Oilsands Quest Perking Up
Friday, November 9, 2007
As we continue to favor the nuclear renaissance over many
other investment themes out there, we would also like to revisit our favorite
non-uranium companies: Oilsands Quest (BQI). The stock has been in a strong
uptrend over the past few months, in fact the stock has more than doubled off of
its lows set in July of this year.
This week the stock came under pressure as the company
released the independent estimate of resources at the Axe Lake Discovery Area.
The numbers were quite bullish, however the stock came under selling pressure
due to the fact that the numbers were basically identical to what management had
previously predicted in their own estimate. What the independent estimate stated
was that the Axe Lake area probably possesses between (and this is the worst to
best range) 1.117 billion barrels (low estimate) and 1.547 billion barrels (high
estimate) with the best estimate being 1.344 billion barrels. This would seem to
be extremely good news as the company is being valued at less than $1 per each
of these barrels which are classified as “Discovered Resources of Original
Bitumen in Place.”
Many are out there saying that this stock goes much higher
if only Alberta would get its act together on the issue of royalties as they
pertain to oil sands, however on this project BQI only has 2 blocks in Alberta
and the rest, an overwhelming majority we might add, is located in the province
next door, Saskatchewan. Yes it is important to note that Oilsands Quest does
have Eagles Nest which is located in Alberta, however at this time it is not a
focus of the company's drilling efforts so we find it hard to understand the
discount BQI is trading at.
With any kind of exploration company there are a few key
points we like to investigate before an investment is made as well as keep
up-to-date while invested in the stock which has proven very profitable for us.
First we always like to look at what is next door, and the neighborhood is a
very good one in BQI's case as Suncor is located just West in Alberta with its
Firebag Project. As a side note it is hard to imagine why everyone thought that
the bitumen stopped at the Alberta-Saskatchewan border only a few years ago, it
seems that they missed out big not only on the discovery but also on the cheap
land! The management team is probably the most important factor when working
from the ground up on a project such as this, and as the results prove this team
is top-notch. Chris Hopkins has been here and done it before and if we are
correct in our assumptions he will do it once again. The flow of news is also
very important for us as we like to keep up on operations and the success or
failure of ongoing exploration programs. BQI has been the most successful
exploration company that we have seen on a percentage basis. They have
consistently sported a 70%+ success rate on holes drilled hitting bitumen, and
this was in an area where everyone (including Suncor) had written off as being
sub-par for further exploration.
has been transformed in a little under 3 years. Above you will find a chart
showing you the past two years...very impressive we must admit. If the company
begins drilling new areas in Saskatchewan, or for some reason decides to
monetize a portion of its Alberta Project known as Eagles Nest, the stock could
test its old highs set early last year.
To date it seems that BQI has done no wrong and it would be
very difficult for them to do wrong in the future, however prices are rising for
construction and equipment which would be necessary for future production.
Building the infrastructure is going to be expensive, but BQI still possesses
100% of these exploration lands and most likely could structure a deal (maybe
with the Chinese?) where they could keep a carried interest (possibly in the 30%
neighborhood) and have its partner provide the financing and build the
infrastructure in the area. This would allow BQI to continue with what it is
good at, finding bitumen. Last year the company reported that they were
discovering a barrel at a cost between $.02-$.03. That is amazingly cheap and
one of the reasons the company has delayed bringing on a partner at this point.
The company is waiting for a big payday, either in cash or guarantees in
construction. I am betting that the company is talking to the Chinese, one of
the Integrated Companies, possibly Suncor, and less likely but also a
possibility is a deal with India.
No matter the partner, we expect Management to make the
best deal for shareholders and continue to supply us with great news from the
exploration front. In the next few months the news flow should pick up providing
further upwards pressure on the stock. We continue to believe in Oilsands Quest
and shall continue doing “more of that which is working, and less of that which