| TRADING
ALERT—Assure Energy, Inc.
  We
strongly believe that Assure Energy, Inc. (OTCBB:
ASUR) represent a unique opportunity for investors to own a focused
resource company with exciting profit potential within the natural gas
sector.
In July, Assure Energy closed
a deal to acquire 6.75 million (48 percent) of the shares of Alberta-based
Quarry Oil & Gas (TSX Venture: QUC)
for a purchase price of approximately C$9 million ($6 million US). As investors
know, the upside driver of junior resource companies is diversified land
position with excellent discovery potential, while good monthly cash flow
is needed to provide protection against downside risk. Assure now has an
abundance of both.
Trading history for the Assure
Energy shares post-acquisition is limited, but investors have seen
the daily share volume increase markedly and a breakout from the previous
trading range is underway.
Salient points for investors concerning
the consolidated Assure/Quarry entity include:
-
A strong initial production base of
1,500 boe/d (barrels of oil and/or its natural gas and liquids equivalent
produced daily);
-
Canada is the largest exporter of natural
gas to America;
-
A portfolio of several high impact,
high working interest of natural gas and petroleum exploration opportunities
in Canada’s Western Sedimentary Basin (Saskatchewan, Alberta, British Columbia);
-
Consolidated cash flow of approximately
$1.5(C) million/month;
-
A price to cash flow ratio of a compelling
4.5 times. (Historical industry ratio averages between 4 and 6 times.);
-
Access to a significant land base comprising
over 60 gross sections or 40,000 gross acres; (through ownership, exploration
rights, options, and partnerships)
-
Numerous identified multi-zone drill
locations;
-
Accelerated exploitation and development
drilling opportunities in seven core areas expected to dramatically improve
production, reserves and cash flows: successful exploitation equals increased
net asset value per share;
-
A balanced 2003 fall drilling program
has commenced on Assure/Quarry properties.
  Daily,
press reports trumpet a clear and present natural gas crisis against a
backdrop of critically low reserve supplies and rising commodity prices
resulting from unprecedented and increasing long-term North American demand.
Just about every jurisdiction in North America has issued warnings that
annual household gas bills will likely rise by hundreds of dollars this
year. As Federal Reserve Chairman Alan Greenspan stated to a congressional
committee in July: “There is little chance that natural gas prices will
be going lower any time soon.”
Therefore, it makes eminent
sense for investors to acquire a position in a company with the exploration
and production potential Assure Energy offers.
The exponential growth of US natural
gas demand, and the corresponding fluctuation in the commodity’s price
is due in large part to the need to feed the electrical power sector. Projections
are that this one aspect of gas consumption alone will generate a massive
increase of 2.5 to 3 Tcf (trillion cubic feet) by the end of the decade.
Assure/Quarry have a focused production
portfolio of properties representing a 60/40 split of oil and gas production.
Buoyed by a favorable economic climate, and strong demand Assure/Quarry
intends to increase its production aggressively from its current 1500 boes/d
to produce in excess of 2000 boes/d by year end, 2003. A state of the art
interactive map of Assure/Quarry properties within the Canadian Western
Sedimentary Basin is available at the company’s website: http://www.assure-energy.com/operations_properties.php
 The
Quarry acquisition brings Assure Energy and its shareholders a myriad
of benefits, not the least of which is access to 50 square miles of prime
exploration area in northeastern B.C., recognized within the industry as
an extremely target-rich gas environment. Development of this proven gas
area (as well as others in Western Canada) fits into Assure Energy’s
plan to shift its production profile from 60/40 oil to gas to 60/40 gas
to oil—and eventually to an even higher gas component.
The undeveloped lands are located
in close proximity to the Western Pipeline gas-gathering infrastructure.
Assure
Energy’s plan does not hinge on producing less oil, but rather to adding
to gas reserves and production through aggressive exploration of the Alberta,
Saskatchewan and BC properties. Assure plans to raise production to 5000
boe/d within the next few years. Now, with the Quarry acquisition,
Assure boasts a significant increase in oil and gas reserves – many of
their corporate assets estimated to continue to produce for 10 years and
more.
Major gas players, including
Husky Oil, Encana - a formerly merged company between Alberta Energy
& Pan Canadian Petroleum (NYSE:
ECA), Canadian Natural Resources
(NYSE:
CNQ) and El Paso (NYSE:
EP) are engaged in exploration
or production in northeastern B.C. This past summer, CNQ announced
a 60 mmcf (millions of cubic feet) find in the Buick Creek area
of BC where many of the Assure/Quarry properties are situated. Less
than a year ago, El Paso and Apache announced a significant find
in the Bubbles area of northeastern B.C.
As well, Anadarko Petroleum’s (NYSE:
APC) nine well field in the Saddle Hills area in northwest Alberta
–producing 73 million cubic feet of gas (mmcf) daily-- is 30 miles south
of Assure Energy’s Doe East property. Doe East is within 10 miles
of major Alberta production in the Parkland and Gordondale areas.
  British
Columbia Crown (read government-owned) land sales in September hit an all-time
record of $418(C) million for 25 parcels in northeastern BC. While the
buyers are unknown for competitive reasons, speculation is that large US
oil and gas companies wanted greater exposure to this target rich area.
Assure/Quarry is already well represented there through its significant
land holdings.
Assure Energy’s strategy combines
growth through exploration with rapid expansion through acquisition. The
Quarry portfolio of five producing properties, five natural gas focused
exploration areas and 40,000 acres of undeveloped land will augment Assure’s
June 2002, 100 percent acquisition of Westerra 2000 Inc. That purchase
gave the company a 60 percent interest in 3,520 gross acres in the compelling
Lloydminster, Alberta property on the Saskatchewan/Alberta border. Soon
after the acquisition Assure drilled and developed the lands to increase
production and add reserves.
In light of the growing North American
concern over reliability of gas supply, primarily in the US, AssureEnergy
heralds an exciting investment opportunity for those investors who wish
to participate in the resource market as well as hedge their own rising
natural gas costs. Assure Energy demonstrated considerable foresight
in locking up a position in Quarry early in 2003: the deal could likely
not be done at this price again given the growing demand and subsequent
price rise in the gas commodities markets. Further, it is our opinion that,
in the future, Assure Energy could well purchase the remainder of
the Quarry shares.
 Assure/Quarry
throws off monthly cash flow of approximately $1.5(C) million. As
investors in the oil and gas sector know, the worth of a successful company
is measured by the presence of significant and growing cash flow. Strong
cash flow also has the added benefit of protecting investors against downside
risk while, at the same time, funding ongoing drilling programs.
 The
current British Columbia provincial government is known for its pro-business
stance and can be relied upon to work with companies to ensure that there
is an exploration environment that is both politically stable as well as
financially beneficial for both parties. This government has approved previously
restricted drilling programs throughout the summer coupled with fiscal
incentives to entice companies to take advantage of the new regime.
Polls have shown that less than 1
percent of Americans know that Canada is the United States’ leading external
source of oil and gas. In fact, Canada produces more than 15 percent of
the natural gas consumed in the US. As the supply/demand crisis deepens,
the natural gas market is bound to appear on more investors’ radar screens
and Canadian producers will become even more sought after. The ongoing
gas shortage will impact positively on those companies that have the land
position and cash flow to meet what will be a growing need for the commodity.
On that basis alone, Assure Energy is an extremely viable investment
choice.
Assure has garnered a large
new audience since the Quarry acquisition was announced in July. The shares
have exploded out of the $2.50-$3 trading range as daily trade volumes
grow. We believe that there is great potential for Assure Energy
shares to move higher as winter price hikes for gas hit and more production
is brought on stream, natural gas supply/demand pressure fuels increased
exploration, and the company’s reserves grow.
By 2010, it is predicted that there
will likely be more investor interest in the gas market than in traditional
oil. Those companies positioning themselves strategically now—such as Assure
Energy -- represent a superior long-term investment opportunity.
Got questions, comments or suggestions?
Send 'em here: Editor@smallcapdigest.net
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