(Disclosure: The following represents my opinions only. I am not receiving any compensation for writing this article, nor does Hydra Capital have any business relationship with companies mentioned in this post. I am long VLE.TO, SDX.V and PLU.V)
Valeura Ties in Bati Gurgen-1 and Gears Up for Yayli-1 Deep
Last week, Valeura (VLE.TO) reported that the Bati Gurgen-1 well has been tied in at a restricted production rate of 3 million cubic feet per day (mmcf/d). For those following the story, the news is as expected, but it does boost Valeura's production from ~800 boepd to ~1300 boepd. Bati Gurgen-1 exemplifies the cheap drill costs, easy tie-ins, high netbacks, and quick implied payouts of Valeura's shallow gas wells, which I believe more than backstop the company's current valuation. Of course, the "main event" that the market is waiting for is the testing of a 30-35 metre thick tight sand section in the overpressured section of the Yayli-1 well once a larger coil tubing unit arrives on site. I would guess that we will see results from that test in April, so stay tuned. If Yayli-1 tests gas at a "good" rate it would confirm the BCGA concept in the Banarli block and could definitively put a huge gas prize on the table for Valeura and its shareholders. What a "good" vertical test at Yayli-1 looks like is up for debate -- a "good" vertical Montney well in Western Canada would be lucky to produce 0.5 mmcf/d on a comparable test. If Valeura gets anything in that range from a vertical well, the next logical step could be to go horizontal...
SDX Energy Drills Some Gas Offshore Cameron
This morning SDX Energy (SDX on the TSX Venture) reported an inconclusive potential gas discovery at the Manatee-1 well, offshore Cameroon. SDX has a 35% interest in the well. SDX really needed to see oil in the well to get the market excited and an "inconclusive" gas discovery isn't going to cut it. SDX's next big "E" exploration well is expected to be drilled in Egypt in Q4 2016, where well costs are paid by their farm-in partner on the South Disouq block. Before the first gas-condensate exploration well in the South Disouq block is drilled, SDX will complete a 3D seismic program that is currently underway which will better define the target. SDX is trading at 42 cents as I write this, which equates to a market cap of ~C$16 million. Without updated financials, my best guess says that SDX trades a few million dollars over cash value, which isn't a bad price to pay for somewhere around 1500 barrels per day of oil production with some of the lowest operating costs in the industry (sub US$6.50/barrel). For a microcap, SDX has a decent production base with good upside through development and offset drilling, but anyone holding it is going to need to have patience.
Plateau Uranium Talks Lithium In Peru
Last week, Plateau (PLU on the TSX Venture) released an initial resource estimate highlighting a potential lithium resource associated with its uranium resource in the Macusani Plateau project, Peru. The method of recovery and potential economics of the lithium remains undefined, so it's not getting me too excited at this point, but the lithium is on the table as a potential byproduct credit. Plateau remains as a "call option" on uranium at this point in my mind. The implied economics in the previously released preliminary economic assessment are impressive, putting PLU as one of the largest, lowest cost undeveloped uranium projects on the planet. Headlines continue highlight aggressive nuclear reactor build-out plans in Asia. Should those plans and build-outs continue, uranium bulls might finally get the lift they've been waiting... and waiting... and waiting for...