The corruption of a child’s mind is a serious matter, as evidenced in the above video. Also evidenced is the on-going work by Red Leaf Resources towards the construction of an “Ecoshale” demonstration capsule (The world’s largest oven). Red Leaf is on course to become the first economically viable Oil Shale producer in the US state of Utah. Situated on neighbouring acreage, UK-Quoted Tomco Energy owns a $5m stake in Red Leaf and is pursuing an Oil Shale project of it’s own, having obtained the rights to Red Leaf’s proprietary technology and data. Thus far, the performance of Tomco’s share price has been abysmal as investors have tired of repeated delays during the permitting process. However, Tomco now has it’s large-scale mining permit in place and is looking to commence mining operations once the results from the Red Leaf test capsule become known.

The following is an interview given to Interactive Investors by Paul Rankine, COO of Tomco, in May of last year. Clearly the oil price has moved against investors since the interview. However, any significant rebound in the oil price towards last summer’s high could deliver substantial upside from the 0.18p which Tomco’s shares were trading at yesterday. It is true that Tomco itself is unlikely ever to bring the Oil Shale project into production and there remain numerous unanswered questions such as: Do you anticipate a return to the equity markets this September? Yet, as a potential 100 bagger, Tomco is perhaps worthy of further scrutiny. TOM is definitely not a stock for widows and orphans, and is scarcely a serious investment in anything like the current oil-price environment. However, with events now unfolding in the Middle East, TOM could just be the one to have some fun with as the story develops. In a rising oil-price environment, speculative frenzy alone could push TOM someway towards my best-case £372m valuation.

What do you hold in your portfolio?

Paul Rankine: In the Green River Formation there is 1.5 trillion barrels of oil and only one licence that has been issued. The latest BP survey of global oil calculates conventional oil at 1.7 trillion barrels. As soon as this [the Green River Formation] is commercialised it doubles the amount of known oil and it will really shift the dynamics in the US.

We have got one major asset in the Green River formation, the Holliday Block with 126 million barrels in it. It is only 64 foot deep, so it is pretty much at surface. The Holliday Block is the interesting one, the other blocks have the land rights but TomCo probably won’t do too much in terms of developing them.

What is oil shale and how is it different from shale oil?

PR: Most conventional oils are 65 million years old, but our oil shale is an immature oil that is only 23 million years old. As it’s shallow it needs to be mined to provide temperature, pressure, or both, to extract the oil.

Compared to oil shale, shale oil and shale gas is in tight formations and needs fracking to liberate it, whereas we need to heat it to be able to liberate the oil. The big advantage is that it doesn’t have any of the heavy fractions of oil, any of the tars etc. When you compare it to normal WTI [West Texas Intermediate benchmark], it is 32 – 34 API, so a very light, sweet crude. The only other difference is that instead of having sulphur, it has nitrogen, so you have an ammonia stripper in the oil processing plant.

Is extracting oil shale more expensive than conventional oil?

PR: Not really, the technology we are using has a low capex (capital expenditure) cost for the 10,000 barrels per day operation. It costs $263 million ]£156 million] and we will have an operating cost of $37.4 per barrel. As long as oil prices are relatively high, this is perfectly acceptable and you get a very nice margin. We produce a WTI equivalent so with WTI currently at $100 a barrel, we will be making a very nice margin. And cash flow break-even is $50 when we have paid all the royalties etc.

Why are you using Red Leaf’s EcoShale technology for extraction?

PR: We are the only oil shale developer that has ever been licenced to produce oil shale as Red Leaf is a private company funded by Total [80% of the first $400 million spent to commercially develop Red Leaf’s Utah assets for a 50% interest].

Oil shale has been developed and used for producing oil since the late 1800s by using giant cement kilns to heat up the oil shale to sweat out the oil. Being in the middle of a desert [in Utah], you can’t get sufficient water to do the quenching; hence the conventional techniques aren’t available.

Red Leaf has the cost of proving the technology, they give us the final design of everything and we come into production a lot cheaper. Effectively it is costing them 100 times more than us over that period. We don’t pay Red Leaf a penny until we are in production, so they have got a serious incentive to get us there.

How does the technology work?

PR: You deposit the shale into a play lined capsule, put material on top of play and build it up as you build the capsule. Pipes are put into the oil shale which blows hot air into the bottom, warming up the oil shale to sweat out the oil. The capsule is used once and you rehabilitate on top of the capsule. Each one is about six football pitches, so effectively we could build 120 of these capsules. By firing three capsules at any one period of time, we have got 10,000 barrels per day right through our 19 year life.

EcoShale has been developed by Red Leaf, Total saw how valuable it was and is providing 80% of the cash for development. We will be paying Red Leaf a royalty of 6%.

Our net present value (NPV) at 10% is $452 million. If a major like Total were to buy us out and paid NPV 10% that is 10 times our current share price.

Would you be open to a take-over and is one on the cards?

PR: If the shareholders are offered 10 times the entrance into the company as an exit, it is very unlikely that my shareholders would say “no we want to produce it our self”. When Total invested in Red Leaf it was 80% of its research and development budget. Once Total commits to a final investment decision to go fully commercial, it moves from being a research and development project to exploration and production (E&P). So it moves from being a big fish in a small pond, to being a minnow in an ocean.

Total has stated its objective of getting at least 50,000 barrels a day out of EcoShale technology when it becomes part of their E&P. Currently they would have 5,000; half of Red Leaf and they would need to buy the other half. We would be the only other player in town with all the permits. So the likelihood they would knock on our door saying we want to take you out is very high.

When do you expect to get permit approval?

PS: We have two permits, the Large Mine Operation Permit, from the Utah Department of Oil, Gas and Mining and our Ground Water Discharge Permit from the Utah Division of Water Quality. We expect both of those to be issued for public comment mid-way through this year, with both permits in issued form half way through the autumn of this year.

What are the strengths of your company?

PR: We have the ability to raise sufficient cash to see us through to the final investment decision by Total. We will have all the permits in place so we would really be a turn-key project for a major like Total. We have $5 million of Red Leaf stock [strategically invested by TomCo as part of Red Leaf’s $100 million finance], which is non-core so we fully intend to liquidate that facility to provide the $2.2 million [burn rate] we need.

What challenges do you see over the next 12 months?

PR: The biggest challenge is making sure we have sufficient cash to tide us through and liquidate Red Leafs’ shareholding. Because it is a private company I can’t say “sell a million dollars of Red Leaf today please”. It is raising sufficient cash to have all the permits in place and be in a stable position to be taken out. Apart from $5 million, we have a liquidity facility from our broker so we don’t dilute our current shareholders. Those two means would see us through Total’s final decision. We would not need to raise the $263 million because a major is almost certain to be doing that investment.

Your share price was down 2% at the time of speaking. Why do you think this is?

PR: Our share price fluctuates like crazy, anywhere from 1.70p down to 1.30p, it is very liquid.

What news flow should investors expect from you?

PR: The main news flow will be the issuing of our permits for public consultation and the final approval of the permits. From Red Leaf it will be the commencement of the construction of the commercial scale capsule in July, the completion of the construction, the firing of the capsule and the production of their first oil. So the first oil is going to be produced in the last two quarters of next year.

Do you have a message for shareholders and prospective shareholders?

PR: There is a big de-risking over the next 18 months, so for that time horizon you have got a chance of getting a 10-fold increase in the share price and is definitely a stock to look at.

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World Oil Magazine Article: Return to $100 oil seen unlikely by Saudis amid shale surge

3/23/2015

RIYADH, Saudi Arabia (Bloomberg) — Oil won’t rebound to $100/bbl because increased prices would draw more shale and other output from higher-cost producers to the market, said Mohammed al-Madi, Saudi Arabia’s governor to OPEC.

“It will be difficult to reach $100 or $120 another time,” al-Madi said at a conference in Riyadh on Sunday. “This will let the high-cost producers come back again.” Saudi Arabia, the nation leading OPEC in defending its share of the global crude market, is pumping about 10 MMbpd, the country’s Oil Minister Ali al-Naimi said. That’s close to the record amount it produced in 2013.

Brent oil, the global benchmark, declined almost 50% in the past year as Saudi Arabia and others in the Organization of Petroleum Exporting Countries committed to maintain output amid a global surplus. The kingdom is able to meet demand from any customer, al-Naimi said at the conference.

“Shale oil companies are one of the high-cost producers that benefited from high oil prices,” al-Madi said. “We’re not against shale oil. We welcomed shale oil, but it’s not fair for high-cost producers to push low-cost producers out of the market.”

OPEC’s role in the oil market hasn’t been undermined by the drop in prices since its Nov. 27 meeting in Vienna when it chose market share over production cuts, al-Madi said.

Brent for May settlement slid 47 cents to $54.85/bbl on the London-based ICE Futures Europe exchange on Monday at 12:37 a.m. Singapore time.

OPEC’s Interest

While global demand for oil is improving, there isn’t enough need to raise the nation’s production capacity beyond its current level of 12.5 MMbpd, al-Naimi said.

Crude dropped about 30% since OPEC signaled it would leave shale producers and other suppliers to bear the brunt of the glut. OPEC pumps about 40% of the world’s oil, and Saudi Arabia is its biggest producer.

“If OPEC could have controlled the prices it would have done so, but it is not in the interest of OPEC to control the prices,” al-Madi said. “It is OPEC’s interest to achieve balance in the market. The price should be decided by the market, and the market is subject to supply and demand.”

The world needs $40 trillion of oil investments in the next two decades to meet growing demand led by emerging nations, al-Madi said. Demand will grow 1 MMbopd every year for the next 15 years to about 111 MMbopd, Nasser Al-Dossary, Saudi Arabia’s OPEC national representative, said at the same conference on Sunday.

U.S. Output

Saudi Arabia produced 9.85 MMbopd in February, the most since September 2013, according to data compiled by Bloomberg. U.S. output reached 9.42 MMbopd this month, the highest rate in weekly Energy Information Administration data going back to 1983.

“If producers don’t keep investing now, we will have problems in 20 years,” al-Madi said.

Saudi Arabia holds a “big role” to keep unity within the OPEC, which supplies about 40% of the world’s oil, al-Madi said. In the past 55 years, OPEC and non-OPEC producers cooperated on production cuts 19 times. Russia, which isn’t part of OPEC, didn’t always follow through when cuts were promised, he said.

Kuwait Oil Minister Ali Al-Omair said at the same conference he would welcome an agreement with non-OPEC producers to cut output.

OPEC producer Algeria is seeking to coordinate a global response from outside the group to tumbling prices, Algeria Press Service reported March 17, citing Energy Minister Youcef Yousfi. OPEC members are not eager to cause prices to fall because it hurts their economies, al-Omair said.

Standard

As the global oil supply rose by 1.3 mb/d to an estimated 94 mb/d in February vs average global demand of 93.5, the MTOMR asserts that the recent crash in oil prices will cause the oil market to re-balance in ways that challenge traditional thinking about the responsiveness of supply and demand. The report is an attempt to comprehensively chart how the market response to the lower prices is likely to unfold, including an analysis of impacts on demand, OPEC and non-OPEC supply, refining, crude trade and product supply. On the supply side, its forecast reflects not just lower price assumptions, but also the high price-responsiveness of US light tight oil compared with conventional crude, as well as OPEC’s embrace of market forces in late 2014 in a bid for market share. On the demand front, it shows how the response to lower prices will differ this time around from that of prior episodes of re-balancing.