Cooking The Sands

Aug 5th, 2009 – Comment

Hi Lou. May I please obtain your opinion on ELE on the Venture. They have a new method of extracting the oil out of the sands. Could this be a future Petrobank. Thanks, Steve Hi Steve, Excelsior Energy Ltd. ( ELE TSXV) is one of many companies that are working on new ways to improve the […]


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excelHi Lou.

May I please obtain your opinion on ELE on the Venture. They have a new method of extracting the oil out of the sands. Could this be a future Petrobank.

Thanks,

Steve

Hi Steve,

Excelsior Energy Ltd. ( ELE TSXV) is one of many companies that are working on new ways to improve the extraction of bitumen from the Athabasca oil sands. It is a worthy mission given the rewards that will accrue if they are successful. ELE is working on a variation of insitu extraction called Combustion Overhead Gravity Drainage (COGD).

What you have to understand about the tar sands is that the vast majority of the reserves are located substantially below the surface and require methods of extracting the bitumen in place or insitu.

The more common insitu extraction process is Steam Assisted Gravity Drainage ( SAGD). SAGD involves drilling two parallel horizontal wells, injecting steam into the top well and when the oil sands start to flow from the heat collecting the flow in the lower well.

ELE is proposing a system, COGD, where instead of injecting stream into the reservoir they would create a combustion chamber at the top of reservoir which would run the length of the horizontal collection well at the bottom of reservoir.  They would then start a  controlled fire at the top of the reservoir to generate the heat needed to get the bitumen to flow to the lower collection well.

The advantages of COGD, according to ELE , are that it conserves 80% of the water and combustion fuel used in SAGD.

ele

The three year chart shows a pattern we have seen time and again of a steep sell off, a recovery, and now a pull back.

The question is at this point is $0.10 a good entry point?

There is support at this level and lets face it at a dime there could be some value in the balance sheet. ELE has a good land position in the oil sands and if things work out as management proposes you have a winner.

But understand that if you buy the story at this point you are investing in a $35M pilot project that is expected to be completed by 2011.

If all goes well with the pilot plant then ELE can begin the process of commercial development of their COGD system.

You asked if this could become another Petrobank. Its an order of magnitude evaluation as far as I can see. Will the acorn become a might oak? There are too many questions to give you a definitive answer on the comparable valuation at this point in time.

ELE has to hold onto $0.10 so watch that like a hawk.

Happy Capitalism!

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