Resource World Magazine

Resource World - September 2013

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BRO K ER 'S P I C K S Alf S te w a rt Shoal Point Energy: a new start Shoal Point Energy Ltd. [SHP-CNSX] has a 100% interest in the shallow rights in Exploration License EL#1070 in the Province of Newfoundland and Labrador comprising approximately 150,000 acres of oil-in-shale in Port au Port Bay (on the Island of Newfoundland) which can be developed almost entirely from land by using directional drilling. In addition, Shoal Point has an agreement to earn a net 80% interest in the 67,298 acres of Green Point Shale (shallow rights) of EL #1120 which is owned by Ptarmigan Energy Inc. and also holds a 100% working interest in all rights to EL#1097R located in the immediate offshore area of western Newfoundland. This land is contiguous to EL#1070 and EL#1120. The total potential gross acreage in the Green Point Shale is approximately 720,000 acres. The oil is hosted in the Ordovician aged Green Point Shale Formation which outcrops along the shoreline of western Newfoundland, west of Stephenville. The oil contained in the shale is a light sweet crude. Numerous oil seeps have been noted historically and it is reported that the shale has such a high organic content that the rock can be set alight with a blowtorch. The technical challenge for Shoal Point is to competently and cost effectively test and commercially develop this promising resource. The acreage has shale oil production potential, with an estimated resource of approximately 23 billion barrels of oil in place, and estimated recoverable oil in place of approximately one billion barrels. No 26 www.resourceworld.com commercial production has yet taken place, though a well was drilled in 2011 at a cost of approximately $32 million. Typically, modern oil wells that require horizontal drilling cost around $5 million in western Canada. Allowing that the significant expense of mobilizing equipment to the west coast of Newfoundland might double the costs associated with the drilling of a well on the Shoal Point concession, the actual cost of the Shoal Point well was extraordinarily high. By spending $32 million on a research test well, without undertaking any production testing or fracture stimulation, past management demonstrated they were not able to manage the costs associated with operating the concession themselves; they have now been replaced by a much stronger management team. The concessions owned by Shoal Point have been joint ventured to a private company, Black Spruce Exploration, which can earn a 50% interest in the concessions by drilling and completing four wells, and a 60% interest by drilling and completing an additional eight wells. Black Spruce Exploration is a subsidiary of Foothills Capital, a company which provides investment capital and management expertise to the energy sector. Black Spruce's management team has operating experience in other liquids-rich shale basins in the US, and they have become the operator on the Green Point shale acreage. Shoal Point's new management is an experienced team headed by CEO, Mark Jarvis. He assumed the role on June 28 and his experience in public companies is directly relevant to the challenge faced by Shoal Point. Mark joined the board of Ultra Petroleum in 1996 and managed Corporate Finance during the early stages of acquisition, exploration and development of Ultra's Pinedale Anticline (Wyoming) acreage. This unconventional gas resource was a greenfield prospect with no proven reserves when Jarvis joined the company. Ultra's proven reserves are currently in excess of 5 trillion cubic feet of gas equivalent. Jarvis also serves on the board of Hard Creek Nickel. The combination of new management for Shoal Point and the joint venture with Black Spruce as operator is the reason for my enthusiasm for Shoal Point, despite the large number of shares outstanding (413 million) and the current lack of drilling activity. The company is currently waiting for the government to release its new policy on fracking regulation. It will then file for an environmental permit to drill and fracture stimulate a well on its concession. If and when this approval is obtained, the company can move forward with the next step in developing this large resource. n This article expresses the opinions of writer, Alf Stewart, Financial Advisor, and not necessarily those of Raymond James Ltd. Statistics and factual data and other information in this article are from sources RJL believes to be reliable but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James Ltd. – Member, Canadian Investor Protection Fund. SEPTEMBER 2013

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