Crown Point Primed For Explosive Growth

Marc Davis - Managing Editor
July, 2003

Crown Point Ventures Ltd. (TSX-V:CWV) is a Canadian petroleum exploration and development company that is focused on a balance between international projects with world-class potential and small, low-risk domestic projects that generate near-term cash flow.

The main focus of Crown Point at this time is a "company maker" project in Columbia. It involves an extremely prospective oil exploration concession that sits at the heart of a prodigious Columbian oil basin - one that continues to produce new world-class discoveries. Of equal significance, Columbia now has a politically stable environment and a government that supports foreign investment. This scenario has set the stage for Crown Point and other intrepid North American oil & gas companies that are spurring on the accelerated growth of the nation's emerging oil industry.

However, Crown Point's savvy and seasoned management team is committed to leveraging such opportunities while also minimizing risk exposure. Therefore, the company has teamed up with a large private Texan oil company named Gulfsands Petroleum Colombia and another Canadian junior called Gulf Shores Resources (TSX.V-GUL) in a joint venture partnership. The senior partner, Gulfsands holds an 85% interest in the exploration of a 75,000-acre concession known as the Alborada Block. Crown Point and Gulf Shores each have respective interests of 5% and 10%.

Located in the Upper Magdalena Valley, this concession is immediately south of the Guando Oil Field - an oil field discovery that was made in 2002 which has proven recoverable reserves exceeding 130 million barrels. Not only is this Columbia's most significant oil find within the last decade but it is located a mere 50 miles from Columbia's oil-hungry industrial capital, Bogata.

Furthermore, the Alborada Block is adjacent to and only three miles away from the Espinal Oil Fields, where some 12,000 barrels of oil are currently produced daily into the Upper Magdalena Valley pipeline system. Moreover, the close proximity of this pipeline to the Alborada Block promises to greatly enhance the economic viability of any discovery -- large or small -- on the joint venture partnership's concession.

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The Alborada Block is located in an area that has generated significant volumes of oil. This is evidenced by the nearby accumulations in the Espinal Oil Fields (three miles west of Alborada) and the Guando Oil Field (12 miles to the northeast). It is particularly noteworthy that the pay zones in both of these "headline grabbing" discoveries are in the Monserrate Formation. (A formation refers to a layer of rock that often acts as a reservoir for oil & gas). This is the same geological strata -- located at a depth of about 2,500 feet -- that hosts the joint venture partnership's best drill targets. Moreover, the Monserrate Formation overlies the renowned high volume Villeta Formation, which encompasses the source rock from which oil migrates upwards.

The partnership has also identified another key prospect. A large anomaly in the Caballos Formation (located at approximately 6,000 feet) that underlies both the Monseratte and Villeta formations will also be explored during the upcoming drill program. It is synonamous with production from an oil field that is situated approximately 25 miles away from the Alborada Block.

Oil generated by shales and limestones (optimum oil-producing conditions) in the Villeta Formation in this part of Columbia has sourced some 2.6 billion barrels of oil reserves and 2.7 trillion cubic feet of natural gas reserves discovered up to 1990. Since then, there have been other significant oil discoveries (as previously mentioned). These recently discovered fields (that also include the Guaduas Field) hold an estimated 450 million to 800 million barrels of additional oil reserves. Clearly, the Magdalena Basin is not a mature hydrocarbon province but one which still exhibits considerable untapped potential.

Hence, the initial focus of the ongoing exploration program -- which received governmental drilling approval in early July 2003 -- has involved the processing and interpretation of new 2-D seismic data. The seismic data (which measures the acoustic refraction of oil-detecting sound waves beneath the ground) covers 50 miles of the concession (its northern half). It consists of five dip lines and a strike line that measure the angle and direction of tilting formations. This invaluable seismic data, along with a number of other corroborative geological exploration techniques, has led to the identification of two distinct oil reservoir targets. These geologically prospective rock formations are triple plunging structures that are closed-in on the fourth side by a major thrust fault trap. Additionally, the presence of oil in portions of the Alborada Block has been confirmed by the presence of two oil seeps - fissures in the rock formation where small amounts of oil has been transported to the surface. In fact, these oil seeps are consistent with the reservoir model for the block.

According to management's volumetric forecasts for the Alborada Property, three economic scenarios have been developed for reserve cases of 50 million barrels of oil (MMBO), 200 MMBO and 500 MMBO. The minimum case of 50 MMBO generates a net present value (NPV) at a 10% discount rate of US $95 million after Colombian taxes. Meanwhile, the 200 MMBO case translates into a net present value at a 10% discount rate of US $255 million after tax. The 500 MMBO case shows a net present value at a 10% discount rate of US $540 million after tax. These scenarios represent prospective NPVs for Crown Point, alone, of US $4.75 million, US $12.75 million and US $27 million, respectively. All cases assume unescalated oil prices of US $20 over the life of the project.

By way of background information, it may surprise some readers to learn that oil exports constitute Colombia's highest revenue-producing legal commodity. Even though Columbia presently only ranks as seventh in annual production among Latin American nations, it hosts some of the largest untapped petroleum reserves in the Western Hemisphere. This insight is attributed to the RAND Corporation -- a California-based independent non-profit research institute.

Meanwhile, Crown Point is poised to be among the few enterprising oil & gas exploration companies to capitalize on this timely scenario. The efforts of such companies are even being supported by the Columbian government. It launched a major initiative two years ago to encourage exploration activity with the stated mandate of developing 2.8 billion barrels of new reserves by 2010. This commitment involves initiatives to encourage foreign investment, to accelerate the licensing process and to implement reforms to decrease government royalties.

Among the foreign oil & gas companies that operate in Columbia are renowned North American stalwarts Chevron-Texaco, Gulfsands, Nexen Inc. (formerly Canadian Occidental Petroleum Inc.), Encana Corporation (formerly Alberta Energy) and Talisman Energy Inc., to name a few. Much of Columbia's crude oil is shipped to the United States, thereby further reinforcing the growing presence of North American oil & gas companies, large and small, in this resource-rich developing nation.

Elsewhere, Crown Point intends to soon embark upon a low-risk oil drilling project in Manitoba with a view to generating modest near-term cash flow to augment production from the company's three existing Manitoba oil wells.

The company is presided over by Harold (Hal) Kettleton, a mining engineer who has worked for such household names as Cominco, Placer Dome and Rio Tinto. However, Mr. Kettleton has also been active in the oil & gas business as far back as 1978 and has run his own natural resource company, Interwest Enterprises, for over 35 years.

He is particularly enthusiastic about Crown Point prospects for a major discovery once the company and its two partners beginning drilling the Alborada Block in late summer.

"I've never before been involved in a drill project that has such tremendous upside potential. The few technical negatives involved are completely overshadowed by all the positive factors that point to a highly successful drill program," says Kettleton.

With regards to Crown Point's near-term prospects, SmallCapMedia believes that the company's stock is currently undervalued. The company has adequate working capital. Furthermore, with only about five million shares outstanding, the stock is very tightly held and is therefore poised for a major news-driven breakout. In recent months, the share price has established a clear upwardly trending pattern. And the promise of an imminent drill program (for which Crown Point has already fulfilled its financial commitment) should continue to fuel the stock's trajectory. Meanwhile, the advent of a major oil discovery in the fall offers investors considerable "home run" potential.