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PODCAST: MGX Minerals Chairman Marc Bruner on Producing Two Revenue Streams: Lithium and Oil

— James West

MGX Minerals Inc. (CNSX:XMG) (OTCMKTS:MGXMF) (FRA:1MG) Chairman Marc Bruner talks to James about producing petro-lithium, and cutting well costs by not fracking.

 

TRANSCRIPT:

James West:     Marc, thanks for joining us today.

Marc Bruner:     Glad to be here.

James West:     Marc, last time we spoke was back in May, and since then, MGX Minerals announced a national instrument 51-101 estimated prospective oil and gas resource for the paradox Basin petro-lithium project issued by Ryder Scott, who is by no means anything less than a top-notch company. It strikes us as a little bit of a tangent, though, because the audience listening was under the impression that MGX was going to be a petro-lithium producer, and now it looks like you’re becoming an oil and gas producer. How do we reconcile that?

Marc Bruner:     Well, I mean, just look at the word ‘petro-lithium’. I mean, it’s both petroleum, which is oil and gas, and lithium, okay? So we’re talking about producing both, okay? And the way it works is, you’re going to be producing some water along with the oil, is what it amounts to. And in the beginning stages, in all probability, the oil production is going to be the main production that you’re going to be getting, right?

As the well produces, there’s the water cut, which is where the lithium is in the water, okay, increases. So you’re actually going to be producing both, okay? I hope that explains the petro-lithium.

James West:     It sure does. So it sounds like you’re going to finance the extraction of lithium from brine with the proceeds from oil.

Marc Bruner:     Well, exactly, or even vice-versa; it all depends, it all depends. But I mean, the important thing to remember is, you’ll have two revenue streams: one from the lithium within the brine and other minerals, and the petroleum, the oil and the gas production. So really, you have both the petroleum and the lithium in the stream of fluid.

James West:     So which one excites you the most?

Marc Bruner:     Well, let’s put it this way: the one that I know the most about is the petroleum, and my view is that this project would stand alone just as a petroleum project. So I’m very excited about that. I mean, for me, the brines are a plus, a huge plus, but you know, at this point, I know a lot more about the petroleum side, and I mean, what may happen as we produce the water, at some point the value of the water could be more valuable than the oil stream. In the beginning, though, I would think that the oil stream would be, you know, you’re going to be producing, in my view, more oil production in the beginning than the brine production.

James West:     Mmm. It’s a “paradox”.

Marc Bruner:     That’s why they call it the Paradox Basin.

James West:     That’s what I was wondering. Okay now, let’s look at the numbers in the initial press release that you put out. Your P50 original oil in place, all these are separate traps or rather, deposits in each column? So CB2 says 861.81 million barrels…

Marc Bruner:     Right, right. I mean, these are different oil and place numbers, okay, for the different stacks, clastic zones in between the salt pillars. When they talk about the different zones, that’s what they’re talking about: the clastics. Ryder Scott reviews the log signatures of the wells drilled in here, and then they anticipate the oil and gas in place in each one of those pillars, okay, between those salt pillars, those clastics. So those are the clastic zones that hold the oil and gas.

And I think the significant thing to keep in mind is that there’s oil and gas in place in all of them. Now, the main zone would probably be the Canyon Creek zone, but they based this on the log responses in terms of the thickness of the clastics and the porosity of the clastics, and that’s really kind of what they look at. So the significant thing is, you’ve got multiple pay zones here – multiple pay zones.

James West:     Okay. So at this point, do you have a handle on what the cost per well is going to be and what your developmental timeline looks like?

Marc Bruner:     Well, I mean, the best guess is – the wells are going to cost, depending on the laterals, okay, in terms of the horizontal wells, the horizontal laterals, I would say you’re looking at a $3 million to $5 million well cost, drilled and completed. Something like that.

The timeline here is, what we’re going to be doing is, the next step would be shooting the 3D seismic to identify the fracture systems. Because the fluid, whether it’s oil and gas or the brines, are going to be in these fracture systems, okay? And what we’re trying to identify is the best area to actually, let’s call it, hit the bullseye, you know. You’re thinking about that, right? You want to be in the best place. You want to drill in the proper place where you have fracture systems.

So you know, I mean, that’s really what we’re talking about doing here, I mean, shooting the 3D seismic next. And the wonderful thing is that we have an 85,000-acre unit formed, okay? Which basically makes this one lease. And that’s really significant, because rather than having to go and develop, let’s say, 50 leases, you have to develop one lease, in terms of the unit. And you can speed up or slow down the drilling of that unit depending on your success, the price of oil, what the brines look like. We will be able to go fast or go slow, which is what I really like about what we have with these units.

James West:     Okay. So now, we’re in an environment where the oil price is, well, let’s just call it a little volatile towards the downside, and so in a lot of cases, a lot of U.S. domestic production has come to be shut-in because the all-in costs per barrel exceeds the value for which they can extract. Now, what kind of numbers are analogous wells in this area with the same kind of geological profile and reservoir profile, what kind of costs per barrel of oil a well are they looking at? And are they still producing, or are they all shut in?

Marc Bruner:     No, there are wells that are producing in here, but here is the really significant thing that you need to understand: these wells require no fracking. In the United States, 60 percent to sometimes 70 percent of the cost is in fracking into the shales. These clastics, because the pressure gradient is 0.95, the over-pressure is so significant in these fracture systems that there will not be any fracking.

So this is a huge cost savings that you don’t have in these particular reservoirs here, these over-pressured reservoirs: no fracking. I.e. much, much lower well costs.

James West:     Wow, okay. So that’s good, so you’re going to be competitive to say the least, if not wildly profitable! What’s the quality of the oil that you’ve tested so far in terms of API, or have you had that opportunity yet?

Marc Bruner:     Well, it’s right at 40 gravity; it’s really nice oil, okay? Yeah, really nice oil. In the Cane Creek Clastic, that’s sweet crude. When you go down below the Cane Creek zones, some of the oil becomes a little bit sour, but there’s a way to handle it. But the most significant of all, if you look at the report, of all of the estimates, are in the Cane Creek Clastic.

So as I say, I’m so excited about the idea of not having to do any frack, where ordinarily, we’d be looking at a $10 million well, now we’re looking at a $3.5 million well. It’s a huge difference – huge difference.

Seventy percent of your costs on drilling, on completing a well, fracking – we have zero cost. I mean, I think that’s so important, right, for people to understand. To me, that’s one of the things that I like so much about this: you have no fracking, no fracking at all.

James West:     Great. And understanding that the volume of water relative to the volume of oil produced inverts over time, you start with primarily oil with a small amount of water and it inverts over time as the well matures. But what is the volume of water that might be contained in each of these clastics?

Marc Bruner:     You know, in all probability, it’s going to be pretty close. This is just – you’re asking me my opinion, because it wasn’t opined on by Ryder Scott. But my opinion is that the water would be commensurate with the oil, the water production. So this is just my opinion.

James West:     No, I understand.

Marc Bruner:     At a later time, once we have some production histories out here, we would be able to give you a better estimate as far as that goes.

James West:     Sure. And have you been able to test the lithium content of the water present at all, at this point?

Marc Bruner:     Right now, what we’re actually going on is previous testing by the government in terms of their estimates. Right now, we are preparing to do a 3D shoot next year, but you are right: we are looking at some testing procedures out of some of the different wells. This is just one of the next steps that we’re looking into right now.

James West:     Okay. So at this point, does the company have a high degree of confidence that the various technologies you’ve been developing and acquiring, are going to be able to produce lithium from the brines alongside the oil?

Marc Bruner:     We’re very excited about the technology, the proprietary technology that PurLucid has. I mean, we’re very excited about that. It’s my belief that we have something, and we’re far ahead of pretty much anyone else, in terms of being able to extract not just the lithium, but other minerals out of the lithium. Which Jerry Lazerson would probably be a better person for you to talk to about this.

James West:     Sure. We will talk to him. And Marc, I’d like to thank you for your time today. We’ll come back to you in the future and see how you’re making out. Thanks again.

Marc Bruner:     I look forward to it.

James West

James West

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I employ a Capital Efficiency Model that dictates money should never be exposed for longer than is absolutely necessary to the possibility of being lost. Thus, I routinely sell half my position when a stock doubles from my entry price, and I sell stocks that lose 20%, unless there are...
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