Bombardier Flight Test Delay Ok With Customers, BlackBerry (BBRY) Developing New Sources of Revenue Infotainment

Bombardier (BBD.B) cseries delay not a problem for customers
Airlines Lufthansa (fra:LHA) and Odysey have firm orders for 30 and 10 cseries aircraft, respectively;  Lufthansa also has an option for 30 more; that represents 23% of all orders.  First flight was suppose to have occurred back in June 2014 but software upgrades pushed the date back to September 16, 2014.  That date was eventually scrapped in favor of one 15 months later- December 2015.  Engineering is not the problem (already done / confirmed by key customers) rather, the certification process overseen by Transport Canada is to blame as it is time consuming especially since it involves a new United Technologies Pratt & Whitney engine.  The flight test program is scheduled to be 2400 hours long with only 159 logged thus far.  According to Odyssey Airlines, when ready the Bombardier cseries plane will have a flawless entry into service with airlines, making long delays justifiable.

The c100 will cost 15% less to operate versus similarly sized planes (110, 130 seater).  The c300 will seat 20 more passengers than the c100.

Russia crisis affects $3.4 billion Q400 turboprop contract between Bombardier and state owned Rostekhnologii. - Sanctions tabled by the US and Canada prevent Bombardier from moving forward with the contract.  In 2013 Russia accounted for only 1.4% of company revenue ($250m), this deal is pivotal for boosting sales to the region.  Russia is an expanding market and key member of the BRIC group of nations.  In my opinion this is a deal the company must hang onto.

BlackBerry's QNX platform superior to Apple IOS ?

Last month Apple revealed something somewhat surprising:  Apple's new in car operating system Carplay- which enables iPhone to power the infotainment, is actually built on BlackBerry's qnx platform.

"Connectivity to smartphones and other mobile devices is a key strength of qnx Software Systems’ platform", "We have a long-standing partnership with Apple to ensure high-quality connectivity with their devices, and this partnership extends to support for Apple CarPlay".

with automakers Toyota (TM), BMW, GM and Ford (F) already designing their vehicles to be compatible with qnx software it seems inevitable that, as the technology increases in popularity BlackBerry is going to develop a significant new source of revenue.
Also in March:  US department of defense approves BlackBerry Full Operational Capability software to run on government networks.

The week prior to this, the US National Institute of Standards and Technology (NIST) approved BlackBerry's iOS and Android Secure Work Space mobile service for use by the US and Canadian governments- allows IT managers to create a separate area on any iOS or Android device that's managed by Blackberry Enterprise Service 10.  The partnership with Android is another way BlackBerry is increasing revenue stream and future cash flow.

Blackberry About To Make Up More Ground In Smartphone Battle

The new BlackBerry Z3 is a low cost device (under $200;  Samsung and LG rely on low end devices for their sales growth).
Indonesia will be the first country in Asia to get it / Z3 is the first phone manufactured by contract partner Foxconn.

Meg Energy Oil Exploration Update (double production to 65,000 by 2013, 260,000 b/d in 2020, Surmont 2018, phase 3)

    Meg Energy is one of Canada's largest oil exploration companies that owns 100% of a 3.7 billion barrel, 80 block section of Christina Lake, one of Canada's largest oil megaprojects (development began in 2008). In the first nine months of 2011 the company produced 25,450 bbls/d up 33.4% from 19,071 b/d in the corresponding period of 2010, but only 20,945 in 3q11 due to maintenance activity (versus 19,339 b/d in 3q10, all production comes from Christina Lake). Production and revenue recorded record highs in the second quarter of 2011, at 27,826 b/d and $279m respectively. Production is forecast to reach 29-31,000 b/d by the end of 2011 attributable to new equipment being installed at Christina Lakes' second phase expansion (when construction work there is completed in 2013 (operating at 100% compared to less than 30% currently) operations there will bring in an additional 35,000 b/d, more than doubling current production possibly to as high as 65,000 b/d). C$500 million of the C$1.4 billion in total project costs needed by phase 2B has already been spent with the balance coming in 2012. The company has only been producing since the last quarter of 2009 when output was 2,427 b/d.

MEG Energy has $937 million to spend next year on growth projects (which represents 70% of its $1.37B 2012 capex) the majority of which has already been allocated to phase 2B with the rest ($1-200m) going to the 3rd phase (initial construction), the exact amount to be determined pending a key regulatory decision in 1H2012 (3rd phase is key since it will add 150,000 b/d). There's also Surmont that should be coming online close to 2018 (Surmont has vast resources of heavy oil but very little of it represents upgraded reserves). MEG capital expenditure was $243.218 million in the July-September period (2011) compared to only $96.561m in 3q 2010. Maintenance costs and more money going to growth projects increased long term debt which is now at $1.792b up from 1.005b in 3q10. The last phase isn't expected to be completed until 2015-2020 and so the maximum 260,000 b/d estimate probably won't be reached until the latter part of that period.

The steam required to melt bitumen so that it can be brought to the surface by the process known as steam assisted gravity drainage, is produced at a power plant that doubles as a cogeneration plant which allows the company to turn excess steam into power able to be sold to the Alberta Power Grid (the extra money helps reduce operating costs ----> which increases operating netback). Western Canadian Select price is lower than WTI because it is a mixture of heavier oils/bitumen and synthetic oil and thus produces fewer barrels of oil per metric ton (prior to processing). Production costs per barrel were down significantly in the nine month period to $16.38 from $22.81 due to higher production volumes and Christina Lake producing at a normal phase (not ramp up phase as in 2010). Revenue from extra power sold to Alberta power grid (cogeneration plants) reduced net operating costs down to $11.95 from $18.63/bbl. In the 3rd quarter Meg received enough compensation from sold power to pay down per barrel operating costs by $5.13 ($4.43/b in the nine month period), that's up significantly from $2.13/bbl in the 3q10 ($4.18 in 9m10).

According to the company, its 1.9 billion barrels of 2P reserves are worth $12.1B, there's also another 1.8 billion barrels of inferred resource worth $7.0b (the company's market cap is under $9B). Christina Lake covers a large area, Cenovus Energy and ConocoPhillips already operate a large scale, synthetic oil project there that produces under 30,000 b/d that's also undergoing expansion (they tap into the McMurray Formation). The project is within the well known Athabasca Oil Sands of central-east Alberta.

Approximately 20% of Alberta's oil sands are close enough to the surface to be recovered by open pit mining, the rest requires vairous in-situ technologies. Alberta's royalty rates on oil production have fallen from an avg of $3/bbl to $2/bbl over the last decade and that has made it an even more attractive place to produce. Oil sands can be over five times more expensive to produce than conventional however with oil prices up more than 400% since 2001 that barrier to investment is becoming less of an issue (if the price of oil remains at or over $60/bbl which makes oil sands production economically viable, Alberta's oil production could reach as high as 11M bbls/d by 2045). Reason that heavy oil commands a lower price on the open market than WTI? You need 1.7 barrels per metric ton more of the <10 degree API heavy oil versus lighter oil because its high specific gravity (density as compared to a reference) makes its API gravity lower leading to fewer barrels produced according to this calculation. In the first nine months of 2011 the price of WTI oil was up 23.0% to $95.48/bbl from $77.65/bbl ($89.76 in the 3q11).

Big Exploration Companies Only An Investment Away From Becoming Major Industry Players

&nbsp&nbsp It seems weird when a company with more resources of a particular commodity isn't valued higher by the stock market (compare, for example Seabridge Gold or Northgate Minerals to Detour Gold; Cenovus Energy (oil) to Anadarko Petroleum). When companies aren't producing (such as the case with many big exploration companies) people are more skeptical of their estimates, especially if they don't have the financing in place to turn projects into operations; Ivanhoe Mines suffered from that for years before Rio Tinto confirmed the company's standing by calling Oyu Tolgoi 'the biggest copper resource in the world'. Examples of companies that have gotten away with lieing about resources include Greywolf Resources, a group of companies in Argentina which the president claimed in 2004, lied about reserves, even Shell has been caught but that was at a time when regulations industry-wide, were softer. Furthermore, energy consumption experienced the biggest yearly increase since 1973 in 2010, in 2010 it was up 5.6% largely due to China (up 11.2% surpassing the USA) and non-OECD nations (63% higher than 2000 levels). (World energy consumption up 5.6% in 2010, biggest rise since 1973: BP) Brazil, for example was on pace to import 50% more gasoline in 2011 than in 2010 (3.2M barrels Jan-Aug compared to 3.2M barrels Jan-Dec accounting for 5% of domestic fuel needs). In 2010 90% of cars sold in Brazil run on a combination of bio-fuel and gasoline but bio-fuel is getting more expensive: Sugar cane price is up 85% over the last year. (Brazil boom takes world fuel markets by surprise)


Here are three companies that I think would benefit from more investment and media exposure.

Meg Energy - Recoverable oil resource is close to 6 billion barrels. That's almost as much as Canada's biggest petroleum companies Suncor (7-8 billion, with a market value of over US$50 billion), and Canadian Natural Resources (over 6 billion, MV is over US$40 billion). Being heavy oil doesn't really make a difference anymore as synthetic oil is easier to produce and more widely used than it used to be (though oil prices need to be at least $50/bbl for it to be economically viable to produce but I don't think that level will be breached anytime soon). Phase 2B of the Christina Lake project has costs totaling $1.4 billion (about the same as MEG's total cash and cash equivalents) that will be spent in 2011. The biggest phase of the project (will increase production by 250,000 barrels per day or 7X more than what phase 2B will produce) is the third phase. You can imagine the price tag there, receiving regulatory approval shouldn't be a problem but more investment will probably be needed. The company recently reached $10 billion in market value and China's third biggest oil company has already invested in it so attracting more shouldn't be difficult, but when it's announced, individual investors could show a lot more interest. Update: In October 2011 JP Morgan, the world's #1 bank in terms of revenue, forecast oil at $121/barrel by 2013, at the same time it expects oil prodction that year to rise by about 2M bbls/d to 91 million barrels a day.
By 2045 oil sands will produce close to 11M bbls/d and that will continue for a century. Between 2012 and 2020 oil output from the tar sands will double (1.7 mbpd --> 3.4 mbpd) and triple in the next 25 years to 5.1 million barrels per day. Tar sands crude is over five times more expensive to extract than middle east oil however with oil prices up more than 400% since 2001 and Alberta continuing to charge one of the lowest royalty rates in the world (fell from $3 to $2/bbl between 2001 and 2009) there is much profit to be made.

Bankers Petroleum - Has interest in Europe's largest onshore oil field (7.5 billion barrels in place). 2P reserves are over 268 million barrels and rising fast (proved reserves up 30% in 2010), including stakes held