Jim Letourneau's Blog

Investing, Technology, Travel, Geology, Music, Golf. I think that covers it.

Interview with Fred Rumak of PanTerra Resource Corp. (PAN.V)

(Music plays)


Announcer: “Welcome
to the Big Picture Speculator Podcast featuring Jim Letourneau, the
big picture speculatorrr…” (music continues)


Jim Letourneau: “Today is Saturday, January 26th 2008 and today, we are
going to be reviewing Fred Rumak of PanTerra Resource Corp., symbol PAN on the
Canadian Venture Exchange.  Fred Rumak has been working with
PanTerra for, how many years now Fred?”


Fred Rumak: “I’ve
been working, that’ll be three years in March.”


Jim Letourneau: “Now,
how did you get involved with PanTerra?”


Fred Rumak: “Well,
I was introduced to some of the older PanTerra
management, and I had a prospect and a study that I had conducted
in Saskatchewan involving the exploration for shale gas and it
interested the people at PanTerra at that particular time so they,
purchased this study off of me and I immediately became involved as a
director and then a number of months later in July of 2005, I took
over as president of the company.”


Jim Letourneau: “Okay.
Um, I guess I should disclose that I’ve been following
PanTerra and shale gas companies for a while and I’m an
Investor Relations Consultant in PanTerra,  Just as an aside.
Fred can you tell us a little bit about what exactly is shale gas?”


Fred Rumak: “Well
shale gas is a natural gas trapped in shale and the definition of
shale is a fine grain rock.  Basically, shale is laid down in a quiet
water environment usually somewhat distant from shorelines in large
bodies of water and mixed with the grains of shale and clay and
silt are usually organic matter from palnt remains and animal
remains.  And as this stuff becomes buried and the layer gets thicker
and thicker and deeper in the ground, certain chemical process has
taken place, which create natural gas and because shale is somewhat
less permeable than sandstone, this gas seems to be generated and
stored in place.  Most of the shale gas that we’re dealing with
in Saskatchewan is biogenic shale gas, which was generated in place
by this organic matter and decay, as the sediment became buried
deeper in the ground.”


Jim Letourneau: “Now,
what’s created the, you know, the interest in shale gas of
late.  Is this ah, this is something new.  I mean we talked coal bed
methane was quite popular and we’re seeing lots of commercial
projects in coal bed methane, what’s happening with shale gas
right now?”


Fred Rumak: “Well
basically, these shale basins are these quiet areas where shale was
deposited can constitute very large geographic areas from a
geological point of view.  And over time, a lot of these shale zones
can also be very thick.  They could be in the range of hundreds and
hundreds of feet thick.  So what happens from a geological point of
view is you have a very large thick body of shale, which can generate
and store incredibly large amounts of natural gas.  Thhe shale
that we’re talking about in our Saskatchewan property ranges
from about 100 to 285 feet thick and it covers literally millions and
millions of acres of land.  So the amount of gas in place of these
areas is trillions of cubic feet of gas.  Now as gas production has
declined in Canada and the United States, companies have turned to
shale gas to tap this resource to send to the gas markets.  And as
technology has improved, shale gas drilling has recovered a
considerable amount of gas and it’s now become very economic.
As far as PanTerra is concerned, we are sitting on about 1.1 million
acres of land, which we have now earned and when you talk about the
1.1 million acres and having an average thickness of about 285 feet
thick, we have various estimates.  We have done a lot of scientific
work in our drilling program.  We have cut over 55 cores and add a
lot of our drill cuttings have been set and analyzed in specialty
labs in the United States and we have as much as 37.5 TCF of gas in
place on our land.”


Jim Letourneau: “Wow.
That’s a lot of gas in place.  Now, what are, what are the
challenges of actually getting the gas out of the shale?  What kinds
of technologies are being used to get this gas to actually flow?”


Fred Rumak: “Well
the problem that we face is the fact that the reservoirs are somewhat
shallow.  We don’t deal with the high pressures that
you deal with in the more conventional gas.  As well as an immature
shale basin and we are dealing with reservoirs that have a certain
amount of clay content.  Now we feel that we have overcome the clay
problem by stimulating these wells with inert substances such as
hydrocarbon based fracture programs and nitrogen and CO2 based
fracture programs.  We don’t want to introduce water to
the reservoir, which may cause some damage.  As far as the pressure
problem is concerned, we were pleasantly surprised that some of the
analysis that we’ve done and some of the tests that we’ve
conducted so far, that the pressures were not as low as we thought
they would be, we're almost that hydrostatic pressure in most of these
reservoirs.  And even though hydrostatic reservoirs may be on the low
side, we have reached and established that we have porosity and
permeability and connectivity between wells that are spaced over a
quarter of a mile apart, which means we have large drainage areas now
and we’ve proven this technically.  And we feel that with the
proper fracture programs and introducing compression to the
distribution system that we will be able to draw this gas out of
these reservoirs in an economic manner.”


Jim Letourneau: “Again,
that’s ultimately the big challenge with any unconventional gas
place play is finding the right technology to get the gas to flow.  And it
sounds like if you’re starting to seek some
communication between wells, that’s a very big positive.  Once
you get a procedure that works and is successful and getting, you
know, some stable, you know, consistent flow rates, what… how
many wells would you be able to drill on your lands?”


Fred Rumak: “Well
on a risked basis, and that’s risking the land and the geology,
on a four well
per section program which is the current
spacing that we’re allowed under the Saskatchewan regulations,
PanTerra would be able to drill approximately 1600 wells. Many of the
shale gas wells that are producing in the United States are
drilled on a lower acerage spacing and that, and should we be
allowed to go to 8 wells per section, then we could drill up to 3200
wells at this particular point in time.”


Jim Letourneau: “Now,
what is PanTerra’s share structure right now and your market


Fred Rumak: “Well
currently, we have approximately 66 million shares outstanding.  And
as you well know the markets worldwide have not been what we'd like
them to be lately.  Our current market cap’s about $13 million,
however, it’s very apparent to us that we’re not getting to
be recognized for our accomplishments due to the couple of factors.
One being the nature of the market itself under these current times
and the other one in my belief and I’m adamant about this is that
there are many people out there who are well meaning investors, but
who simply do not understand the type of play that we are involved


Jim Letourneau: “Well


Fred Rumak: “So
we… sorry.  Yeah.”


Jim Letourneau: “That’s
always a challenge with, new technologies and new place and new
ideas, as you know, there’s always a lot of skepticism
early on and then, you know, a few years go by and suddenly everybody
wants to do it.  So it’s not always fun being early.”


Fred Rumak: “Well
that’s true.  And PanTerra is a leader.  I can honestly say
that we have been told by our technical advisors in the United States
and other people that we’ve dealt with that are very, very
experienced in shale gas technology and shale gas type plays that
PanTerra is a leading edge company and we are pushing the envelope on
a lot of the technology that we have used and knowledge that we’ve
gained from the trials and tribulations of the people that developed
the shale gas in the United States.  And again, it’s very hard
to the get the market to understand what we’re trying to
accomplish and that given the fact that our TerraTech Lab in Salt
Lake City suggests that we have as much as 37 trillion cubic feet of
gas in place that are Sproule evaluation, suggests that on a limited
basis, just examining two major zones that are somewhat common to
Western Canada, we have as much as 9 trillion cubic feet of gas.”


Jim Letourneau: “Wow.”


Fred Rumak: “Now
that’s gas in place.  That’s not recoverable.  But the
recovery factors that we’re dealing with in the United States
and other shale basins worldwide have historically ranged between 9%
and 17% recovery factor and the number that PanTerra is using for
simplicity’s sake is at the low end of the spectrum and we’re
using a 10% recovery factor.  So even that in itself could spell that
fact that we could recover from our land as much as 1 trillion
to 3.5 trillion cubic feet of gas.  However, I’ve even gone
further to throw in a risk factor based on the land and the geology,
which still puts PanTerra in a situation where we would have very
comfortably risked anywhere between 300 and 500 billion cubic feet of
gas.  And using a dollar an Mcf in the ground that would mean that
PanTerra could be worth as much as $300 to $500 million.”


Jim Letourneau: “Nice.
And you’re using a lot of conservative factors to come up with
that number obviously.”


Fred Rumak: “Jim
we have used extremely conservative factors.  I have used the 10%
recovery factor and I have used a geological and land risk factor of
only 25% chance of success.  And we know that these blanket shales
have a lot higher success rate or chance of success than 25%.”


Jim Letourneau:
“They’re very consistent once you figured them out


Fred Rumak: “Very.
Very consistent.  We have been very harsh on our numbers and our
value, and our recoverable gas still remained very high and that
simply based on the fact that PanTerra has a huge land base.  We
actually have the largest land base in the province of Saskatchewan
on Crown land.”


Jim Letourneau: “Now
are you doing any conventional exploration or do you formed that out
or just, you know, because with that big of a land base, there may be
conventional pools on PanTerra lands.”


Fred Rumak: “PanTerra
has earned all rights of its properties.  We have all the rights from
the surface to the basement and we are entertaining situations
where we will be looking at these deeper horizons, however, our main
focus has always been on the ah, Middle Cretaceous shales that
we have always said we were exploring for.”


Jim Letourneau: “Fair
enough.  Um, Fred where do you see natural gas price headed over the
next few years?”


Fred Rumak: “Well
given the different storage situations and given the climate
fluctuations, etc., I think when we are looking at an environmental
point of view, CO2 reduction, increased population in North America
in particular, I can’t see anything but gas prices firming up
in the near future. Right now as we know it’s been very
cold in Central and Eastern Canada and United States, so it’s
starting to drive down storage, although all these things are
positive for natural gas prices.  I mean with oil at $90 a barrel and
a heating ratio of 6:1, natural gas should be priced to $15 an Mcf,
well obviously it’s not.  So, I think somewhere down the road
with oil prices settle out at some number, gas prices will
float and there’ll be some kind of an equilibrium established.”


Jim Letourneau: “I
would actually have to agree with that and it covered a lot of
unconventional gas talks in my newsletter and they were all, you know
just pounded and beaten down and even some pretty solid explorers and
producers of natural gas have really suffered in their share of
price, and yet natural gas is a pretty decent
fuel and I don’t see magical cures to the world’s energy
woes so at some point, I think patient investors would
benefit for being in the natural gas sector.  I’m going to ask


Fred Rumak: ‘”Yeah.”


Jim Letourneau: “I’m
going to ask you specifically Fred, ah, why should people consider
purchasing PanTerra today?”


Fred Rumak: “Well
we have a huge tract of land.  We know we have discovered shale gas.
We have some incredibly large numbers and with what’s happened
to PanTerra in the last month or two based on some of the work that
we have done in the field, we are very excited as to some of the
results we have seen and we need to get ourselves to another
plateau.  And we would very much appreciate the support that we could get
in the market because all I can tell is we’re, Jim, is we’re
onto something here and we know that it’ll work.  It just has
to be given a little bit of time.  Unlike conventional gas, where you
can drill it out and if it’s close to a pipeline, you could
have it on production and tied-in in a matter of a month or
two.  In the shale gas situation, you’ve got to remember that
we’ve only drilled 36 wells on 1.1 million acres of land.  Our
wells are spread 15 to 20 miles apart.  We now have to go in and
develop clusters of drilling around each one of these wells so that
we’re able to tie these wells in an economic basis.  And that’s
going to take capital and it’s going to take market support.
And all of this will come in time.  Resource based plays are a
lot longer term than the conventional gas situations that most people
are used.  One has to remember that Mitchell Energy who discovered the Barnett Shale  and then became very wealthy and famous for doing
so took 20 years to reach their goal.  PanTerra was able to take
advantage of a lot of the technological breakthroughs and with trials
and tribulations and the learning curve that mutual have to go
through.  And we basically started on our program two years ago at
the 20-year learning curve mark that took Mitchell that long to get to
that point.  A lot of the technology that was developed in the shales
in the United States are owned by major service companies which
operate in Canada and we are, at this point in time taking advantage
of those technologies to move PanTerra forward.”


Jim Letourneau: “Well,
I have to say I’ve always been really impressed with the level
of technical expertise and the approach that you guys have taken
because you know it is a very large land package, but you’ve
been very systematic and very scientific, you know, using, taking
lots of cores, sending it to good labs, getting good results so that
at some point if you wanted to sell the company or someone was
interested in what was available at PanTerra lands, you…”


Fred Rumak: “Well
Jim I can tell you that PanTerra has spent in excess of $2 million on
science. We have done core analysis. We have done all types of
geomechanical analysis and geochemical analysis and I can say with my
hand on my heart that we went to the top people in the world. We
used TerraTech out of the United States, Salt Lake City. We have
used Core Labsout of Houston.  We’ve used Humble
geochemical out of the United States and we’ve even had some of
our gas samples analyzed by the United States Geological Survey in Illinois.  And we were told by these people that we have
extremely high organic contents and we do have the porosity and
permeability necessary to produce natural gas from shale and
we felt at that time that it was prudent to do our homework
scientifically rather than spend a bunch of our shareholders’
money taking shots in the dark at different techniques.  And even if
these techniques would have worked and we would have stumbled on
something, we felt going to scientific background of what we were
dealing with, we would not know why these techniques work.  And I
always used the analogy of dry cleaning.  You have to know what type
of fabric you’re dealing with when you take your
clothes to the cleaners.  You do not wash wool and you do not have to
dry clean cotton because both of them are different fabrics.  Rock,
from a geological point of view also has different fabrics.  And you
choose different rocks differently.  So in some cases, you can use
certain chemicals and certain drilling fluids to drill and complete
and fracture stimulate certain types of rocks and rocks with a
different fabric or geological make up have to be treated differently.  And
that’s why we spent the time and money and effort doing the
scientific work that we have done so we now know what we’re
dealing with and we know different things that we are able to try to
see if we’re successful and even more so we know of things that
we should stay away from, that would be deadly from the reservoir


Jim Letourneau: “Well
that’s you know, a very solid approach.  It is a very good
analogy for unconventional gas because you can treat a formation a
certain way and you basically kill the well and waste your money if
you use the wrong approach.”


Fred Rumak: “And
that is…”


Jim Letourneau: “Go


Fred Rumak: “And
that again Jim is not, and that again is not knowing your fabric and
the only way you’ll know your fabric is to do the scientific
analysis that we’ve spent a lot of time and money doing so that
we again know what we’re dealing with.”


Jim Letourneau:
“Exactly.  We’ve been speaking with Fred Rumak who is the
President of PanTerra Resource Corp., the symbol is PAN on the TSX
Venture Exchange.  Is there anything else you’d like to add Fred?”


Fred Rumak: “Well,
I'll  just say that we’re very excited about our
future and we do hope that the investors will take a look at PanTerra
and support us and hopefully this market downturn we’re in and
natural gas pricing will all turn around in the next 6 to 12 months
and we could be on our way to a prosperous future.  Thank you, Jim.”


Jim Letourneau: “Very
good.  Thank you very much Fred.”