Unconventional oil is everywhere

AOS: Some of the junior oilsands development companies that have made the transition to SAGD have stumbled without a doubt. Connacher and Southern Pacific being two recent examples. I believe, however, that the economics are actually superlative once all problems are solved, and of course you can go on producing for a very, very long time. The margins of an operation in full-swing and after start-up/growing pains, are much better than the mainstream media is reporting.

James Stafford: For how long will the US continue to need crude from Canada's oil sands given current levels of production from US shale plays? What is the production price comparison here? Will it cost more to sustain production from wells in the Bakken and Permian Basins?

AOS: This is an interesting question. My personal view is that whether it be the US or someone else, there will be no shortage of demand for what the Canadian oil sands can produce. Further, there is a lot more certainty in terms of consistency and longevity of the oil sands assets and their production profile, once they get going.

James Stafford: What are your predictions for North American heavy oil economics over the next 2-3 years? Plenty of investors think this is the place to be with a lot of refineries coming out of turnaround and getting heavier and heavier despite all the light shale oil. Will demand for heavy oil rise?

AOS: I read analyst prognostications on this stuff every day. They can certainly have different complexions depending on who you are listening to. To me it's pretty simple: I don't believe that prices are going to go outside of a range (below, or above) where extremely healthy margins can be made by good operators, for their shareholders. We will be range-bound here at healthy levels is my overriding feeling on this.

James Stafford: What can we expect from AOS in terms of Canadian oil sands development in the next 6-9 months; in the next 2-3 years? What drilling will occur across AOS' oilsands acreage?

AOS: Alberta Oilsands has four main projects domestically, and two of them are sleepers.

For our flagship Clearwater asset with 373 million barrels of resources we hope to receive ERCB permits for production in Q4 of this year at an initial rate of up to 5,000 bopd, with a phase II of up to 40,000 bopd. This will be a game changer for us, and is the one thing that probably will move our market much higher immediately.

Our Grand Rapids project has resources of 119 million barrels and we have just completed an EUR study that demonstrates its ability to produce as much as 30,000 barrels a day, for 40 years. This is highly encouraging and is totally overlooked by the market.

Our third asset is a sleeper asset, in my opinion. AOS has taken on a partner to drill its Algar Lake project. We chose this partner because of its history of great exploration success. The team has, from scratch, made two separate billion+ barrel discoveries in Alberta and Saskatchewan and sold each to the majors. They want to turn their focus to Algar Lake now because it has the potential for cold flow production. Cold flow CAPEX is ~25% of SAGD CAPEX. On the OPEX side and on the operational complications side, it is basically the same story as well. Those are fundamental and major benefits.

If I can find a couple hundred million barrels of cold flow today, I think that the world is at my door. The 5 well program this winter will be enough to tell us if we have the next Pelican Lake - CNRL's most profitable operating division per barrel, full stop.

James Stafford: It is no doubt a very difficult time right now for most junior oil and gas explorers and developers--whether with a domestic focus, or an international focus. What do you tell investors?