$450 Billion Oil Discovery Could be a Game Changer for US Oil Industry
LONDON, August 14, 2017 /PRNewswire/ --
A surprise discovery coming out of Utah and Colorado's Paradox Basin oil field has captured the attention of the petroleum sector today. Over 9 billion barrels equivalent (BOE), to be exact, which if fully realized in today's oil price structure comes at a value of $450 billion.
Well-respected consulting firm Ryder Scott, released an intriguing 51-101 Estimated Prospective Oil and Gas Resource in the Paradox Basin that spans the Utah and Colorado border. The report cited estimates that tallied up to nearly 8 billion barrels of oil in place, and an additional 7 trillion cubic feet of gas, at its highest potential. Mining Resource companies in focus include: Parsley Energy, Inc. (NYSE: PE), Kosmos Energy Ltd. (NYSE: KOS), SeaDrill Limited (NYSE: SDRL), Diamond Offshore Drilling, Inc. (NYSE: DO), Pioneer Natural Resources Company (NYSE: PXD).
The leaseholders in question are not a major such as Anadarko Petroleum, Noble Energy or Encana.
Instead, it's a junior resource company seen as pioneers leading the charge in the development of domestic lithium production, through an innovative method of extraction involving petroleum brine water they call 'petrolithium'.
MGX Minerals (XMG [https://finance.yahoo.com/quote/XMG.CN/?p=XMG.CN ]: MGXMF [https://finance.yahoo.com/quote/MGXMF/?p=MGXMF ]) is currently a $68-million company, with one of the largest lithium portfolios in North America. Now with a verified Ryder Scott resource estimate in hand, MGX can add potentially major petroleum player to their company description.
Realistic Numbers
While the 9 billion barrels number is at the very upper limit of Ryder Scott's Paradox Basin assessment, even walking back the numbers to their realistic potential is still impressive for MGX's future.
The best estimate total (assessed with 50% probability) comes to nearly 6 billion barrels of oil, and 6.8 billion barrels of oil equivalent.
Of the three tables shown in the company's latest press release regarding the assessment, the best estimate prospective resource net to MGX is nearly 26.5 million barrels of oil equivalent (BOE). At the current price of $50/bbl, the gross value for that kind of resource is upwards of $1.32 billion.
Part of the reason the resource is so large, is that it's comprised of 23 clastics (or payzones).
And even after factoring in an averaging of the report's chance of commerciality at 5.6% on each zone, and using a rough estimate towards its value, the resource is worth a minimum of $74 million net to MGX.
Not bad for an interest that the company only had to pay $2 million to acquire [https://www.mgxminerals.com/investors/news/2017/253-mgx-minerals-acquires-110-000-acres-of-paradox-basin-utah-oil-and-gas-leases.html ] ($1.7 million if they complete payments before September 1 of this year).
The 51-101 assessment enhances the play, which MGX has dubbed as its 'petrolithium' project. Now that the 'petro' side of the equation has been established, MGX can complete the circuit by next targeting the lithium bonanza on their lands that they believe must be out there.
New Technology, New Economics
Ryder Scott's assessment comes on the heels of a major gas field discovery made by BP (NYSE: BP) south of Colorado in New Mexico called the NEBU 602 Com 1H, which achieved early production rates that were the highest achieved in the past 14 years [https://www.bizjournals.com/denver/news/2017/08/07/bp-announces-major-find-across-the-colorado-border.html?ana=yahoo&yptr=yahoo ] in the region's San Juan Basin.
The discovery was made through a well drilled into the Mancos Shale, which oil and gas companies have been probing away at for the last few years on Colorado's Western Slope.
While MGX's (XMG [https://finance.yahoo.com/quote/XMG.CN/?p=XMG.CN ]: MGXMF [https://finance.yahoo.com/quote/MGXMF/?p=MGXMF ]) assets involve Paradox Shale, the Mancos Shale discovery heralds in a new era of unconventional oil and gas in the region. So, it was not a surprise that Ryder Scott's numbers came back so high.
MGX's lands are contiguous to the Lisbon field production that has so far produced approximately 51 million barrels to date [https://www.wateronline.com/doc/mgx-minerals-receives-complete-project-evaluation-for-utah-petrolithium-project-0001 ] .
Overall the area is highly prospective, albeit underexplored and underdeveloped.
However, Ryder Scott factored in the nearby successes, and did not assess this package as that of a green fields play.
It's clear that there are big numbers peppered throughout, adding confidence to the overall play as a whole.
Given the shale nature of the contained hydrocarbons, which comes with its own unique challenges such as salt pillars, and over pressurization, MGX (and subsequently Ryder Scott) are undeterred and confident that there's a commercial success here.
With petrolithium, MGX Minerals (XMG [https://finance.yahoo.com/quote/XMG.CN/?p=XMG.CN ]: MGXMF [https://finance.yahoo.com/quote/MGXMF/?p=MGXMF ]) is adopting a similar strategy, to derive value from each element of production from their wells. By not only targeting petroleum, they can also rapidly extract lithium, magnesium, and other minerals from the excess water produced during operations-In essence, leaving behind nothing of value.
Unlike major producers who see water production as an economic and environmental headache, MGX plans to derive value from both the oil and the water they produce. It's the economic equivalent of Native Americans using the entire bison from beard to tail.
And much like the bison, this oil resource covers vast lands across the plains, and will bring a major bounty back to the ones who hunted it.
The full MGX release can be read here: MGX Minerals Announcement [https://finance.yahoo.com/news/mgx-minerals-announces-n-51-150305487.html ]
Parsley Energy Inc (NYSE: PE): Parsley Energy is a major player in the Permian shale play. The company's assets are primarily located in the Midland and Delaware basins. Specializing in acquisition, development and exploration of unconventional oil and natural gas reserves, Parsley Energy trades around a modest $30/share and has an impressive $9.35B market cap. The company's management is second to none which will give investors confidence in moving forward.
Kosmos Energy Ltd (NYSE: KOS): Kosmos is a company which focuses on oil and gas exploration, development, and production in emerging areas offshore West Africa. With assets in Ghana, Mauritania, and Senegal, the company already has a strong portfolio. But the real draw for investors is the licenses it carries for potential exploration in Sao Tome and Principe, Suriname, Morocco, and Western Sahara. Moving forward, this is definitely a company to keep an eye on.
Seadrill Ltd (NYSE: SDRL) Seadrill is a company that offers services relating to everything offshore. As an offshore drilling contractor, Seadrill is a go-to for companies rushing to complete their deepwater projects. As offshore regains its popularity and new finds are ready to be developed, Seadrill has a wealth of resources to complete, maintain, and nurture these projects. With operations in the Middle East, Southeast Asia, Northern Europe, the United States, and South America, this oilfield services company is one to watch.
Diamond Offshore Drilling Inc (NYSE: DO) Diamond Offshore Drilling is a Houston-based oilfields services company with contracts in Gulf of Mexico, South America, Australia, Southeast Asia, Africa, the Middle East, and Europe, the company is well represented across the world. Its fleet includes 24 offshore drilling rigs, 19 semisubmersible rigs, and one jack-up rig. With a large footprint in the industry and a number of assets, Diamond Offshore is a reputable and secure pick for investors, especially as offshore projects regain popularity.
Pioneer Natural Resources (NYSE: PXD): Pioneer Natural Resources is another oil and gas exploration and production company whose main operations are primarily located in the Permian Basin, Eagle Ford, West Panhandle, and the Raton field. The company also owns interest in eight gas processing plants and nine treatment facilities. With a huge amount of prime real estate in South and West Texas, Pioneer has consistently shown that it is investing wisely which will surely pay off for shareholders.
By. Joel Chury
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