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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.
The leaseholders in question are not a major such as Anadarko Petroleum [NYSE: APC], Noble Energy [NYSE: NBL] or Encana [NYSE: ECA].
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 (CSE:XMG; OTC: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 ($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 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 (CSE:XMG; OTC: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.
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 (CSE:XMG; OTC: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
Enbridge, Inc. (TSX:ENB): Enbridge is based in Canada’s oil sands capital Alberta, is an energy delivery company focusing on transportation, distribution, and generation of energy. Operating in the United States and Canada, Enbridge owns and operates the largest natural gas distribution network in Canada and the longest crude oil transportation system in the world. Founded in 1949, investors can feel confident in Enbridge’s experience and market know-how.
Cenovus Energy (TSX:CVE): This is one of the most actively traded stocks on the TSX, and it’s taking a beating right now because of announcements that it will sell between $4 billion and $5 billion of assets and cut up to an additional $1 billion in costs over the next three years. The retirement announcement of CEO Brian Ferguson hasn’t helped share prices, either. But there is opportunity in this downtrend.
Canadian Natural Resources Ltd. (TSX:CNQ): Another big market moved for TSX oil and gas, this company is down quite a bit right now and represents a good buying opportunity.
Husky Energy Inc. (TSX:HSE): Also down and having reported a $93-million loss in the second quarter, it’s now moving forward with pipeline repairs that led to a leak in Sakatchewan that hurt profits and reputation hard. But there’s room here to claw its way back.
Lithium X Energy Corp. (TSX: LIX.V): Lithium X Energy Corp. is a lithium exploration company with the goal of becoming a low-cost supplier for the fast-growing lithium battery industry. Lithium X holds properties in Salta, Argentina and Nevada, close to the Tesla gigafactory.
By. Joel Chury
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