Canadian oil and gas company Bengal Energy Ltd. (TSX.BNG, OTCMKTS: BNGLF) well positioned as the world opens up after the covid-19 pandemic.
Oil and gas have become top picks for savvy investors as gas supplies in Europe plummet, and oil and petroleum prices soar on the back of increased demand. With oil prices at over $90 per barrel, the fundamentals appear solid. There are some great investment opportunities out there and now is probably a good time to start looking at small stocks like Bengal Energy (TSX.BNG).
As airlines start sending more and more planes into the sky, office space fills up again and transport kicks into gear, expect the oil price to remain unwavering at worst, or leading a blustery bull-run at best. At the same time the significant gas shortage in Europe has opened-up long festering geopolitical wounds, which has given already soaring gas prices another substantial boost. Suddenly, what was a dog only a year ago, has turned into a diamond.
In a period of strong recovery after a disastrous world crisis, what you should be looking for is a company in the early exploration stages. Exploration firms, in a higher oil environment provide investors with the benefit of a relatively cheap entry into the sector and considerable upside. Although the move to a greener energy future has clouded the long-term outlook for fossil fuel focussed miners, a short and mid-term frenzy is on the cards, which bodes well for new entrants, especially in Australia, one of the most underrated oil and gas producers in the world.
Oil and gas- a game of Russian roulette
Ideally, the company should have a well-balanced and diversified oil and gas portfolio with a lot of upside and low geopolitical risk. Investing in the oil and gas space, despite the enormous wave of optimism that has beset the sector, will always be a game of Russian roulette. The cyclical nature of this space is well-known, and if spinning a cylinder and holding the muzzle against your own head makes you sweat, it’s a sign to get out. However, to de-risk, placing your bets in a top-notch international jurisdiction like Australia (which is way up there with the leaders of the pack when it comes to oil and gas production), is a conservative but nevertheless, extremely safe move.
Innovative and technology focussed oil and gas companies like Bengal Energy thus sits pretty in a challenging and risky, yet optimistic, recovery period. Bengal Energy’s Cuisinier, Barrolka and Tookoonooka assets in the prolific Coopers Basin in Queensland hosts a good spread of quality oil and gas deposits with enormous upside potential to drill out a few world-class wells.
Moreover, Bengal’s innovative technology, the Road Runner pump, makes it easy to roam its lease areas. The trailer-based beam pump, part of Bengal’s Early Oil Production System (EOPS), works in tandem with several frac tanks to accelerate production and establish design parameters for further capital investment. Bengal expects this approach to lower the risks of this cost-effective development of reserves by rightsizing facilities. In essence this technology allows for the immediate production of new drilling, increasing the speed of cash flow generation.
The company recently made incursions into the Jurassic Birkhead Formation and Hutton Sandstone, while also looking at secondary targets within the Triassic Nappamerri Group. These targets are located outside the producing Cuisinier field petroleum lease 303.
Structural oil flows extremely exciting
Although the first well was deemed not commercially viable, Bengal Energy might be onto something bigger.
According to a statement by the company, the Birkhead Formation contained strong signs of oil whilst drilling with about 80% fluorescence and associated gas.
“Testing of this zone revealed 15% oil saturation (85% water) indicating that oil flowed into this structure but appears to have been subsequently swept.”
What this means is that structural targets within the region are likely to have received a substantial hydrocarbon boost in the past, which is extremely encouraging. As a result, future exploration wells will be informed by these results and seek to identify independent structures isolated from historic production with the objective of high-grading potential oil-bearing targets.
These drilling results confirm Bengal’s suspicions that this play extends beyond the northern side of the Cook oil field through the Cuisinier oil field within PCA 206 and PCA 207, where Bengal also holds a 30.357% interest.
Moreover, the company states that this exciting drilling results may have identified a new oil play which has not been previously produced in Cuisinier, ATP 752, or the surrounding producing fields.
According to Chayan Chakrabarty, Bengal’s President and CEO, the sandstones within the Triassic sequence appear to be oil charged. “However, tests of these sands revealed them to be tight and they were unable to flow fluids for analysis. The lowest sand of this interval, whilst below the oil-water contact in this case, was considered by the joint venture parties to be the best reservoir within the Doonmulla Sandstone,” says Chakrabarty.
This new data will be interpreted along with existing geological and geophysical data in the area and may establish a new exploration target for the ATP 752 joint venture.
“In spite of the absence of commercial production results, we are encouraged by the hydrocarbon shows in the primary exploration targets and potential for new Triassic exploration,” says Chakrabarty.
“We believe that these results will support the ATP 752 joint venture’s ongoing exploration program in the Birkhead Formation and Hutton Sandstone, and more importantly, we are intrigued by the possible novel play in the Triassic zone which has the potential to become a future high-impact exploration target.”
The latest results and statement by Bengal support the company’s claim that its large and under-explored acreage positions are all situated in proven, producing basins which offer the potential for high impact activity without facing many of the security and geopolitical risks normally inherent with international oil and gas development. Bengal’s oil is priced at a premium to the Brent benchmark, which has contributed to strong operating netbacks since commencing production.
Gas the market’s new darling
While the oil price has gradually clawed its way back up the charts after the covid-19 slump, gas is the new darling of the markets as shortages become more pronounced and the European energy crisis deepens. Furthermore, the gas price has run in tailwinds spurred on by talk that the European Union (EU) will recognise gas and nuclear investments as “green”, provoking a potential clash between Paris and Berlin. However, this is the least of Europe’s concerns as Russian president Vladimir Putin continues building his troops on the border with Ukraine, while slowly turning off the gas taps just to inflict further pain on the short-sighted Western European nations, amidst a long and freezing winter.
Over the last few years countries like Germany and the UK have decommissioned several of its coal and nuclear power stations in a haste to turn their backs on fossil fuels. Their strategy involved using gas as a “transitional” source between oil and coal, and renewables. In the process, they banked on a steady supply of gas from Russia and Ukraine. Their decision has now backfired, and one of the unintended consequences is increased demand for gas, and a massive rise in the gas price, which bodes well for those junior explorers down under.
Countries in Africa recently joined the chorus for gas to be recognised as the ideal pathway for a transition away from coal and gas. Speaking at the World Economic Forum’s Davos Summit in Switzerland recently, Yemi Osinbajo, Vice-President of Nigeria, said that gas as a transition fuel is absolutely crucial, not just for an effective transition but also for our economies,” Osinbajo said.
While Africa, and especially Nigeria’s contribution to the world’s gas market is significant, it is nowhere close to what Australian wells pump out in a year. Australia is one of the top Liquefied Natural Gas (LNG) producers in the world, although experts are of the opinion that output has probably reached its peak. However, Chinese and Asian demand will stimulate further exploration and continued production.
Europe might be the current focus of gas geopolitics, but Asia and China’s manufacturing sectors still drive the demand.
Australia pioneered the Chinese LNG market with a deal for it to buy supplies from Woodside brokered by Prime Minister John Howard in 2002. Australia is by far the largest supplier to China, accounting for 43% of its market in 2020.
For as long as the oil and gas markets remain the epicentres of global geopolitical battles, the short-and-medium term investment potential will continue skyrocketing. The upside of a company like Bengal Energy lies in its ability to bring wells into production in double quick time. The company operates in oil fields that have proven to be prolific not only in Australian terms, but globally. The Coopers Basin’s oilers will continue churning out the good stuff for as long as there is a demand, which is unlikely to wane in the wake of a global pandemic. As the world rides the recovery wave, energy will be critical to fuel the newfound optimism. A healthy mix of energy sources will not only reduce carbon emissions but will mitigate the risk of putting all your eggs in one basket, as Germany and the UK have done. Oil and gas will remain critical in such a scenario.
