The Future...(As We See It)

Canwest acted as we thought it would and took off shortly after the merger was completed. In fact, it went a little further than we thought and has since fallen to a reasonable area where we are comfortable with it settling down in. As of today we think that it is on the cheap side because we believe that $4.60 is its true area of support right now.

Recently we ran across some drilling maps posted to a discussion board from some diligent soul. The maps display the areas that Oilsands Quest drilled this past winter and the areas still open to drilling. To most viewers it appears that there are two squares with nearly evenly spaced drill holes within. This is true, but if you pay somewhat closer attention to the maps and think like an executive (Mr. Hopkins specifically) why would you drill the two squares in those areas?

Well the drill grids as we will call them are separated by another drill grid in width. This is most likely the next grid to be drilled and should surely be successful (although maybe not the 80%+ success rate we are accustomed to) in adding to the bitumen reserves. In fact every other grid around these two already drilled grids should be successful. Also, by strategically spacing these two grids where they did, they allowed for 8 grids to be opened for drilling for the next phase (which could enable the 1,000s of holes to be drilled on only these this winter) which will share a side border with each of these hugely successful previously grids. Maybe the most important fact that we can see by looking at the map is that the area between the drilled grids is somewhat flat, but also in a valley. When it comes to liquids draining, valleys would be very good places to look, simply look at their past presentation to analysts that included the Chesapeake Bay. In my opinion, Canwest management has set the stage for a very large move in the share price when they complete this drilling. All signs point to this being the correct logic as they (the management) have done everything to maximize potential future profits.

Some may balk at this, but let us review. First management has not brought on a partner yet for any future project, thus enabling shareholders to reap more from any deal. Next, they have for the moment put everything on hold to bet all the marbles on this one project. We do not necessarily agree with this move, believing that more value could be added by drilling other oilsands projects at the same time. Alas, the company also purchased the overriding royalty on the Firebag East project which indicates that it is their belief that they will someday produce enough oil from bitumen to not only cover the purchase price of that royalty but also return a hefty profit. We shall patiently wait until the winter drill program is completed and along the way maybe even add to our share base.