Pescod on Sterling Resources

Readers probably know by now that if we could only buy

one oil and gas stock for this coming year, that pick would be

Sterling Resources, a story we have talked about quite a bit.

Still we are a little pleased to see the stock respond rather

nicely in the last couple of days, or at least up until today and

are quite pleasantly surprised leading up to their spud at

Cladhan in about 20 days.

Meanwhile, Kevin Shaw the Wellington West analyst and

probably lead cheerleader for the Sterling story writes to us,

“It's just getting started. Hess is spudding on their first Paris

Basin shale oil play really soon and they are only about 10 km

away from where Sterling has large acreage. And then Romania

is about to happen as well. It's the breakout year for Sterling”

Shaw writes.

Meanwhile there are lots of other analysts starting to cover

this story as well and we catch one of our favorite guys for an

off-the-record interview and we might have caught him in one

of those contemplative moments. When we point to Shaw's

published target of $7.20, he says, “you know, I can paint a

scenario where within a year, Sterling Resources is $4.00...or

$20.00.” Yikes! I don't like that first number much at all, but

anyway he states his case.

On the negative side he suggests, “What would happen if

oil dropped $10.00 or $15.00?” All of a sudden in the last few

weeks everyone out there seems to be accepting $90.00 as

the norm, but it has been a very cold winter in North America

and much of Europe and demand has been high. We are

about to go into the spring, he suggests when oil prices traditionally

fall and natural resource stocks usually take a bit of a

thumping as well.

Then he suggests, “What happens if some of these exploration

plays that are getting all the attention offshore Romania,

Cladhan in the North Sea and of course the Paris Basin

end up on the low end of expectations?” Furthermore he

suggests some of the smaller projects in the North Sea that

are supposed to be coming on-stream within the next 12

months or so, let's assume the worst that like so many projects

in the North Sea, come in late and so much for the

downside protection in the stock from all that additional cash

flow. “Viola” he says…$4.00.

Well, thanks for that dose of reality, but now could we hear

the bullish case...please? Well, first of all our guy doesn't see

oil dropping $15.00, but he suggests somewhere within $5.00

to $8.00 of current levels.

Talking about Cladhan, he is a big believer and he thinks that the two vertical wells and two horizontal wells spudding in about 20 days, should deliver something close to 250 to 300 million barrels. Multiples of current resources. Also he suggests the possibility does exist for something like 300, 400 or as much as 600 million barrels in resources.

Those are absolutely enormous numbers given anything close to $90.00 oil.

In Romania their property in the Black Sea is across the border from huge scale production in the Ukraine and our guy suggests 200 million barrels is probably the resource many are keying on. But he says the opportunity maybe there for as much as 300 million to...a billion barrels! That's why you drill and test he says and that's why there are so many exploration plays at any given time. That is why people speculate.

As far as the Paris Basin play, our guy is not getting as carried away as many and suggests that the 90 billion barrel resource for the area is totally blue sky at this point. But, he says, Sterling is one of the biggest land holders in the area and if it does work out...well, put all that good news together and then you can come up with that $20.00 number. So there you go...either $4.00 or much higher...do you feel lucky?