Oilsands Quest Inc Com (NASDAQOTH:OBQI)

CAPS Rating: 5 out of 5

An exploration stage company, engaged in the exploration and development of natural resource properties in Canada.


Player Avatar bhessel (33.90) Submitted: 2/22/2008 11:29:26 AM : Outperform Start Price: $4.81 OBQI Score: -153.83

BUY Oilsands Quest (BQI)—A Quintessential Spec Stock

Posted by intelledgement on Fri, 13 Jul 07

Oilsands Quest (BQI) is a development stage E&P company with the largest holding of contiguous oilsands property in Canada…some 500M+ acres covering much of NW Saskatchewan and spilingl across the border into Alberta. The quality of the samples the company has drilled in the last three years or so are outstanding, and if the economics of oilsands processing hold going forward, this company and their properties are hugely discounted here.

BQI’s CEO is Chris Hopkins, a geologist who was instrumental in Synenco’s (SYEYF.PK) properties selections in Alberta. (Synenco has initiated an oilsands processing operation largely financed with Chinese money; a Sinopec subsidiary has a 40% interest in the operation…Hopkins was a VP and founding shareholder.) He believed that the oilsands-rich formation that blessed Alberta extended into Saskatchewan, and sought out investors willing to roll the dice on that proposition. By 2005, CanWest Petroleum (as the company was then known) had assembled the rights to exploratory drilling on some 1.4MM acres (they eventually had to “give some back” having the option to retain rights to the pick of the litter), where management were guesstimating there were some 300MM bbls equivalent of original bitumen in place (OBIP). In the winter drilling season of 2005-06, they began initial drilling with a single rig. The stock had already appreciated sharply—from the 40-cent range to north of $3—following the acquisition by Total E&P Canada of a small Alberta-based oilsands developer, Deer Creek Energy, for $1.11B announced 2 Aug 05 (and increased a month later to $1.38B to close the deal). Deer Creek was considerably further along developmentally than CanWest/BQI, but the latter had potentially much more bitumen.

On Friday, 13 Jan 06, the company released the first of several encouraging reports on the results of the drilling and panic buying ensued, running the stock price from the high $2s all they way up to $8.30 in early May 2006, before backing off into the $4-to-$6 range. Management’s estimate of the recoverable OBIP was up to 400MM bbls equivalent.

In the 2006-07 winter drilling season, the company deployed eight rigs and eventually drilled 150 holes, fewer than planned but many more than the previous year. Preliminary results were consistently positive, but in February the company announced a prospective private placement of 5MM new shares of stock to raise $30MM and The Street did not take the potential dilution kindly. Even a new management estimate of 600-to-750MM bbls equivalent of OBIP plus word that BQI had acquired rights to additional acreage in Alberta contiguous to their Saskatchewan Axe Lake holdings did not prevent the share price from eroding into the mid-$2s by the end of June.

Which brings us to yesterday, when prior to the market opening, management released a new estimate ( http://www.newswire.ca/en/releases/archive/July2007/12/c5904.html ) of the OBIP for their properties in Saskatchewan (5.1 to 5.7 billion barrels) and Alberta (4.5 billion barrels) for a total estimate of 9.6 to 10.2 billion barrels. Let’s just call it ten billion even. So what is BQI worth now?

First some assumptions:

* 50% of management’s estimate will prove economically recoverable
* the price of oil will not go below $70/bbls in constant dollars
* the cost of mining/refinining will not go above $50/bbls in constant dollars, including G&A
* it will be another eight years before any oil is produced
* to finance the work, the stock will be diluted 300% from here
* it will take 50 years to extract all the oil
* the historical P/E ratio of mature refining operations will in the long run remain around 10

The stock closed sharply higher yesterday at $3.40. With the price of oil now up to $70/bbls, and the costs—based on the most recent PCZ estimate—up to $50/bbls, we forsee a gross profit of $100B (!), which comes to $161.81/share, or $3.24/share/year over 50 years (starting eight years from now when the first oil is produced). So at a P/E of 10, we would expect BQI stock to be valued at $32.36/share in eight years…and the CAGR on an eight-year move from $3.40 to $32.36 is 32.5%.

In other words, the stock is a screaming buy here.

Of course, nothing is foolproof. Any macro-level development that has the effect of increasing energy supplies or dampening demand over the next eight years could render this project diseconomic. Or management—who have been spot on to date—could screw things up horribly. Or by some incredible bad luck, the data collected thus far could turn out to be way too optimistic.

But here you have a stock that has moved from 45 cents to $8+ and back to the mid-$3s attached to a company that has no revenues (let alone earnings) but spectacular potential. If you do the math concerning the respective shares outstanding and OBIP estimates, the oilsands here are essentially the same price they were when the stock was at 45 cents in 2005…but some of the risk is reduced, in that we are more confident that the estimates are real, and the economics of oilsands processing are stronger at these price levels. (Of course, the price levels eight years out are what really matter. If you think oil will be cheaper then, or banned by the UN because using it produces too much CO2, pass this one by.) BQI is, in short, a nearly perfect stock for a spec port.

Report this Post 9 Replies
Member Avatar bhessel (33.90) Submitted: 2/22/2008 11:39:08 AM
Recs: 2

Oilsands Quest (BQI) updatePosted by intelledgement on Mon, 05 Nov 07Oilsands Quest (BQI) management released an independent estimate of barrels equivalent of original bitumen in place (OBIP) for their Axe Lake property in Saskatchewan this morning, and The Street was underwhelmed. The estimate was pretty much in line with management’s earlier projections—1.344 billion barrels compared with management’s earlier guesstimate of 1.5 billion. However, evidently, there were shareholders out there who were hoping for more, as the price per share had just been bid up to a new 2007 closing high of $6.38 yesterday…today was a different story as the stock closed at $5.57, down 13% in one day. (Welcome to the spec port! LOL)Management also discussed plans for this winter’s drilling (eight rigs) and for the Axe Lake reservoir field test program expected to be run next year, subject to regulatory approval. According to the press release, “This program is designed to evaluate the reservoir’s response to varying temperatures and pressures of steam. These tests will contribute data to the design of the pilot in-situ production program, which is currently planned for start-up in 2009. Oilsands Quest and its technical consultants are evaluating in-situ recovery techniques for the production pilot, with an emphasis on existing techniques that utilize steam and steam with solvents.”

Member Avatar bhessel (33.90) Submitted: 2/22/2008 11:47:03 AM
Recs: 3

Oilsands Quest (BQI) update #2Posted by intelledgement on Wed, 21 Nov 07Oilsands Quest (BQI) announced yet another round of financing yesterday shortly before the market close—their third this year…and then today they announced pricing for the offering, and considerably scaled it down. Yesterday’s announcement envisaged a huge offering: 41.5MM shares (when all associated warrants are exercised) and up to an additional 5MM shares (including those distributed when all warrants are exercised) if the offering were oversubscribed. Today, the size of the offering was scaled down to 11MM shares/5.5MM associated warrants—each share comes with half a warrant—priced at US$5 for the US market and 2.6MM shares priced at CDN$6.17 for the Canadian market, and up to an additional 1.65MM shares/0.825MM associated warrants if the offering is oversubscribed. Each warrant entitles the owner to purchase a share of BQI for $6.75 for up to two years following the closing of the deal.Not surprizingly, the stock—which closed at $5.35 on Monday scuttled down to $5.03 by the end of trading today. And short term it is not a bullish sign that demand was apparently not as high as management anticipated. With the US economy facing possible recession, investors are likely to be at the skeptical end of the scale on oilsands development, which certainly needs a high-demand environment to be viable. But presumably anyone who is buying at $5 with an option to get an additional half-share for every share purchased at $6.75 is not expecting the stock to head much lower. The transaction is expected to close by 5 December; if the underwriters don’t take the extra shares, that would be another sign of weak demand (for the stock at least).If all these shares (including the extra ones) are sold and warrants are exercised, the float will increase from 184MM to 203MM. Oilsands processing is an expensive proposition and our model anticipates another 200% of dilution over the next eight years—to 600MM shares—if the company remains independent in order to finance testing and development of production capacity. So we are not going to get overly excited over the pricing/market demand for this particular offering.However, we will keep an eye on what happens by 5 December.

Member Avatar bhessel (33.90) Submitted: 2/22/2008 11:52:47 AM
Recs: 2

Oilsands Quest (BQI) update #3Posted by intelledgement on Wed, 05 Dec 07Management announced earlier this morning that the financing deal has closed as planned. The company realized US$67.7MM from the deal. “The Company intends to use the proceeds of the offering of Units for reservoir testing and other costs associated with the Axe Lake Discovery and for general corporate purposes,” according to the press release.With the share price threatening to sink below $4, it is encouraging that the underwriters are confident they can move 11MM shares prices at $5. (Of course the purchasers have the incentive of a warrant for every two shares they buy now that gives them the option to buy another share at $6.75 anytime in the next two years.)No word on the disposition of the overallotment shares. If those sold too, that would be another good sign. However, if the USA rolls into recession, the price of oil—and the perceived outlook for oilsands developers—are likely to suffer, near term, irrespective of the long term considerations of true believers such as ourselves. LOL speculation…gotta love it.

Member Avatar bhessel (33.90) Submitted: 2/22/2008 11:58:40 AM
Recs: 2

Oilsands Quest (BQI) update #4Posted by intelledgement on Thu, 20 Dec 07Management of Oilsands Quest (BQI), our (mostly) Saskatchewan-focused tar sands play, today announced the closing of the exercise of the over-allotment of shares from their recently completed financing deal. An additional 1,650,000 shares and 825,000 warrants were sold for $5 for each share and half-warrant which results in an additional US$7.8 million in net proceeds to BQI. Total net proceeds were approximately US$75.5 million; the company sold 12,650,000 common shares with 6,325,000 common share warrants for US$5 for each unit plus 2,600,000 common shares on a flow-through basis for CDN$6.17. Each warrant entitles the owner to purchase another share of BQI common for US$6.75 anytime over the next two years.Possibly the completion of this financing deal at a floor price of $5 will halt the PPS erosion we have been experiencing in recent weeks, in particular since the deal was announced last month…the price had fallen from $5.35 the day (19 Nov) before the announcement to as low as $4.21 on Tuesday (18 Dec) but it rallied to close at $4.42 today.

Member Avatar bhessel (33.90) Submitted: 2/22/2008 12:04:44 PM
Recs: 4

Oilsands Quest (BQI) update #5Posted by intelledgement on Thu, 24 Jan 08Oilsands Quest (BQI) management announced today the expenditure of some of those monies raised with their shares offering late last year for the acquisition of the exploration rights to an additional 46,080 acres of land in Alberta. The cost was CDN$10,010,880 plus an annual rental fee of CDN$64,512. The acreage is contiguous to the land in Alberta that BQI already has…which in turn is contiguous with their Saskatchewan holdings. All told, the company has exploration rights to nearly 1.25MM acres now, including 0.61MM acres of oil sands properties in Saskatchewan, 0.14MM acres of oil sands properties in Alberta, and an additional 0.49MM acres of oil shale properties in Saskatchewan.Looking ahead for the year, the company is presently conducting their annual winter exploratory drilling program which this year consists of operations in both Saskatchewan and Alberta. We should expect some preliminary results from the company this Spring and then more comprehensive results from third party analysts later in the year. This summer, if approved by Saskatchewan, BQI are expecting to start a pilot program of oil sands reservoir testing at three sites within the Axe Lake Discovery which should produce up to 600 BBLS/day of oil. The company are presently evaluating existing in-situ recovery techniques in laboratory testing and reservoir simulation studies to define this field test program, which will evaluate reservoir response to varying temperatures and pressures of steam and steam with solvents. The company plans to use the results to design an in-situ test program of up to 10,000 BBLS/day that is planned for start-up in 2009, subject to regulatory approval.Looks as if quite a bit of the $75MM the company scored in the Nov-Dec 07 round of financing will be put to good use over the next 18 months or so.

Member Avatar bhessel (33.90) Submitted: 2/22/2008 12:11:20 PM
Recs: 4

Oilsands Quest (BQI) update #6Posted by intelledgement on Mon, 11 Feb 08Surprise! Turns out there are oil sands in Alberta! Well, of course we knew that, but what we learned today is that some of the oil sands are on land permitted to Oilsands Quest (BQI) for exploration. The company has drilled five holes of an expected up-to-30 that they hope to complete by the end of the Winter drilling season…and they “encountered McMurray formation at depths ranging from 157 to 164 metres (515 to 538 feet). The estimated thickness of the McMurray formation, which includes meaningful bitumen intercepts, ranges from 20 to 46 metres (65 to 150 feet),” according to today’s press release. Yay, us!Of course the quality of the bitumen deposits remains to be seen; we won’t know that until third-party lab analysis is completed several months down the line. But it’s good news that there will be core samples from the new Alberta acreage adjoining the samples from this winter’s drilling in Saskatchewan.Our GTC order to buy more BQI at $3.02 has not yet executed. Despite this good news (which was announced prior to the open) the stock traded down as low as $3.18 today, so it could still happen.

Member Avatar jadagrace (70.89) Submitted: 4/6/2008 3:55:15 PM
Recs: 1

I think it is worth holding on too.

Member Avatar lonewulf47638 (47.33) Submitted: 5/13/2008 11:48:55 AM
Recs: 0

I have bought and sold it before and think it will be bought by China Investors to get a reliable source to fuel it's 3000 vehicle sales per day.

Member Avatar hmlamo (< 20) Submitted: 5/15/2008 12:17:39 PM
Recs: 0


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