably, on a per capita basis, the Ukraine annually consumes more than double the amount of energy that we do in North America. At the same time, the country has major known and defined oil and gas reservoirs which have yet to be exposed to, and exploited by, North American drilling and completion technologies. As a result, the country currently imports 90% of its gas.

This situation has impelled Ukrainian leadership to grant major incentives (tax and royalty regime, etc.) in order to open the doors of its undercapitalized E & P sector to foreign expertise, technology, and capital.

COMPARE AND CONTRAST

3P steps into an environment in stark contrast to those drilling, for example, in the US Appalachian Basin, as 3P receives about $7.50/mcf for its gas - nearly double that received in North America, and on its way to Continental Europes prices - higher still.

The combination of low cost recovery (cheaper labour, lesser environmental restrictions), major infrastructure including pipelines already in place, and the aforementioned premium on gas, delivers compelling economics for early production and cash flow. The relatively overlooked nature of the countrys major basins and the lack of current serious competition presents an opportunity to rapidly build a major new E & P company focused on a country that is making itself increasingly appealing to foreign investors. This is the right time to be entering the Ukraine.

While those who look less closely might categorize 3P with some of the better known companies currently gaining investor recognition in the well-followed staking rush emerging in the European Deep Gas Shale play, the reality is that the 3P model is quite different - and, we believe, superior. While others are drilling deep 5,000m, $10 million wells with no reservoir control, no history, and uncertain success rates and economics, 3P is targeting the low hanging fruit.

THE BUSINESS MODEL - QUALITY, BUT MORE IMPORTANTLY, QUANTITY

The first prong in the companys two pronged strategy is Coal Bed Methane.

The companys CBM property package presently comprising 512 sq km is in the heart of the third largest bituminous coal basin on the planet, with 100+ active mines over a 43,000 sq km area. It is also home to over 2,000 gob wells, strat wells, and former production wells, drilled primarily to vent gas from active coal mining operations in order to prevent explosions. It is estimated that the basin contains in excess of 1 trillion metric tons of sub-bituminous B coal with high gas content estimated at 1,000 TCF.

As such, 3P is targeting a vast and essentially uniformly gas bearing area with no associated reservoir risk. The number, depth, and thickness of the coal seams identified for commercial production is a known and understood quantity and begs to be introduced to modern technology, methods, and expertise.

The company will shortly begin drilling shallow 1,200m wells with North American technology for less than $200,000 per well, resulting in potential payback periods as short as 60-90 days at flow rates of 250+ MCF/D.

The exciting part, however, is not just the economics of each well, but the collective, critical mass opportunity of being able to quickly and cheaply repeat the process with the benefit of a high confidence interval that the same result will be achieved, over and over, every 20 acres, thousands and thousands of times.

What this means is that 3P can essentially create a gas factory adding production and tying into pipe, quickly building into the thousands, then tens of thousands of barrels of daily production.

This fact, along with the ability to acquire and almost instantly upgrade and improve (flow rates/operations) conventional producing oil and gas assets in-country (second prong of the 3P strategy) is what attracted major institutional investors to take an active interest in the funding and development of 3Ps growth.

BACKERS AND UPSIDE POTENTIAL - SAME STORY, BETTER PLATFORM

These are the same group of funds (Canadian and otherwise) that went into Colombia 7 years ago and helped to form and spearhead the rapid growth of companies such as what now constitutes Pacific Rubiales Energy (TSX:PRE). Founded in 2004, PRE is set to exit 2010 at 225,000 boepd and has a market capitalization approaching C$10 billion - a 10,000% return for early investors, the results of a marriage of timing, capital, technical expertise, and focus on the right assets.

These same financiers who collectively put almost C$5 billion into Colombia over that period see the identical opportunity here - except that this time they are dealing in a much more established and investor friendly regulatory environment, and with vastly superior existing infrastructure, both generally, and specific to oil and gas development and production. Those two items mean one thing: they dramatically accelerate the ability to grow production and cash flows quickly and aggressively both organically and through acquisition.

THE BOTTOM LINE

3P has the same early mover advantage that Pacific Rubiales had in 2004, and 3P has the right backers, the right personnel, and the right local partners. The company is well financed (and will continue to be), and is intent on building its business, and shareholder value through its two-pronged strategy of expanding its CBM land position and acquiring accretive existing production.

We believe that all of the pieces are in place to capture first-mover advantage in the acquisition and exploitation of the Ukraines world-class coal and energy basins, and quickly build the next E & P major. With a market capitalization of just C$27 million net of cash, there appears to be a lot of upside for investors going forward.

3P closed Friday at 76c.

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