Jim Letourneau's Blog

Retired Life

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Peak Cardium?

I'm not tapped into the Calgary oil patch dealflow but yesterday I received 2 emails about financings for companies with large Cardium landholdings. The Cardium formation is a fine-grained marine sandstone with, with massive sandstone beds separated by shale.

The Pembina oil field was discovered in 1954. So there has been a long time to pump the oil out of the ground but so far recoveries are only around 15-20% of the original oil in place. That means that at least 80% of the Cardium oil is still stuck in the ground. The oil patch doesn't like to jump into new concepts too quickly but when they find an idea that makes money they're all over it. In the case of the Cardium, drilling horizontal wells with multi-stage fracturing treatments yields high production rates. The oil has already been discovered so the main challenges are technical ones.

Spry Energy (private) is looking to raise $6-10 million

Base Oil and Gas (BOG.V) is looking to raise $1 million

This is one of the best oil plays in Canada right now and Cardium wells can't be drilled fast enough. However, oil prices are dropping and access to capital is getting tight. Production from the Cardium will continue for many decades into the future. However not all the companies looking to drill this year will be around in a few years. Most will sell out to larger companies. Whether that happens at a higher or lower price than today's depends on many factors.Keep your eye on the oil price.