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Guest Post: The End Of The Shale Era - Big Shift In Junior Oil Exploration

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Submitted by OilPrice.com

The End Of The Shale Era - Big Shift in Junior Oil Exploration

The oil and gas game can be a tricky one for junior companies, but if played right the pay-off can be massive. At a time when juniors are risking a lot in volatile venues in the Middle East and Africa, Canada’s Aroway Energy (ARW) is planting its feet firmly in homeland soil and in conventional plays.

Why? Because for the smaller juniors this is not a long-term game and blowing all your capital to drill a single unconventional well in a risky frontier won’t pay off. Canada still has plenty to offer for juniors, even though you have to kiss plenty of frogs to find the prince. The end game, after all, is merger and acquisition.

In an exclusive interview with Oilprice.com, Aroway CEO Chris Cooper discusses:

  • How to make or break a junior oil and gas company
  • Why rail is becoming more attractive than pipeline transit
  • Why most juniors won’t make it big in risky frontiers
  • Why Keystone XL will get the green light
  • Why oil and gas prices will increase
  • Why the smaller juniors will stick to the conventional plays
  • How the asset market is heating up … and what is ideal
  • Why having control of infrastructure is key to success
  • Where Canada’s oil and gas industry will be in a decade
  • What every junior’s goal should be

Interview by James Stafford of Oilprice.com

James Stafford: Junior oil companies have been storming the scene with some bold investments in tricky frontier areas. Where do you see this going and what will the next phase for the juniors be? Where will the action be, in conventional or unconventional plays?

Chris Cooper: I am a big believer in the conventional plays. I find that the non-conventional plays are turning into more of a game for the intermediate-size companies primarily as a result of the capital that is required to exploit the resources. Horizontal wells with multi-stage fracturing is an expensive game. I find that the conventional plays expose juniors to a less risky scenario with higher returns on investment and longer-term production more often than not.

Given the current state of the capital markets and the scarcity of funding, I think the smaller juniors will continue to play in the conventional arena.

James Stafford: What’s the ideal partner for a junior company, and what can make or break it for a junior?

Chris Cooper: As far as make or breaking a junior, I believe you need to minimize the company’s risk by drilling wells that are going to give you good internal rates of return and steady production; a good mix of development and exploration wells. It is also very good to have a good operator that is responsible in keeping a control on costs. 

James Stafford: What separates the good management teams from the mediocre in the Canadian junior oilpatch?

Chris Cooper: Management teams that have built and sold companies in the past have a responsible, methodical approach to how they run their businesses. More often than not, these teams do not try to re-invent themselves by drilling wells and formations that they have not done in the past. They continue to focus on what they know best, whether it be drilling in the Peace River Arch, chasing Leduc wells, or focusing on cardium wells. They often do not stray from their formulas and that is why they are good teams.

James Stafford: More Canadian oil is now being marketed by rail.  Can you put the rail versus pipeline transport comparisons into perspective for us from a Canadian operating perspective?

Chris Cooper: A lot of companies, including Aroway, are capitalizing on the benefits of moving their oil via rail as opposed to pipeline.  I think it will increase our netback, our profit per barrel, by several dollars immediately.

For instance, before we purchased our West Hazel Property in Skaskatchewan, the owners would truck to Talisman or another big operator that was pipeline-connected. Then, once the oil got to the pipeline-connected operator, they had to pay a certain amount of money to get it in the pipeline for diluents to meet pipeline specifications. Then they had to pay for the pipeline tariff and then they got the price the pipeline operator provided wherever they were on the pipeline.

So for example, the last month we got $53 to $54 a barrel, after the blend-in tariff for our West Hazel production, which is probably the lowest you’re going to see for a long time. Our netback on that oil was still greater than $20 a barrel. But for that $53.32 a barrel we sold, if transported by rail, we remove the pipeline tariff, we remove the blend for the diluents and we get $9 more added to the netback value.

So what we’ll end up doing is trucking our oil from the field to a company called Altex Energy, which is partly owned by Shell Canada. Shell owns all the railway cars and all these railway cars get filled up with heavy crude and shipped down to their Port Arthur facility on the Gulf Coast. At Port Arthur what typically happens to our crude--because it’s somewhere between 11 and 13 degree oil—is it goes straight into bunker fuel for ships.

So the refinery doesn’t have to touch it in some cases and that’s where we get a pretty substantial bump. Then you’re not subject to pipeline apportion and issues. It just opens up whole new markets for you.
                       
At the end of the day we will  get somewhere around $66 or $63 a barrel this month and then we’re going to bump that up by another $9 next month by taking all the crude we have in West Hazel by rail. So our netback will be $35 to $40--and that’s just the West Hazel crude.

James Stafford: What is the market like for assets right now, from a junior’s perspective? What’s the ideal prospect?

Chris Cooper: Asset sales are heating up. We are finding that there are a lot of assets being marketed through companies like Sayer and NRG Divestments. There are also several larger brokerage firms representing companies for “strategic alternatives.” 

As an example, Aroway just picked up a great producing asset in Saskatchewan for $10,000/flowing barrel. The market for similar assets in Saskatchewan at that time was about $40,000/flowing barrel. Companies need to exercise patience and do their due diligence. Not to mention kissing a lot of frogs to find these types of assets. They are out there.
 
James Stafford: A lot of North American juniors are hitting the riskier frontiers with all they’ve got these days—from Iraqi Kurdistan to Sudan, even Somalia. Why are they willing to take this risk and is it paying off? 

Chris Cooper: With higher risk comes higher reward, but I don’t think it is paying off in the broader sense. Sure, there are 2 or 3 juniors that have hit home runs, but more often than not a junior is going into those types of plays with only $5 or $10 million in the treasury and they blow this after drilling just one well. I have always believed there is great opportunity offshore, but the risks are lower and infrastructure and political stability in North America is in place.  There is plenty of opportunity in North America.

James Stafford: Related to this, where do you see Canada’s oil and gas industry 10 years from now?

Chris Cooper: I see the oil and gas industry in Canada continuing to grow with the advancement of new drilling techniques and new innovations in exploiting existing pools to increase the recoverability. We have a stable political system in place which enables business opportunity to grow in Canada.

James Stafford: We hear a lot about Alberta, but what kind opportunities are we looking at in Saskatchewan?

Chris Cooper: Saskatchewan is definitely open for business. The royalties paid in Saskatchewan are very low and the production opportunities are very good. We are actively looking for new opportunities in Saskatchewan.
 
James Stafford: Do you lend any significance to Canadian media reports that the Cabinet is reviewing some new legislation that would set stiff payouts for the oil industry for accidents?

Chris Cooper: Personally, I think it is part of the grand plan to help the approval process. My theory is that the Canadian government will lay out a plan for big fines and then push to have the pipelines approved. The construction of pipeline projects creates jobs and would be good for the economy.

James Stafford: Do you think this is simply a carrot for the protesters at a time when the Enbridge hearings are raising tensions?

Chris Cooper: There will always be protesters.

James Stafford: What do you see happening to energy markets in 2013?

Chris Cooper: I see the price of oil and gas both increasing. They are depleting resources….it’s an inevitable function of supply and demand.

James Stafford: What are your views on the Keystone XL Pipeline? Do you think it is likely that Obama will approve its construction, and if so how will this affect your business?

Chris Cooper: I think he will approve it. The Governor of Nebraska gave the new route the okay. I think now that Obama has been re-elected he will go ahead and approve. Again, that is a lot of job-creation for an economy that is struggling. More pipelines are good for Canadian producers as it helps get our oil to market.

James Stafford: What are Aroway’s top three plays, and why?

Aroway plays

Chris Cooper: Our current plays all have different risk and production profiles. We have a large inventory and land spread in our JV lands in the Peace River Arch, which provide a healthy mix of development and exploration risk. Very big upside in this play.

Our West hazel production play is a very stable, long-term production scenario that we feel will provide great cash flow and netbacks to the company. For little investment we feel we can substantially increase production at West Hazel. 

Aroway Primary Plays

Our Kirkpatrick Lake and Little bow lands in central Alberta are also very prospective properties that have the ability to turn into new core areas for the company. All our properties are oil focused and are highly prospective.

James Stafford: What can we expect from Aroway in 2013?

Chris Cooper: I am confident 2013 will be a big growth year for Aroway. We will continue to drill on our existing properties and leverage our production and financial position to take advantage of existing and upcoming opportunities in the sector as far as acquisitions and potential farm-in opportunities. We are confident it will be a big year for our shareholders.

James Stafford: 2013 has been touted as the year of the merger and acquisition. As one of the hottest investments around at the moment, do you think that Canadian junior oil & gas companies, like yourselves, will become a favoured target for larger oil companies looking to expand?

Chris Cooper: I think I can speak for most junior companies when I say, ‘I hope so’. There are a lot of big companies that need to fill the production gaps in their natural depletion, thus in some cases forcing big companies to do that through acquisition. I think the goal for most juniors is to be taken over by a bigger company at a nice premium for the shareholders.

James Stafford: Thanks for your time Chris. For those of you interested in finding out more about Aroway please visit their website at: http://www.arowayenergy.com/

 


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Tue, 02/19/2013 - 18:45 | Link to Comment nope-1004
nope-1004's picture

Is this the same Alberta?

 

Tue, 02/19/2013 - 19:14 | Link to Comment Albertarocks
Albertarocks's picture

Yes it is.  Ms. Redford is the first female premier of this province and I expect she'll be the last.  The place still rocks though.  Come on up for a visit and the beer will be on me.

http://www.youtube.com/watch?v=ThFCg0tBDck

Tue, 02/19/2013 - 21:27 | Link to Comment disabledvet
disabledvet's picture

get with the program buddy: http://www.youtube.com/watch?feature=player_detailpage&v=zh7sqDlxBaE
best song ever with the word "Alberta" in it. (happens to be the the title actually.) One of Clapton's greatest live performances to boot.

Tue, 02/19/2013 - 22:20 | Link to Comment Albertarocks
Albertarocks's picture

Yup, that's a fabulous bluesy alright.  Very nice.  Thanks for the link.

Wed, 02/20/2013 - 08:31 | Link to Comment dognamedabu
dognamedabu's picture

Clapton is always good to hear. Here is a one of the best bands with Alberta in their name. Song goes with the thread to boot

Corb Lund and the hurtin Albertans

Roughest Neck Around

 

http://www.youtube.com/watch%3Fv%3D9yXzZTYjUl0&sa=U&ei=fr8kUYmbJ6KnigKVk...

Wed, 02/20/2013 - 01:17 | Link to Comment A Nanny Moose
A Nanny Moose's picture

You know...it's a sad state of affairs when I have to watch one commercial, just to get to a video, which is just another commercial.

Tue, 02/19/2013 - 18:56 | Link to Comment Freddie
Freddie's picture

Moving by rail?  Is this Robber Baron Warner Buffer's railroad?  F him.  I bet if they ever build a pipeline it will be on his railroad right of way.  Crony facism with Obummer.

Tue, 02/19/2013 - 19:26 | Link to Comment oddjob
oddjob's picture

CP is hooked up.

Tue, 02/19/2013 - 20:05 | Link to Comment Uber Vandal
Uber Vandal's picture

You don't suppose he bought the BNSF, because he wanted a really cool train set, did you?

https://en.wikipedia.org/wiki/BNSF_Railway

 

Wed, 02/20/2013 - 09:57 | Link to Comment Flakmeister
Flakmeister's picture

As opposed to the Kochs exporting the refined Keystone dilbit from a tax free export zone...

Oneok just cancelled a pipeline out of the  the Bakken because the producers would not commit to the project... i.e. they cannot guarentee the flows going out 10 years....

http://www.tulsaworld.com/business/article.aspx?subjectid=49&articleid=20121127_49_0_Tulsab278554

Quit with the partisan shit Freddie...BTW, at the least the rail provides real local jobs...

Tue, 02/19/2013 - 19:10 | Link to Comment Stuck on Zero
Stuck on Zero's picture

Increased efficiency always creates more national wealth.  If Obummer wanted more jobs he could hire 500,000 people with gallon jugs to carry the oil the 1600 miles.

 

Tue, 02/19/2013 - 20:39 | Link to Comment augustusgloop
augustusgloop's picture

yeah, but takes shit oil from Canada instead of Venezuela that Valero et. al. processes. That way the putative socialist can screw the real socialsit.

Tue, 02/19/2013 - 19:41 | Link to Comment Kayman
Kayman's picture

Rusty T.

They aren't going to dump the oil onto the ground at the end of the pipe. The oil will create/sustain oil based refinery jobs, etc.

Do you want jobs and dollars in Venezuela and Saudi Arabia or in North America? 

Tue, 02/19/2013 - 19:08 | Link to Comment A Lunatic
A Lunatic's picture

We need to build a big ass refinery in Eastern Montana or North Dakota instead of building a big ass pipeline from Canada to Texas.

Tue, 02/19/2013 - 19:27 | Link to Comment Albertarocks
Albertarocks's picture

Albertans are saying the same thing... "why in hell are we shipping the crude 'anywhere' at all?  We should be refining it ourselves."  But if I had a choice I'd rather be shipping it to Montana or Idaho.  At least they know us a hell of a lot better than the folks in Cushing do.  Texans though, they know us pretty well too.  But yeah, I'd be more than happy to see some crude get shipped to our neighbors just across the border.

Tue, 02/19/2013 - 20:00 | Link to Comment Teamtc321
Teamtc321's picture

No, no, no. Just send it on down here to us in Texas. We like the job's in trucking, construction, inspection, sales, testing, hotel, food, clothing, auto parts, real estate, etc. No need to look any place else. Just shoot it down the pipeline. We enjoy the cheaper gas and diesel as well, here at home. 

Tue, 02/19/2013 - 21:00 | Link to Comment Albertarocks
Albertarocks's picture

Haha... it's on the way.  But I imagine once the economy of this province starts hurtin' real bad and people start losing jobs, 'then' we'll be screaming bloody murder about why we're not refining more of it.  Glad to help out though when we can, lol.

As I was mentioning though, Texans and people from the states along our border know us well, understand us 'very well' and seem to like us just fine.  And vice versa of course.  But for the vast majority of other Americans we seem to just be just one more in a long list of  'foreign pissants' or something.  As if we weren't just about the funnest people they could ever have a few beers with.  :-)

Tue, 02/19/2013 - 21:36 | Link to Comment disabledvet
disabledvet's picture

not so fast Texas: http://www.montanarefining.com/ that would be Calumet refining. the reason why refining is so massive in Texas and the Gulf Coast is because of this guy: http://en.wikipedia.org/wiki/Big_Inch nice way of saying "we ship refined product via pipeline"...VERY cost effective. throw in natural gas which doesn't even need to be refined to be used as a fuel and you have the makings of a real battle over the technology that goes under the hood. Here's one from the north not afraid to "take on the big boyz": http://www.youtube.com/watch?v=2JpIj9IN924

Wed, 02/20/2013 - 09:11 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

The entire world's economy i.e. the modern economy is about free energy taken from the ground.  In order to partake in the economy, one must "tap into" the "energy stream".  Thus the need for so many otherwise unnecessary middlemen in the process.  The process of inserting this middlemen is a political one.  If it were left solely to economics, there would be no middlemen.

Wed, 02/20/2013 - 02:41 | Link to Comment Lore
Lore's picture

The Agenda 21 lobby (Green, Sierra, etc.) have a tight grip on the minds of many left-leaning Albertans and British Columbians. A refinery construction initiative could promise A MILLION jobs, and it would not please them. Far as they are concerned, we should halt international commerce (especially "fossil fuel" exploitation), wear loincloths, raise chickens in our apartments and ride bikes to our community gardens. The media laps it up and magnifies it, so even a protest of just a hundred people gets turned into a mass marketing phenomenon.  Agenda 21 has infiltrated our local councils and hijacked local policy bodies.

That is why there will be no construction project anywhere in Western Canada for the foreseeable future.  The Greens would rather carbon-tax the provinces into oblivion than do anything that would compromise their Unnatural Climate Change Cult -- even as they enjoy all the benefits! And that is why our relationship is secure with the good folks around Cushing, so long as the crude keeps flowing and refineries aren't sabotaged by fanatics.

To my mind, they are a kind of economic terrorist. I could easily envison a scenario that pits the citizenry against Green control freaks. The time is coming, especially as more jobs dry up. The eco-fascists are determined to remove privacy and property rights, expand the scope and scale of government and tell other people how to live. They're rewriting schoolbooks and misallocating billions of public dollars. They are evil.

Wed, 02/20/2013 - 04:17 | Link to Comment bunnyswanson
bunnyswanson's picture

http://canadianawareness.org/2012/12/agenda-21-a-threat-to-canadian-sovereignty/

Rosa Koire On Agenda 21 And ICLEI By

– Posted on July 4, 2012Posted in: Audio Interviews

Terry is joined by Rosa Koire, a a forensic commercial real estate appraiser specializing in eminent domain valuation and an outspoken
activist opposed to the United Nations’ Agenda 21 and its attempts to attack civilization through so-called Sustainable Development. She is the author of Behind The Green Mask: U.N. Agenda 21

 

Agenda 21 is the trojan horse.  This movement is taking an inventory of land and value on a community level.  Grants are offered to communities to allow ICLI to come in and evaluate the situation.  Desperate city officials take the grants unaware of what may become a rezoning/redevelopment plan that reduces land value to zero and result in property owners to relinquish their land "for the good of the nation"  The same people behind the banks are behind Agenda 21.

Wed, 02/20/2013 - 09:43 | Link to Comment Flakmeister
Flakmeister's picture

Another example of Conspiratorial ideation running amok....

 

Wed, 02/20/2013 - 19:01 | Link to Comment Lore
Lore's picture

Not sure if you're mocking me or affirming what I say. It's all documented. Read their books, starting with the Club of Rome. Agenda 21 is the source of the Green movement and the "Carbon Tax" ponzi.

Tue, 02/19/2013 - 19:46 | Link to Comment Mike Cowan
Mike Cowan's picture

I like $OXY and $EOG. I am sure not going to buy a stock mentioned in the psycho-chamber. 

Tue, 02/19/2013 - 20:09 | Link to Comment bonderøven-farm ass
bonderøven-farm ass's picture

EPCO shutting down construction on the ATEX Express and Front Range lines....not sure what they see in their magic eight ball, but these closings are a big deal here in the trench......

 

Tue, 02/19/2013 - 20:32 | Link to Comment robertocarlos
robertocarlos's picture

You sure the oil and gas business is OK? Every second house in Calgary is for sale right now.

Tue, 02/19/2013 - 20:57 | Link to Comment Albertarocks
Albertarocks's picture

Huh?  Where in hell did you get that idea from?  Yes there are quite a few listings and those are certain to rise over the next 3 months as well, just as they do in every market in the spring time.  But know what?  They're selling just as fast.

http://www.creb.com/public/documents/statistics/2013/package/res-stats-2...

You're trying to paint a picture of some sort of a crash goin' on here but I assure you nothing could be further from the truth.   That's not to say that Calgary isn't going to get a real wake up call some day, because it is.  But that wake-up call isn't even close to happening today.  Just wanted to set that record straight.

Wed, 02/20/2013 - 17:28 | Link to Comment fletcherhigh
fletcherhigh's picture

Albertarocks

Anyway of contacting you on a different portal? Newly grad and have a few questions about starting a career in AB...

Tue, 02/19/2013 - 21:10 | Link to Comment CharliePrince
CharliePrince's picture

thought it was the  (crooked)    koch boys  who wanted the pipeline  for their refineries  ?

Tue, 02/19/2013 - 21:14 | Link to Comment trendybull459
trendybull459's picture

We have commentary on it and do not agree with author as his vision same as government propaganda,

follow us:

http://trendybull777.blog.com/2013/02/20/special-rubrics-from-around-worldvery-catchy/

Tue, 02/19/2013 - 22:47 | Link to Comment Fedaykinx
Fedaykinx's picture

not sure how many times i have to say this but the big success story for shale is natural gas, NOT OIL.

 

NOT OIL.

 

NOT OIL

 

NOT

 

OIL

 

the title of this piece is laughable.

Wed, 02/20/2013 - 16:15 | Link to Comment VangelV
VangelV's picture

If shale gas is the success story why is it that most of the shale gas players are not self financing and have massive gaps that need to be closed by new debt, asset sales, or shareholder dilution?  And why are they all trying to sell themselves as shale liquids players?

Wed, 02/20/2013 - 04:18 | Link to Comment Notarocketscientist
Wed, 02/20/2013 - 04:36 | Link to Comment cossack55
cossack55's picture

Nice link. Thanx

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