January 21, 2002; PanCanadian Energy Extends North Sea Buzzard Discovery

One of our natural gas recommendations has good oil news.  PCX announced that recent drilling has increased its estimate of potential recoverable reserves in a large discovery offshore Scotland from 250 million barrels to 400 million barrels.  Future definition of the northern third of the structure may add more reserves, perhaps another 150 million barrels recoverable.  If so, 550 million barrels implies perhaps 250 net to PCX before royalty.  The value of undeveloped reserves is probably at least $3 per barrel, implying that the present value of the discovery to PCX is $750 million, or about $3 per share.  The strategic value is probably greater as development will be quite profitable and the exposure to more reserves and higher oil price is likely to be rewarding.

Perhaps a billion barrels of recoverable reserves at Buzzard is still possible.  Without much insight beyond the company's latest press release it looks like we now have a firmer estimate of reserves greater than the original estimate of 200 to 300 million barrels, with perhaps a little less firm indication that the total will reach a billion.

The North Sea discovery is one of three areas for PCX to add unusual value.  The other two are offshore Nova Scotia and coal gas in Alberta.  Both those sources have the potential to contribute positive news in the coming months.