Oil Patch Insider

Wanna bet on US$90 oil? Escopeta looking at Osprey platform option

A junior partner in Alberta’s Athabasca oil sands project has dangled a deal before speculators — the chance to buy a portion of its output for US$90.50-$94.25 per barrel!

Western Oil Sands, which has a 20 percent stake in the Shell Canada-operated project, took the first step by purchasing hedges that assure it of US$52.42 a barrel for 20,000 barrels per day from Jan. 1, 2007, through Dec. 31, 2009.

To offset the cost of those hedges it has sold call options that give holders the right to buy oil for prices upwards of US$90, allowing the buyers to essentially bet that prices will climb into that stratosphere.

For Western, the objective is to ensure it has the cash to cover its share of a possible C$17 billion, long-range expansion of Athabasca.

Chief Financial Officer David Dyck said it was only recently that he started believing oil would ever approach US$90.

But he did not view the call options as speculative, so much as an insurance policy to keep Western as a full partner in the Athabasca expansion being contemplated by Shell (which controls 60 percent) and Chevron Canada (which has the remaining 20 percent).

The hedging program assures it of about US$49 a barrel, after allowing for the cost of hedges.

The tentative 10- to 12-year program projects capital spending of C$4 billion to C$4.5 billion in each of four phases, which would add 90,000-100,000 bpd, raising output to 600,000 bpd by 2017.

Although not in the ballpark of Western’s wildest dreams, First Energy Capital offered a bullish prediction for oil over the next two years, raising its forecast to US$71 for 2006 and US$63 for 2007.

Escopeta begins permitting

Davis is also looking for a jack-up rig to bring to the inlet in the spring.

“We’ve ruled out Rowan. They’re way too expensive,” Davis said, “but we are looking at all options, including using the same approach as Forest with the Osprey platform (at Redoubt Shoal field),” meaning bringing in “a production platform to drill from instead of a jack-up.”

Davis said he is “willing to listen to any ideas and work with anyone who has a good one.

“Right now with jack-up rates as high as they are, it would cost almost $30 million dollars to bring in a Rowan jack-up for 120 days. … $15 million for the rig move … and the day rate is $135,000, so I’m open to other operators, other options.”

Houston-based Escopeta said Oct. 21 that it has snagged a partner willing to take majority ownership in its 130,000 acres under lease in Cook Inlet in order to provide Escopeta with the funds to drill five exploration wells in the next two years — drilling that might require bringing a jack-up into the Southcentral Alaska basin.

Escopeta’s new partner is Johannesburg-based Centurion Gold Holdings Inc., which said in its Oct. 21 press release that it was “the only South African junior gold mining company publicly listed in the United States” — OTCBB: CGHI.

Centurion CEO and Chairman Dale Paul told Petroleum News (see full story in Petroleum News’ Oct. 23 edition at www.PetroleumNews.com) that Escopeta will remain operator of the leases, which include the offshore Kitchen prospects and the onshore North Alexander prospect. The companies believe its Kitchen prospects could contain the inlet’s missing giants, i.e. large oil and gas fields that remain to be found in Cook Inlet, as postulated by the U.S. Department of Energy in its 2004 report on Cook Inlet natural gas.

“We think we have a possible total resource of 1.2 billion barrels of oil and 7 trillion cubic feet of gas,” Davis said.