As turmoil and market uncertainties dominate European economies, many Euro investors are growing uneasy. Typically in times like these, savvy investors turn to hard assets—traditionally ‘bricks and mortar’. But with many Euro area countries teetering, eyes are being cast overseas in a search for other, more promising, assets such as oil and gas as safe havens.
Threats of disruption plague many oil producing regions of the world, but there’s an increasingly attractive haven hiding at the top of the list: Canadian energy assets, most notably properties currently in production. Ranked by Forbes in October 2011 as the Number One best country for business, Canada has the world’s second-largest reserves of recoverable oil and gas, second only to Saudi Arabia, and is the world’s third largest producer of natural gas. It’s a stable, strong and healthy economy anchored by a wealth of natural resources, but that’s not all: Canada is at the forefront of modern and innovative technologies to produce them. And the country has a ready market for its production: it has long been the largest exporter of oil and gas to the US, the world’s most prolific user. Moreover, with new pipelines and terminals currently under regulatory review, there is high potential for future oil and gas export to an energy hungry Asia.
So how do Euro investors tap this country’s future bonanza? One company leading them into the Canadian advantage is Proven Oil Canada, which provides the perfect opportunity for German investors looking for healthy returns with minimum risk. “The company name gives an idea of the basic business model and investment strategy,” explains Managing Director Monika Galba. “POC invests only in producing oil and gas fields with considerable additional potential. The ‘proven’ not only stands for the technical term ‘proven reserves’ but also that each and every investment has to be audited by an independent expert in accordance with established investment criteria, laid out to industry rules.” The approach provides strong confidence for even the most conservative investor.
The sequence is solid. Investors’ funds are used first to source opportunities in Canadian producing properties on the market which already have a firm record of at least two years’ production. That production record and future potential is analyzed through an in-depth study by leading long established reservoir engineering firm Sproule Associates of Calgary, who then provide POC with an independently determined dollar value. Should that analysis demonstrate strong upside potential for continued commercial production which would meet the funds’ investment criteria, the investment will proceed. At this point, POC and Sproule join forces with oil and gas technology leader Schlumberger Ltd, with whom an alliance has been formed. A top choice, Schlumberger has eight decades of experience, operates in 80 countries, employs 105,000 experts applying the most advanced reservoir simulation and production technologies such as horizontal drilling and multiple fracturing.
“POC and the expert teams of Schlumberger and Sproule then work on the development plan which provides the road map for unlocking the upside potential in the oil and gas fields,” says Galba. Following completion of this approved action plan, field operations then commence.
Starting with a property’s proven record, the formula clearly demonstrates its value as an investment. Typically, only up to 20 percent of a conventional field’s volumes are recovered by natural pressures or pumping. Usually a further 35% can be produced using secondary methods like water flooding, or tertiary methods such as CO2 or gas injection. Moreover, investing in already producing wells ensures infrastructure connection to markets, and there is no exploration drilling risk. “We are not engaged in any kind of exploration,” says Galba. “The focus is on producing existing fields with high additional potential for optimization.” POC makes all its investments in Western Canada, mostly in the province of Alberta which produces about 80 percent of the country’s oil and gas. No investments in oil sands production are made.
Current investors seem happy: Since 2009, POC has invested in several hundred wells which currently produce some 5,300 barrels per day, providing strong returns for their 6,000 investors. That should bode well for new investors as well as the many repeat investors. The company’s stated investment philosophy is to double an investor’s capital before tax over a period of four to eight years. That means a good guaranteed return. Any surpluses go to reinvestment. After the four or eight-year period, the producing fields are sold to top off the doubling of capital.
Galba explains the return advantage. “As investments are restricted to producing fields only, there is always a minimum distribution paid out to the investors of at least 10 percent annually, which is distributed on a preferential basis,” she says. “Over four to five years, the oil and gas fields are developed; the production is considerably optimized, and eventually the enhanced production is brought to the market and sold.”
“With this extremely client-friendly business model, POC has been able to raise more than 300 million CAD since 2009 on the German market which has been successfully invested in producing Canadian oil and gas fields,” says Galba. One thing that initially helped bolster investors’ confidence was that POC’s fundraising programs were some of the first approved under strict German government rules for investing in Canadian oil and gas.
No doubt the upcoming fund will boost the momentum even further. POC’s next offer will focus exclusively on Western Canadian natural gas properties. Why? Because the authoritative International Energy Agency’s 2011 World Energy Outlook touts clean-burning gas as the fuel of the future—to replace nuclear and coal electrical generation, for LNG to slake China’s burgeoning energy demand, and increase in gas-fueled transport and more. And gas prices today are at their lowest in years, offering up a plethora of purchase opportunities with upside potential.
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