As a result of an increase in oil and gas prices, world energy supply issues, and the abundance of oil and gas exploration and development opportunities in Canada, Argo Gold Inc. (CSE: ARQ) (OTCQB: ARBTF) (XFRA, XSTU, XBER: A2ASDS) (“Argo Gold“) has finalized two letters of intent to earn into oil and gas exploration and development mineral lands.
The mineral lands are two separate Devonian oil prospects in southern Alberta. Argo Gold will earn a 100% working interest in the prospect lands, subject to a gross overriding royalty (GOR) to the holder of the mineral lands, in exchange for drilling one test well per prospect. The oil prospects are seismically defined and are located within in a well-known producing trend with proven oil zones and surrounding infrastructure. Four additional well locations have been identified on the two prospects. Estimated yield on the two initial test wells is estimated to be 100 bbl/day to 150 bbl/day in range and the estimated ultimate recovery (EUR) of the two initial wells is expected to be 275,000 bbl oil and 300,000 bbl oil respectively.
Oil & Gas Initiative
- January 2022 – WTI Oil prices steadily increase through January 2022 ending the month at over US $88 /bbl
- February 9, 2022 – Crescent Point Energy Corp (CPG-TSX) announces sale of non-core Canadian assets producing ~10,554 bbl oil equivalent per day (Q4)
- Market conditions create purchaser interest – CPG using 80 / 20 rule with respect to managing assets – Valuations at 2 – 3 X CF
- February 2022 – WTI Oil prices consistently over US $90 /bbl
- February 24 2022 – Russia invades the Ukraine
- Mid-February Argo Gold signs CA with CPG, makes initiative to identify assets available or purchase and then continues to sign CA’s and do due diligence
- March 2022, April 2022, May 2022 – Argo Gold retains multiple consultants for oil & gas project due diligence and to identify oi & gas opportunities
- June 2022 – Two oil & gas opportunities identified with intent to sign LOI’s
Why the Oil & Gas Initiative
- Oil is 90% of the transportation industry in the United States (2020). The EV initiative is great but the transformation reality is multiple decades.
- Coal-fired electric power plants are being transformed to Natural Gas. US Electrical Power is now 40% natural gas and 40% coal.
- Natural Gas heats 60% of US homes. 25% of US homes use electrical heat.
- The Oil & Gas sector – transportation, heat and electricity – is important to people’s daily lives and reasonable prices are important for economic activity
- Poor public perception of sector, low prices and COVID resulted in under-investment and challenges for expanding production now
- US oil & gas inventories are well below 5-year averages
- Decreasing Western world oil & gas production increases the world’s reliance on
OPEC (36%) and Russia (10%) & gas prices and supply concerns. The Canadian oil & gas industry and is a world leader in environmental standards
Oil & Gas Valuations & Opportunity
- Companies trading at 2 – 5 X cash flows and get no credit for long life assets or reserves
- 2020 sector FCF of ~ US $126 B to anticipated 2022 sector FCF of ~ US 834 B with anticipated investment ratio of 20% to 30% (Rystad)
- Q1 2022 oil prices provided first opportunity for companies to sell non-core assets
- Long life, low decline and low risk assets available that require minimal capital
- Many producing assets provide optimization opportunities such as low-cost workovers, re-activations and re-completions
- Opportunity to increase production by implementing waterfloods and drilling additional wells
- Abundant oil & gas exploration and development opportunities after a 7-year slowdown
- Oil & Gas exploration almost immediately becomes development and production resulting in CASH FLOW
Tectonic activity resulted in burial to generate oil and migrate it up-dip
- Hydrocarbons are expelled from source rock and move into reservoir rocks
- 80% tar sands – remaining 20% a unique opportunity for junior producers