His conclusion this time around? Once again, assets that were supposed to provide the benefits of diversification by zigging when other assets zag are no longer living up to expectations. For example, non-U.S. stocks were once viewed as the ideal way to give a portfolio some zip when the U.S. market underperformed – but now they move more or less in lockstep. And hedge funds in particular just don’t cut it any more as a diversification strategy. “Whereas hedge funds were an effective diversifying tool in the late-1990s, there is a very limited diversifying effect today,” Mr. Bernstein said in a note to clients. As of the end of January, hedge funds were 90 per cent correlated with the S&P 500, versus just 35 per cent in 2000, when they were all the rage. However, he does offer a note of hope for investors who don’t like the idea of having all their assets moving up and down in unison: cash, high-grade corporate bonds and long-term U.S. Treasury bonds. “Thus, equity investors should probably look at bonds and cash as powerful diversifying assets in the same way they looked eight years ago at hedge funds and non-US stocks,” he said. For Canadian investors, there is another note of hope: Among sectors, energy stocks now have the lowest correlation with the S&P 500.
Petrolifera Petroleum Reports Increased Reserves and Pre-Tax Present Value for Year Ended December 31, 2007; Proved Crude Oil and Natural Gas Liquids Reserves Up 43 Percent After Record Production in 2007
(4) Volumes, future net revenue and present value of future net revenue do not include undeveloped land values in Argentina, Colombia or Peru.
cnw
CALGARY, Feb. 25 /CNW/ - Petrolifera Petroleum Limited (PDP - TSX) announces today that the estimates of the company's 1P ("proved"), 2P ("proved and probable") and 3P (proved, probable and possible) reserves, as prepared by GLJ Petroleum Consultants of Calgary, Alberta ("GLJ") in a report with an effective date of December 31, 2007 ("GLJ 2007 Report"), confirmed the significant positive impact of 2007 drilling activity and the installation of new production facilities, including a waterflood, at its Puesto Morales Norte Field in the Neuquen Basin, Argentina.
The GLJ Report and the estimates provided herein were prepared using assumptions and methodology guidelines outlined in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and in accordance with National Instrument 51-101 ("NI 51-101"). Comparisons provided herein with respect to Petrolifera's reserves are to estimates contained in a report prepared by GLJ with an effective date of December 31, 2006 ("GLJ 2006 Report"). The GLJ 2007 Report was prepared utilizing the GLJ January 1, 2008 price forecast, effective December 31, 2007 and adjusted to Petrolifera's asset mix and specific pricing circumstances in Argentina. In the GLJ 2007 Report, future net revenue is calculated after deduction of forecast royalties, operating expenses, capital expenditures and well abandonment costs but before corporate overhead or other indirect costs, including interest and income taxes. The present value of future net revenue ("present value") is calculated by GLJ using various discount rates; this release will provide undiscounted future net revenue and the 10 percent present value thereof.
All references to barrels of oil equivalent ("boe") are calculated on the basis of 6 mcf: 1 bbl. Readers are cautioned that the conversion used in calculating barrels of oil equivalent is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Furthermore, boes may be misleading if used in isolation. Future net revenues disclosed herein do not represent fair market value. Also, estimations of reserves and future net revenue to be discussed in this press release constitute forward-looking information. See "Forward Looking Information" below.
Reserve Volumes and Values
The GLJ 2007 Report estimated that Petrolifera's 1P crude oil and natural gas liquids ("NGL") reserves increased 43 percent to 15.1 million barrels as at December 31, 2007, compared to 10.5 million barrels at December 31, 2006. The increase reflects exploratory success and technical revisions primarily arising from the company's capital spending and drilling program during the year. The increase occurred after record production of 2.9 million barrels of crude oil during the year. On a 1P basis, the company's reserve replacement ratio for crude oil and NGL was 2.6 times. The reserve replacement ratio percent was calculated by dividing the sum of production volumes for the year and changes to estimated reserves volumes during the year by the production volumes.
Petrolifera's 1P natural gas reserves increased 14 percent to 16.3 Bcf after the production of 0.8 Bcf and technical revisions, including provision for flared natural gas volumes, with a reserve replacement ratio of 3.5 times, calculated as indicated above.
Despite the substantial movement of probable reserves to the 1P category, Petrolifera's 2P crude oil and NGL reserves increased 10 percent to 21.5 million barrels, reflecting exploratory success. At December 31, 2007, 2P crude oil and NGL reserves were 21.5 million barrels compared to 19.5 million barrels last year. On a 2P basis, the company's reserve replacement ratio for crude oil and NGL was 1.7 times, calculated as indicated above.
On an equivalent basis, Petrolifera's 1P reserves totaled 17.8 million boe in 2007 compared to 12.9 million boe in 2006, for an increase of 38 percent. These reserves were forecast to generate $456 million of future net revenue, with a 10 percent present value of $314 million, after deduction of $18.6 million of future capital and $2.2 million of well abandonment costs. The 10 percent present value for the 2007 1P estimates represents a 27 percent increase over 2006. Reserve replacement for 1P on a boe basis was 2.6 times.
On an equivalent basis, Petrolifera's 2P reserves total 25.6 million boe in 2007 compared to 24.3 million boe in 2006 for an increase of five percent, after production of 3.0 million boe. GLJ estimates these reserves will generate $662 million of future net revenue, with a 10 percent present value of $452 million after deduction of $34.4 million of future capital expenditures and $2.8 million for future well abandonment costs. The 10 percent present value for the 2007 2P estimates represents only a one percent increase over 2006, due primarily to changes in Argentinean pricing and taxation policies during 2007. Reserve replacement for 2P on a boe basis was 1.4 times. The company's calculated reserve life index, calculated by dividing remaining 2P reserves at December 31, 2007 by 2007 total boe production, was 8.5 years.
Petrolifera also commissioned GLJ to provide an estimate of possible reserves, which were last estimated effective December 31, 2005 by another independent reserve evaluator. GLJ estimates the company's 3P crude oil and NGL reserves to be 33.5 million barrels, with natural gas reserves estimated at 33.5 Bcf and equivalent reserves estimated at 39.0 million boe. These reserves are estimated to generate $1 billion of future net revenue with a 10 percent present value of $656 million, after deduction of $72.9 million of future capital expenditures and $3.6 million for future well abandonment costs.
It should be noted that the estimate of Petrolifera's 3P reserves at 39.0 million boe is after the production of approximately 5.3 million boe in 2006 and 2007. This is the first updated estimate of possible reserves since 2005. The volume of possible reserves underscores the recognition of the development potential for both crude oil and natural gas, of the lands reviewed in the GLJ 2007 Report, which however did not include a review of the company's undeveloped exploratory concessions at Vaca Mahuida, Puesto Guevara, Puesto Morales Este and Gobernador Ayalla II, all in Argentina nor of Petrolifera's holdings in Colombia and Peru.
The following tables summarize the information contained in this press release. Tables may not add due to rounding.
<< id="1era" class="ArwC7c ckChnd">
OIL & NGLs (mbbl) NATURAL GAS (mmcf)
Reserve
Category 31-Dec-07 31-Dec-06 31-Dec-07 31-Dec-06
------------------------------
% %
GLJ GLJ change GLJ GLJ change
Proved (1P) 15,068 10,522 43 16,281 14,256 14
Probable 6,452 9,012 (28) 7,992 14,544 (45)
------------------------------
Proved plus
Probable (2P) 21,520 19,534 10 24,273 28,800 (16)
Possible 11,940 n/a n/a 9,187 n/a n/a
------------------------------
Proved plus
probable plus
possible (3P) 33,460 n/a n/a 33,460 n/a n/a
------------------------------
------------------------------
BOE's (mboe)
Reserve
Category 31-Dec-07 31-Dec-06
------------------------------
%
GLJ GLJ change
Proved (1P) 17,782 12,898 38
Probable 7,783 11,436 (32)
------------------------------
Proved plus
Probable (2P) 25,566 24,334 5
Possible 13,471 n/a n/a
------------------------------
Proved plus
probable plus
possible (3P) 39,037 n/a n/a
------------------------------
Petrolifera Petroleum Limited
Before Tax Present Value of Future Net Revenue (1)(2)(3)(4)
------------------------------
Before Tax Present Value at 31-Dec-07
Reserve Category Undiscounted Discounted at 10%
------------------------------
$000 $000
Proved (1P) $456,309 $314,273
Probable 205,818 137,780
------------------------------
Proved plus Probable (2P) $662,127 $452,053
Possible 368,947 203,641
------------------------------
Proved plus probable
plus possible (3P) $1,031,074 $655,694
------------------------------
Notes:
1) Proved reserves are those reserves that can be estimated with a high
degree of certainty to be recoverable. There is at least a 90%
probability that the actual remaining quantities recovered will equal
or exceed the estimated proved reserves.
2) Probable reserves are those additional reserves that are less certain
to be recovered than proved reserves. It is equally likely that the
actual remaining quantities recovered will be greater or less than the
sum of the estimated proved plus probable reserves.
3) Possible reserves are those additional reserves that are less certain
to be recovered than probable reserves. There is at least a 10%
probability that the quantities actually recovered will be equal to or
exceed the sum of proved plus probable plus possible reserves.
4) Volumes, future net revenue and present value of future net revenue do
not include undeveloped land values in Argentina, Colombia or Peru.
For further information: Richard A Gusella, Executive Chairman, Petrolifera Petroleum Limited, Phone: (403) 538-6201, Fax: (403) 538-6225, inquiries@petrolifera.ca, www.petrolifera.ca
© 2008 The Globe and Mail
Zigging and zagging just isn’t what it used to be – as anyone who has seen their diversified assets rise and fall together can attest. Richard Bernstein, chief investment strategist at Merrill Lynch, has noticed this trend as well, which is why he periodically takes a look at asset correlations.
© Copyright The Globe and Mail 
Monday, February 25, 2008
Petrolifera Petroleum Reports Increased Reserves up 43%
Thursday, February 21, 2008
Why the Commodities Supercycle Just Got Longer
Mining analysts miss mark on predictions Contrary to the continued assertions of mining analysts, current metal prices are actually a return to sustainable price levels following an extended period of artificially depressed prices. While analysts are wary of straying too far from the comfort zone of historic averages, the mining companies by their actions are taking a far more realistic view. There are three underlying reasons for the analysts' errors. 1) Research shows that analysts' short-term metal price forecasts since the beginning of 2005 have been significantly adrift of where prices have actually settled, by anywhere between 20% and 200%. The result? Most mines and mining companies have been materially undervalued. 2) More often than not, significant premiums have been paid over market prices. Over US$100 billion have been spent on the recent takeovers of Falconbridge, Inco, Phelps-Dodge and Alcan, as the key players fight it out for control of low-cost production across the globe. 3) Research shows mining companies that have pursued growth through acquisitions have consistently outperformed those that have chosen to grow organically. The Ernst & Young team studied metal prices over more than a century, highlighting a number of periods that have been interpreted as cycles in the mining industry. The study shows that specific reasons were behind most of these cycles, which are unlikely to be repeated in the near future. For example, weak prices in the 1990s resulted from a collapse of the Soviet Union, triggering the release of 50 years of accumulated stockpiles of minerals alongside a sharp reduction in domestic demand in the CIS. Layered on top of traditionally recognized economic cycles are major developments such as the industrial revolution, the rise of the U.S. economy, the Cold War, the collapse of communism, and, now, the industrialization of China and other emerging markets.
Ernst & Young LLP
The latest report from ERNST & YOUNG says most mining analysts have missed the mark by repeatedly predicting a sharp decline in metal prices. Here's a summary of what the authors observed:
Why the Commodities Supercycle Just Got Longer
By Andrew Mickey, Small-Cap Commodity Prospector
Saturday Dec 15, 2007
The term “supercycle” has been batted around the commodities world for a couple of years now. To be honest, the term just reminded me of the dot-com days when we invented new terms and valuation techniques like price-to-eyeballs that allowed us to justify valuations that we now realize were completely absurd.
As a result, I wasn’t willing to recommend going headlong into the commodities market. There were bound to be a few isolated opportunities in the sector as we neared the end of the commodities cycle.
One-hundred dollar oils and sky-high commodities prices would eventually prove to be a drag on the world economy and commodity prices would fall due to lowered demand from a world economy that isn’t growing quite as fast. It’s Adam Smith’s invisible hand at work.
But that all changed three weeks ago when a company in British Columbia, NovaGold (NG:AMEX) shocked the commodities world. NovaGold and its partner, Teck Cominko (TKC:NYSE), announced they would shutting down operations in Galore Creek copper-gold-silver project in northwestern British Columbia.
Galore Creek was supposed to be one of the largest new mines in the world. It was expected to be so profitable that building a new road, a new power plant and all the other infrastructure necessary for a mine would be more than offset by the value of the mine’s production.
It was so valuable that NovaGold was able to contract two of the world’s largest helicopters to transport large earthmoving and construction equipment into the remote Galore Creek region. That was how value the property was. Trucks and bulldozers were actually flown in while the road was being built.
The size and value of the project was more than offset the initial capital costs, which were slated to come in at about $2 billion. But it wasn’t long until the costs started getting really out of hand. As the Canadian dollar rose in value, costs of putting the mine into production soared to an expected $5 billion and the expected profit margins from the mine shrank.
With a $5 billion cost necessary to get the mine up and running, it just didn’t make sense economically. So it was shut down midstream.
On top of that, Teck Cominco, which was funding a large portion of the capital costs out of its own pocket, already saw the costs at its other projects soar. In fact, it was already spending more than 150% of what originally had budgeted in 2007. And that increase was just necessary to keep on line with its timelines and projections.
Over the past weeks, I’ve been crisscrossing Vancouver, visiting dozens of mining companies, and there is only one focus: capital costs. Since many advance-stage projects have to raise a few hundred million dollars to go into production or close down altogether, we’re at a major turning point in the current commodities up cycle.
There is one top consideration that has to be made when choosing mining stocks: capital costs. Early-stage exploration is still going to have some big winners, but anything that’s been around for a few years is going to have to go big or go home.
So what does all this mean? First, it confirms the commodities supercycle. The high capital costs are going to delay a lot of projects that were scheduled to go into production and bring more supply of copper, nickel, molybdenum, oil… pretty much every commodity.
However, a lot of exploration companies are going to experience what NovaGold has gone through in this commodities cycle, which is already going to be a long one -- and could even be longer than we ever expected. Sure, at Small-Cap Commodity Prospector we’ll have to be even more selective. We’ve got the wind at our backs with news like this.
The commodities bull market has even more years left in it now. As expenses continue to rise and reduce the number of economically viable projects, the commodities sector is going to be one of the top places to have your money.
Posts
