Casey Research Profit from Shale Gas Boom

8/8/2019 Casey Research Profit from Shale Gas Boom

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The Best Way to Protfrom Europes ComingShale Gas Boom

by Marin Katusa,Editor of Caseys Energy Report

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Wcm Cay enrgy Rr

Thanks for joining us in what the entire Casey energy team believes will be one of the

hottest energy sectors of the decade European shale gas.

This report covers everything you need to know about this up-and-coming profit

opportunity, as well as the best place to invest for spectacular energy returns. A tide

of change is headed for the European continent one that until today was not possible.

And thats why we believe that now is the time to...

G pnd n eur hbd

Theres a new staking frenzy in the works for gas shale, and its moved across the Atlantic.

Shale, shale, everyones talking about shale. Its true that gas shale is causing a paradigmshift in the markets. Unconventional gas is rapidly growing and is slated to exceed theconventional production of natural gas over the next decade. New techniques in drilling andwell completion have transformed this formerly uneconomic source into some eye-poppingnumbers. (For a discussion of these figures, click here.)

In North America, the stampede to staking at basins such as Haynesville, Utica,

Marcellus, and Barnett has waned, and already were seeing signs of a more mature

phase, consolidation. On March 15, for example, U.S. antitrust regulators cleared

the way for exxnMb (XoM) to purchase one of the top shale players in the gas

industry, Xto enrgy (Xto), for a whopping US$31 billion plus assumption of US$10

billion of XTOs debt. ExxonMobil is not only the worlds largest publicly traded energycompany but often a harbinger of trends. In short, unconventional gas has gone

mainstream.

Where does this leave investors? After all, were not going to buy the ExxonMobils of

the industry, those so big that major strikes trigger, at best, a blip in share price. Are

there still opportunities in this shale gas revolution, as some have dubbed it?

The answer is yes, of course. Weve written before about North American prospects,

such as the Utica Shale, which straddles New York and Quebec, and an overview of

several others just as unconventional gas was taking off. Now we focus on what we

believe may be an even more profitable opportunity: shale gas in Europe.

A Casey Research - Energy Resources Special Report 2

CaseyResearchThe Best Way to Profit from Europes Coming Shale Gas Boom
http://my.caseyresearch.com/displayCer.php?id=64#a4http://my.caseyresearch.com/displayCer.php?id=50#a2http://my.caseyresearch.com/displayCer.php?id=35http://my.caseyresearch.com/displayCer.php?id=35http://my.caseyresearch.com/displayCer.php?id=35http://my.caseyresearch.com/displayCer.php?id=35http://my.caseyresearch.com/displayCer.php?id=50#a2http://my.caseyresearch.com/displayCer.php?id=64#a4


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euran sa Ga: t Advanag

European shale gas intrigues companies and investors alike because of several

advantages:

1. Government support due to a broad national urge to loosen the bonds of Russias

gas giant, Gazprom. Most European countries depend on state-controlled Gazprom

for the majority of their gas supply. Gazproms tap-twisting over prices with Ukraine,

through which flows some 80% of Russias gas to Europe, has lit up the message that

Russia carries a big stick and isnt afraid to use it. The chart below suggests how big

a stick. We calculated the data from Gazproms export numbers for 2008, the latest

available, and consumption figures from the Energy Information Administration (EIA),

part of the U.S. Department of Energy.

Reliance on Gazprom asa percentage of consumption

Reliance on Gazprom asa percentage of consumption

Finland 100% Bulgaria 62.32%

Macedonia 100% Austria 61.47%

Slovakia 98.72% Poland 56.98%

Czech Republic 90.80% Slovenia 54.55%

Serbia 86.60% Germany 45.98%

Bosnia and Herzegovina 77.50% Crotia 42.98%

Hungary 74.17% Italy 28.87%

Greece 67.86% Romania 24.83%

Turkey 66.11% France 23.53%

A new pro-Moscow president arriving in Kiev has only encouraged the rest of Europes

interest in non-Russian sources for gas. Should a U.S.-style shale phenomenon turn

up in Europe, the energy landscape could drastically change. Many countries that wereformer importers could begin to become self-sufficient.

2. The potential for shale gas in Europe is relatively unexplored, and the rewards could

be very large. Shale resources in the United States were ignored for most of the 20th

century before prices and technology finally met in the last decade, but hundreds of

shallow shale wells were drilled near Lake Erie from 1820 to 1900. In contrast, the first




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exploratory well for European shale gas was drilled only in 2008, in Germany. Thus the

possibilities are wide open.

The American Association of Petroleum Geologists has come up with an estimatedtotal resource of 510 trillion cubic feet (TCF) of unconventional gas for Western Europe

alone. This number compares favorably with North America, suggested at 2,000 TCF,

or about 100 years of supply, say the energy-data analysts of IHS/CERA (Cambridge

Energy Research Associates). Its important to emphasize that hard data havent been

developed yet, including how much of these estimated totals are actually recoverable.

3. Europes mix of large and small companies means consolidation and large potential

rewards for early investors of small companies with good land position in shale. In

the United States, as shale became more popular and the economics became clearer,

major gas companies started snatching up more of the land and the smaller companies

that held them. At this point, the U.S. shale story is occupied mostly by large-capcompanies with much less upside, at least where basins have proven reserves and

production.

But in Europe, where the shale market is still in its infancy, juniors and smaller

companies are on the same playing field as the majors. If a junior were able to prove

commercial amounts of gas on its properties, its not hard to imagine a 10-fold spike in

share price or even more.

euran sa Ga: t Cang

Of course, its not all unicorns and rainbows in the Old World despite the opportunitiesthere. Here are some difficulties that companies will have to hurdle to seize the brass ringin Europe:

1. Significantly less drilling equipment and experienced personnel to operate the

equipment. In North America, close to 2,000 hydraulic pumps, to fracture shale and

release natural gas, are in circulation on the backs of big diesel trucks. In Europe,

the number is about 20. Even though energy service companies are waking up to

Europe and providing more rigs and other specialized shale equipment, even the best

companies may face significant delays in exploration when companies begin to drill.

And at tens of millions of dollars, the collection of equipment that comprises fracturingsets doesnt exactly pop off the production line.

So as investors, we need to have the antennae tuned more than ever for me too

companies in this play. Its the companies with access to equipment that will be at the

front of the line in testing their projects, and that will be the top acquisition targets

when the majors come knocking.


http://www.aapg.org/explorer/2009/11nov/shale1109.cfmhttp://www.aapg.org/explorer/2009/11nov/shale1109.cfmhttp://press.ihs.com/article_display.cfm?article_id=4211http://press.ihs.com/article_display.cfm?article_id=4211http://www.aapg.org/explorer/2009/11nov/shale1109.cfmhttp://www.aapg.org/explorer/2009/11nov/shale1109.cfm


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2. Unknown productivity and economics. No two shales are exactly the same, and

techniques that work on one may not always translate to the other. This means

companies looking for shale gas in largely unexplored Europe face significant risks.

The initial production, the decline rate (how much the production drops after initialproduction), and the costs of the well are all unknowns that could make or break a

project.

3. Potential title issues. We see potential for overstaking, in which one company stakes

a land position and is granted its land, but another company does the same, and the

coordinates or boundaries overlap. This situation often leads to dispute, sometimes

lawsuits, and virtually always delay. The chances for overstaking go up when a rush

catches on, and it can be a mess for all parties, including shareholders, until its

resolved.

pung i tgr: t Cunr

With both pros and cons on the table, lets now take a look at the countries creating themost buzz in Europes shale-gas field. There are more than we describe below, but the hotmoney countries are Poland, the United Kingdom, and the Netherlands.

1. pand is currently catching much interest from shale hunters, with 10 of 20

companies in our database staking acreage there. Currently almost half of the country

has been staked with exploration claims to look for shale. As with the rest of Europe, it

is difficult to gauge just how much recoverable natural gas is under Poland. But where

theres smoke, there should be fire, and Poland is the smokiest place at the moment.

Poland is on the Royalty-Tax (R-T) system, charging companies approximately US$1

per Mcf in royalties on top of a 19% corporate income tax. Compared with the United

States, its government take is much less. Moreover, the fact that Moscow-Warsaw

relations are tepid at best means that Poland is eager to produce its own natural

gas. Its possible Warsaw will decide that easing regulations more or even offering

incentives are the best path to energy independence. Finally, major pipelines already in

Poland will decrease transportation costs for companies operating there and lead to a

premium for their natural gas.

Companies exploring Poland: ExxonMobil (XOM), Chevron (CVX), ConocoPhillips (COP),Marathon Oil and Gas (MRO), 3Legs Resources, BNK Petroleum (V.BKX), EurEnergy

Resources (private), RAG (private), San Leon Energy (LSE.SLE), Sorgenia E&P (BIT.

CIR).

2. t Und Kngdm is more known for its offshore resources in the North Sea.

Nonetheless, the Bowland Shale area, in particular, is garnering attention for gas

exploration. Using its North Sea fiscal terms as a guide, wed consider UK onshore




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royalty rates as a good structure thats very simple to understand. Wed rank the Brits

between Poland and the Netherlands in terms of government take.

Companies exploring Britain: EurEnergy Resources and Cuadrilla Resources.

3. t Nrand, unlike Poland, is already a net exporter of natural gas. This

country thus has less incentive to lure exploration companies with improvements to

its fiscal terms, and companies will be operating there at a financial disadvantage

one of roughly 10% in comparison with the Brits. Offsetting this drawback is the good

oil and gas infrastructure in the Netherlands, along with a number of energy service

companies in the region.

Another positive note about exploring for Dutch natural gas is the countrys pricing

structure. Its gas price is based on an index tied to Brent crude oil prices, which is

usually a premium compared to the usual Henry Hub price or even the London price.Overall, resources in the Netherlands show enough potential such that GASH, an

interdisciplinary gas shale research group, has chosen the Netherlands as a first-tier

research target.

Companies exploring the Netherlands: Cuadrilla Resources.

Other countries being explored for gas-bearing shale include Denmark, Sweden,

France, Germany, Switzerland, Austria, Greece, Romania, Hungary, and Spain.

As you can see in the market capitalization chart below, many companies are large

multinationals, with a few notable exceptions:

Next well look at two

of the companies lower

on the scale, since we

are interested in large

discoveries that will give

us a significant win in our

portfolio. For risky plays like

these, it truly is go big or

go home.




7/13

pung i tgr: t Cman

Wac l Wnnr #1: hg Rk

Ram enrgy inrnana Cr. V.RlM,With big-name backers and the potential for attractive land positions in European gasshale, were keeping a close eye on Realm Energy (V.RLM).

pUt oN the WAtCh list Realm Energy International is currently negotiating for

European shale gas plays, talks that the company is keeping close to the chest. So

while we like RLM for its big-name management and its potential to acquire large and

attractive land positions, were holding off on an actual buy recommendation until

we get specifics. Also, theres stock that will come free trading shortly from a private

placement a situation that often gives us a better entry price. So keep Realm on your

radar, and well keep you updated.

In general, Realm is a company focused on consulting for companies looking to develop

unconventional gas opportunities outside of North America. It started off as a shell

called SBI Skin Biology, held by Ian Telfer, now a significant shareholder. Originally,

the company was acquiring a gold/copper project in Ecuador from Dynasty Metals and

Mining. However, that deal ended up falling apart, and the shell instead made a reverse

takeover of Realm.

p

Ian Telfer(significant shareholder) is a big name in mining, as he is chairman atGdcr inc. (t.G), one of the largest gold companies in Canada. Hes also a director

at svr Wan (slW), Gd Wan (t.GlW) and Uranum on (t.UUU).

All are multinational, multibillion-dollar companies that carry significant weight in the

Canadian mining industry. His participation in Realm Energy gives the company a

tremendous amount of legitimacy, as well as financing power.

James Elston (CEO) has worked almost 20 years in the oil and gas sector, primarily in

the banking, consulting, and analysis subsectors. He is familiar with unconventional gas

technologies, costs, and economics due to his work with many other unconventional

gas players on AIM, Londons junior market. In 2008, he also helped launch what

has become a major international gathering, now the annual SMi Unconventional Gasconference, demonstrating his ability and knowledge of the shale gas story. He holds

450,000 shares and 1,645,000 options, according to insider filings.

Craig Steinke (chairman) has founded and developed several unconventional resource

companies with specific focus on shale gas in North America. He has over 20 years

of experience in the oil and gas business, specializing in acquisitions, property

development, and corporate finance. Some of his experience includes time in the




8/13

Fayetteville, Marcellus, and the Montney shale in the United States. He currently

holds 7.1 million shares, according to insider filings, which shows his dedication to the

success of this company.

prjc

Realm Energy management has stated they are aggressively pursuing shale gas

deposits throughout Europe in tandem with haburn Cnung (hAl), one of

the worlds largest energy service companies. As we mentioned above, they havent

released details as yet. Realm is keeping its acquisitions quiet, lest its competitors find

out their plans and take the licenses out from under them.

What we do know is that RLM has submitted applications that in total extend to over

2 million acres of land. Thats encouraging, as land is one of the most important

determinants of a shale gas play. All of the applications are under consideration, andno final approval has been given. The company right now is awaiting approval before

designing any exploration programs.

pc

Well update this section when we glean more concrete knowledge of RLMs land

positions and locations.

par/prc/pnancng

Realm Energy has onlyrecently begun trading on

the TSX Venture Exchange

(TSXV), and the price

has slid from the initial

C$0.50 high down to the

C$0.30 mark (still resulting

in a 160% gain since

inception). This trend isnt

surprising, given how little

information management

is letting out before thecompany establishes

itself. There may also be

some unloading of stock

going on by investors who

participated in the shell. All good news for us in our quest for a lower entry price.




9/13

prmn/pu

When Realm confirms its land position and the prospectivity, the market will

undoubtedly be more interested in the company. Another potential push is likely tocome once the market fully understands the true potential of shale gas in Europe.

Shale gas exploration is slow, and the company might have a while to go before

production, but the partnership with Halliburton means that RLM already has a great

head start against the other juniors vying for a slice of the pie.

So even though currently there is very little information on the company and we

can regard it as only a very high-risk play, Ian Telfers involvement and the rapidly

emerging gas shale market make an impressive combination of strengths. Were in

wait-and-watch mode, and will keep you posted on developments.

Wac l Wnnr #2: hg Rk

BNK prum inc. V.BKX

TBNK Petroleum Inc (V.BKX) is carrying its U.S. experience in gas shales over to one of

Europes most promising basins.

pUt oN WAtChlist First off, our analysis of BKXs financials suggests the

company will likely need to raise money in the future, so we believe an opportunity is

coming to buy this international energy company at a significant discount to its current

price. So dont call your broker yet!

Now to particulars. BNK Petroleum Inc. was formed in 2008 when Bankers Petroleum

Ltd (T.BNK) spun out all its U.S. assets. BKX now specializes in the exploration and

development in shale and tight sand gas. Headquartered in Camarillo, Calif., BKX

has offices in Calgary, The Hague, Warsaw, and projects in the United States and

Poland. Government support is strong for European countries to be independent from

the Russian gas monopoly, Gazprom. Poland leads the field at Casey Research for

investment potential in gas shale. Well keep you posted on BKX developments and

when to buy. Meanwhile, lets dig into the Casey 8Ps.

p

Wolf E. Regener(president and CEO) has over 20 years of oil and gas experience and

has held senior management positions with four independent companies. Over his

career, he has handled an array of responsibilities from front-line sales to corporate

financings. Mr. Regener knows the industry firsthand, as he has dabbled in pretty much

all departments of oil and gas.




10/13

C.S. (Juneyt) Tirmandi(CFO) brings some 27 years of experience in oil and gas and

corporate finance. Prior to his tenure at BKX, Mr. Tirmandi was a corporate finance

partner at Meyers Norris Penny, LLP.

As a Bankers spin-off, BKX shares three directors. Robert Cross (Bankers co-founder

and chairman) has worked for 15 years in the natural resource equity markets. Retired

U.S. Army Gen. Wesley K. Clark, formerly NATOs Supreme Allied Commander, now

manages his own consulting firm, participating in the energy, banking, and business-

services fields. Eric Brown has many years of experience in publicly traded company

governance and is currently the regional managing partner for the Meyers Norris

Penny, LLP, Alberta Advisory Services practice.

Insiders hold a fairly good portion of outstanding shares, about 17%. We like

management with good skin in the game, as it means they have a vested interest in

the long-term performance of the company.

prr

BNK Petroleum Inc has five current projects, four in the United States and one in

Poland.

Ardmore Basins, Oklahoma. BNK Petroleums only producing asset in this basin is the

Tishomingo gas field. On February 2, 2010, BKX increased 2009 Tishomingo reserves

by 182%, resulting in proved and probable reserves of 37.9M barrels of oil. This project

has additional potential for future recovery, and 29 wells that BKX has interest in are

currently being drilled for shale gas.

Black Warrior Basin, MS/AL. This project has significant potential for tight gas reserves.

Similar to conventional gas, the natural gas of tight gas sands is stored in porosity

in the compressed state. The area has proven wells operated by other companies,

and BKX currently has the right to earn in approximately 40,000 acres by drilling test

wells. On October 24, 2009, BKX announced it successfully drilled and ran casing in the

Hickman Farms 30-15 wells.

Appalachian Basin, New York. The target for this basin is Trenton Black River and the

famous Utica Shale. BKX has a 2D seismic program in place.

Palo Duro Basin, Texas. Targeting the Bend & Wolfcamp Shale, BKX has commenced

fracture stimulate shale for testing in well Black 4#1.

Poland Basin, Europe. Heres where we really get interested. BKX currently has

three concessions in Poland and announced it was awarded five more in an unnamed

European Union country, bringing its total of gross land in Europe to 2.1 million acres.

BKXs three concessions in Poland are Slawno, Slupsk, and Starogard, and cover




11/13

approximately 720,000 acres. The cost to BKX was around C$500,000, and gave it an

80% working interest.

pc

For us investors, Poland strikes a happy three-way intersection. First, its now reliant

on Russias Gazprom to supply 57% of its natural gas consumption. Given the tepid

relations between Warsaw and Moscow, thats a strong incentive to loosen the grip of

the Russian bear.

Second, Poland ranks high for a business-friendly royalty structure. Using current gas

prices, Poland is at about 25% royalty and 19% corporate income tax. That translates

to a lower government take than certain parts in the United States.

Third, Poland is leading the European pack currently in terms of gas-shale potential.The data havent yet risen above pretty speculative estimates, but so far theyre

ranging from 1.5 to 3 trillion cubic meters. Thats the equivalent of 100 to 200 years of

meeting its own demand, or three to six of all Europes demand. While the geology of

Polands basins appears particularly promising, the major caveat to remember is how

much of this gas is recoverable, of course.

Finally, according to Fraser Institutes Geopolitical Risk Index, Poland actually ranks

better than many states in America and provinces in Canada. That means Poland is a

very safe country in which to invest.

par/pnancng

BKX has a reasonable share structure, with no warrants and approximately 6.9 million

options outstanding, relative to their 101.3M shares outstanding. BKXs most recent

financing, a C$20 million equity financing completed on November 13, 2009, added

16 million common shares of the company at C$1.25 per common share. BKX has

indicated that C$9.2 million of the net proceeds will go toward paying down debt, with

the remainder channeled to exploration in Europe.

Using simple estimations and BKXs September 2009 financials, including the recent

equity financing, we calculate that BKX currently has approximately C$28.7M in cash

and receivables. Compared with its current liabilities of C$25.4 million, it looks asthough BKX may need another financing in the future if its to continue with drilling and

exploration.




12/13

prc

Looking at the past year,

BKX has had reasonablegrowth and a strong

upward trend.

prmn/pu

Gas shale in Europe

seems to be the new buzz

words circulating in the

investment community.

Theres been no shortage

of media attention, andwe foresee this level of

interest continuing for some time. There are too many positives to disregard what gas

shale can bring to the table.

On March 5, Toronto-based The Globe and Mail highlighted BKX in an article that

described European natural gas-shale deposits as having the potential to change

the balance of energy power on the continent. It noted BKX had risen 70% so far

this year, yet insiders are still buying, not selling. Most recently, board chairman Ford

Nicholson purchased 600,200 shares in the market at C$2.03, and CEO Wolf Regener

purchased 20,000 shares at C$2.25. When insiders are buying their own shares, they

know the company is either undervalued or a great investment.

BKX has quite diversified operations. Its U.S. operations are running rather smoothly,

with projects in producing territories. Nevertheless, its as a play in European gas shale

that makes us like BKX one of the first companies to set claim on the continent.

As we said above, we think we can get in at a better price point. The company looks

very promising, but we want to wait for the expected financing and drills turning in

Europe first. So keep an eye on this one until we update our analysis.


http://www.theglobeandmail.com/globe-investor/investment-ideas/features/who-is-buying-and-selling/will-canadian-player-change-gas-game-in-europe/article1489766/http://www.theglobeandmail.com/globe-investor/investment-ideas/features/who-is-buying-and-selling/will-canadian-player-change-gas-game-in-europe/article1489766/


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Wa D Nw

The entire Casey energy team believes that both Realm Energy and BNK Petroleum Inc. willbe great investments all the way to the top of Europes shale gas boom.

Now that weve found the right companies, for maximum profits we need to make sure thetiming is perfect. The success of buy low, sell high depends very much on the entry pointwe choose.

So keep your powder dry and be ready to move quickly... the time is just about right.



CaseyResearch

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Casey Research Profit from Shale Gas Boom