from SMH,
Another Sundance beckoning?
Richard Hemming
June 10, 2011 - 11:00AM
For those not afraid of a bit of risk, oil and gas producer and explorer Entek could be right up their alley.
At 15 cents the company has a market cap of almost $80 million and is described by one invested fundie as “a smaller version of Sundance Energy”.
Sundance (ASX: SEA) is a shale oil and gas producer and also has operations in the “Niobrara” shale region in the US. Niobrara refers to a large and very old inland sea that extends from Texas up through Colorado and Wyoming towards Canada.
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Even after recent weakness, Sundance's shares have increased five-fold in the past year, but this relates to its activities in the Bakken region located to the east, primarily in North Dakota. This is shale gas technology has been most successful. Niobrara has much potential, but has had little success thus far.
The experts say that the engineering technology is improving all the time. For the optimists, the real clue to value in Entek is the heavyweights involved in production in locations close to Entek, which is in the Green River Basin in Wyoming, Utah and Colorado. These include Shell, Andarko, Questar, Double Eagle Petroleum and Gulfport Energy.
Broker Euroz's 27 cents a share valuation for Entek is based on a re-rating of its exploration “acreage” from $1500 per acre to $3000. This in turn relies on one of these heavyweight companies extracting oil in large quantities nearby to Entek's operations.
Of course, if Entek (ASX: ETE) can extract oil AND it can find a big partner, its valuation will skyrocket. You just have to look at Aurora Oil and Gas (AUT), which has a market cap of $1.3 billion to see what is possible.
As with any high risk exploration project, it is at a very early stage. Entek is due to start drilling five wells later this month.
Entek had a poor 2010, having been in an unsuccessful joint venture with US based New Frontier, which was as cash strapped as Entek. Fast forward to today and it has the cash. This month it announced an oil discovery in its well in the Gulf of Mexico and in April it raised $25 million in equity.
The elephant in the room for shale gas production is the environmental damage that was highlighted in the documentary “Gas Land” which was mainly set in New York State. According to analysts, this is not an issue for companies in the Niobrara or Bakken regions, because the populations are much lower and the exploration is mainly for oil and not gas, which can find its way into water systems much more readily.
One thing is for sure, though. When Entek does start “fracking” this month, most shareholders probably won't be thinking about the environmental impact