Alberta Oilsands Inc - A Potential Cash Windfall That Could Change The Company

By Devon Shire - Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AOSDF.PK over the next 72 hours. (More...)

  

The below chart is not the kind that creates happy shareholders. It is, however, the kind of chart that I'm drawn to hoping to find a company that everyone has given up on and one that is extremely mispriced (undervalued).

To be honest, given the decline in the stock price, when I started looking into Alberta Oilsands Inc. (AOSDF.PK), I was expecting to find a company that I would have no interest in touching.

To my surprise, I found instead a company with a debt free balance sheet, several very interesting assets and an incoming cash windfall.

I'm not saying that this one is an investment for widows and orphans, but I do think the amount of risk involved here is not unattractive given the massive upside offered in a best or even reasonable case scenario.

To find interesting opportunities, sometimes you have to go where few others are looking.

Alberta OilSands Inc. - Company History and A Big Recent Event

History

Alberta Oilsands Inc. is a Calgary, Canada-based oil sands developer focusing on bitumen resources in the Athabasca oil sands region of northeast Alberta.

AOS was founded in late 2003 by Shabir Premji and Michael Lee, two experienced oil and natural gas company executives. They took the company public in 2004, and the company trades on the TSX-Venture exchange under the symbol (AOS) and on the pink sheets in the States under the symbol AOSDF.PK.

The Company initially focused on redeveloping existing conventional oil-producing assets through a range of optimization and development drilling used to revitalize mature oil fields. AOS pursued a number of opportunities in Alberta, Saskatchewan and Manitoba.

In 2006, AOS's senior management began considering a strategic corporate shift from conventional oil and natural gas development to the exploration and development of bitumen resources in the oil sands sector. AOS management recognized that the then relatively new approach of SAGD, along with strengthening oil prices, created potential opportunity for smaller players to compete effectively and gain exposure to the massive resource upside of Alberta's oil sands.

In 2007, the AOS Board of Directors officially endorsed this strategic shift into the oil sands. That year, the Company began to assemble what is now AOS's oil sands portfolio.

By the end of the first quarter of 2007, the Company had completed its first acquisition financed through the sale of its Saskatchewan conventional oil production. The proceeds realized from equity financings were used to acquire additional oil sands leases, which now form the core of the Clearwater, Algar Lake and Grand Rapids properties. Interestingly, since that time, nearly the entire leasable area of the Athabasca oil sands region has been leased.

As it assembled its leases, AOS began the process of evaluating the extent and quality of the resources at the properties. From December 2007 through spring 2011 AOS drilled a total of 92 vertical delineation and coring wells at its Clearwater and other sites. The first resource estimates of the Clearwater property became available in 2008.

On January 18, 2010 AOS submitted its initial Clearwater Project application to the ERCB and Alberta Environment. On December 22, 2010, AOS submitted a project update that proposed the SLP-SAGD production technology. The application was currently under review by the regulatory agencies until a very recent event (more on that in a minute).

In 2012, another change of direction occurred at AOS. A dissident shareholder group unhappy with both the stock price and company performance came forward and demanded that the Board of Directors be reconstituted.

On July 3, 2012, the incumbent Board and the dissident shareholders reached an agreement and a new Board of Directors was put in place with many of the previous directors departing.

This marked the start of a new era for Alberta Oilsands Inc.

On November 19, 2012, AOS announced to shareholders an outline of a new international strategy focused on the continent of Africa.

Over the past seven months, AOS has commenced this international move and announced acquisitions in Zambia, Namibia and the Republic of Congo.

The Recent Big Event

That gets us up to this week and a piece of news that is going to radically alter this company.

On July 26, AOS released this:

Calgary, Alberta CANADA, July 26, 2013 /FSC/ - Alberta Oilsands Inc. (AOS - TSX Venture), ("AOS" or the "Company") announces that on July 25, 2013, the Province of Alberta announced that it is allocating 55,000 acres of Crown lands to the Regional Municipality of Wood Buffalo (Fort McMurray) under its Urban Development Sub-Region initiative (UDSR).

As a result of the UDSR initiative, the Company's Oilsands leases at Clearwater will be cancelled. As a lessee to these affected leases, AOS will be compensated in accordance with existing legislation. The Mineral Rights Compensation Regulation (Alta. Reg. 317/2003) (Compensation Regulation) establishes the compensation payable by the Crown for cancelled agreements. Compensation includes at least the following:

1. cost of acquiring the lease including annual license fees and application fees;

2. wasted exploration and development expenditures;

3. reclamation costs; and

4. interest of approximately 5% (calculated as Alberta Treasury Branch prime + 1%).

In the near future, the Company expects to receive an official notice of cancellation from the Province of Alberta setting out details of the cancellation.

To date, AOS has spent approximately $51 million in the acquisition and development of Clearwater. Currently, AOS has 211,482,057 issued and outstanding common shares and as of March 31, 2013, the Company has current assets of approximately $6.76 million.

What is happening is that the booming oilsands town of Fort McMurray needs room to expand to accommodate all of its people. To do this, the town needs Alberta Oilsands Inc.'s Clearwater property.

The Province of Alberta is cancelling AOS's rights to the land, and in exchange AOS will (should) receive $50 million in cash plus interest.

That should leave this company with a significant cash balance (it already has no debt) with which it can develop its other assets.

The value of that cash balance on a per share basis will also be far in excess of the current share price.

Canadian Operations / Assets

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As the Alberta Oil Sands name indicates, the company has a presence in the Alberta Oil Sands. The company currently has four main Canadian projects:

- Clearwater

- Grand Rapids

- Algar Lake

- Mackay

These properties are surprisingly large for a company the size of AOS.

Canadian Asset 1 - Clearwater Oilsands Project

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The Clearwater property covers 27.3 sections and comprises the McMurray Formation. AOS holds 100 percent working interest and is the operator.

This is the property that it appears that the province will reclaim and for which AOS should receive $50 million plus in cash.

With 373 million barrels of contingent resources identified, Clearwater really was to be the near-term flagship asset for AOS.

The company had hoped to receive ERCB (Alberta's energy regulator) approval in the fourth quarter of 2013 to commence phase one development.

Phase one development would involve production of 5,000 barrels of oil per day using a SAGD (Steam Assisted Gravity Drainage) which is an advanced form of steam stimulation.

The phase two stage of this project called for ramping production up to 40,000 barrels of oil per day.

With up to 40,000 barrels per day of production, Clearwater would be a significant oil sands asset.

In order to get ERCB approval, AOS has to demonstrate that it has a viable and safe project. Once the project is approved, AOS would need to go to investors, joint venture partners or investment funds to secure financing for the project.

The budget for Clearwater phase one was to be $150 million.

Clearwater is a classic SAGD project, so there aren't really any questions about the technology or the reservoir. Clearwater lies close to existing road infrastructure and provides mostly year-round access. The resource base has been extensively delineated.

Of course, all of this becomes irrelevant as it appears this property will be traded for a lump of cash in the fairly near future.

Key Data On The Clearwater Project

Project type - SAGD, low-pressure recovery model, enhanced with solvent co-injection

Reservoir - McMurray Formation sands, 45 metres' average thickness

Lease - Approximately 32 sections (20,480 hectares) of oil sands leases (100 percent working interest) of which 6 sections are believed to be currently accessible

Resource delineation - 60 core holes, extensively delineated to date, plus 8 km of 2D seismic and 1.6 km² of 3D seismic

GLJ has assessed contingent resources of 373 million barrels in the best estimate case. The assessment reaffirms the magnitude and quality of the bitumen resources attributed to the Clearwater property and updates and supersedes all previous reports assigning probable reserves and contingent resources to the Company's Clearwater Property.

Reservoir quality -

Bitumen pay thickness - 20-55 metres net

Porosity - Average 35 percent

Bitumen saturation - Average 80 percent

Shale cap - Continuous mudstone

Bitumen viscosity - 7-10° API

Phase I project footprint - 10.3 hectares

Phase I main facilities - One steam boiler, one diluent fractionator, six SAGD well-pairs, observation wells, water source wells and pipelines, bitumen/diluent blending, temporary bitumen storage tanks, electricity and natural gas service, office/control room building, vapour recovery system, extensive tiltmeter network, various monitoring and observation sensors and systems. Central processing facility capable of generating 1,113 m³/d of steam and processing 4,350 bpd of bitumen production.

Planned peak production -

Phase I - 4,000 bpd with 10-15-year operating life

Phase II - 40,000 bpd with 25-30-year operating life

Capital spending -

Phase I capital requirement - Approx. $150 million

Phase II capital requirement - Approx. $1 billion

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Canadian Asset 2 - Grand Rapids Oilsands Prospect

AOS has a second big parcel of oil sands land with its Grand Rapids project which sits 30 kilometers west of Fort McMurray and has 119 million barrels of contingent resource which could produce as much as 30,000 barrels per day for 40 years.

The company hasn't started any work on Grand Rapids with Clearwater having been the first project in the development pipeline.

The Grand Rapids property sits on 18 sections of land where a small handful of core holes have been drilled delineating the deposit. The property would also be developed using SAGD.

AOS has a 100% working interest in the property.

Adjacent to Grand Rapids is Athabasca Oil's Thickwood property.

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With the Clearwater property being returned to the government, Grand Rapids could move up in the development pecking order.

Canadian Asset 3 - Algar Lake Oilsands Prospect

Algar Lake is a large area of land with 51 sections (13,209 hectares) that AOS acquired in 2007.

Action on this property was moved forward earlier this year with the announcement of the following farm-out deal:

Alberta Oilsands Inc. (AOS - TSX Venture), ("AOS" or the "Company") is pleased to announce that a binding letter of intent ("LOI") has been signed with a private operator ("Operator") whose team specializes in Oilsands exploration.

To earn the initial 51% interest in Algar Lake, the Operator has agreed to fully fund and drill at least three (3) holes. To earn an additional 24% interest in Algar Lake, the Operator has agreed to fully fund and drill an additional two (2) holes. The Operator has up to two (2) years to earn its interest in Algar Lake. In addition, under the terms of the LOI, the Operator would deliver $2 million to AOS ("Cash Consideration"), upon closing.

Binh Vu commented, "We are very pleased to have been able to bring a deal to our shareholders on AOS that reflects the value of Algar Lake immediately in the form of a cash payment to AOS, and brings to bear an operator that is highly experienced and has a history of success in making Oilsands discoveries."

"This property was not getting the attention that it deserved in our overall portfolio, and now shareholders will have the exposure to its potential in the near-term, and without dilution."

"Alberta Oilsands is in discussions with various groups regarding farm-out or sale transactions of its other more advanced Oilsands assets."

The partner in the deal is Crescendo Resources Ltd which brings a great deal of experience and expertise to the project.

The Crescendo team has previously made two separate billion barrel plus discoveries in Alberta and Saskatchewan and sold them to majors.

The attraction of Algar Lake for Crescendo is that it might be suitable for cold flow production as opposed to SAGD. The benefit of cold flow production being that the capital spending required is about 25% of what SAGD needs.

If cold flow is a go, Algar Lake could offer very profitable production. Canadian Natural Resources (CNQ) Pelican Lake property which is hugely economic is to the south and west of Algar Lake and is the largest cold flow heavy oil field in Alberta.

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This is an exciting property for AOS but it is important to know that there is still very little data available on the property. While there are projects underway on both sides of Algar Lake, no seismic work has been done and only a handful of wells were drilled years ago.

AOS expects farm-in partner Crescendo to start drilling its wells this winter which will answer a lot of questions. If those wells show that cold flow production works on this large 50 section land base, then the value of this property is going to change dramatically.

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Canadian Asset 4 - Mackay Oilsands

MacKay River is a property that was acquired in 2007 and consists of 5 sections (3,200 acres) at 100 percent working interest.

The lands are prospective for McMurray formation bitumen at average depths of approximately 200 metres.

There is some well control from historical exploration drilling, and further offsetting delineation drilling ongoing by other oil sands developers.

The other projects are ahead of Mackay River at this point, so there doesn't seem to be much activity likely to happen on this one for a while.

International Operations / Assets

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One year ago, AOS didn't have any international assets. Today, with the new Board of Directors and management in place with African experience, the company has a presence in several African countries.

AOS announced to shareholders its move into the international space as follows:

International Strategy

The Company intends to identify and acquire a majority position in assets which meet the following criteria, with a primary focus on the continent of Africa:

1. Geologically prospective exploration licenses in existing petroleum producing basins, or discovery basins, surrounded by current and expected exploration and drilling activity.

2. Geologically prospective exploration licenses in basins recognized favorably by the Canadian capital markets, and for which a premium is currently being awarded for those companies who are able to secure a critical mass presence.

3. Government granted or privately negotiated acquisitions of assets with minimal work commitments over the next 12 - 18 months, in order to provide both maximum flexibility, and optionality.

The African acquisitions were made with very little cash. In total AOS spent about $3 million in cash and the remainder involved shares from Treasury.

The basic strategy in Africa for AOS is not to start drilling themselves (initially) but rather wait for neighboring companies with deep pockets to drill up adjacent blocks. Successful exploration wells next to AOS properties will make bringing in partners much easier and terms much more favorable.

In other words, the value of the AOS African properties could increase significantly without AOS actually doing anything in the near term.

For the next 18 to 24 months, AOS doesn't have much for work commitments on its African blocks. The only real spending will be done on annual licensing fees and small G&A expenses.

International Asset 1 - Zambia Project

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Alberta Oilsands Inc. owns an 80% interest in petroleum exploration licenses covering 3 rift basins in the Republic of Zambia. The Company's net interest in the Licenses is 80%, with the remaining 20% owned by local partners. The Licenses are situated in three rift basins including: Lake Tanganyika, Luangwa Rift and the Cabora Bassa (Lake Kariba)/Mid-Zambezi Trough. The Licenses cover an area of approximately 18 million acres.

There are a number of companies operating in Zambia and AOS has focused on two lakes and two dry rifts that are promising.

The number one focus point for AOS is Lake Tanganyika. Lake Tanganyika has multiple oil slicks and natural oil seeps including one that AOS believes to be the largest natural oil seep in the world.

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There are currently several significant seismic programs on Lake Tanganyika with the most notable being completed recently by $1.75 billion Australian company Beach Energy.

The Beach Energy property is right beside AOS, so success by that company could have good knock-on effects for AOS.

International Asset 2 - Namibia Project

Alberta Oilsands Inc. owns an 85% interest in petroleum exploration blocks 2712A and 2812A, located in the Orange Basin, offshore Namibia. The remaining 15% is owned to the benefit of Namibian economic empowerment and local groups.

Blocks 2712A and 2812A are situated in the Orange basin off of the southern coast of Namibia and are adjacent to blocks owned by HRT Participacoes em Petroleo SA, who have announced their plans to commence drilling activities in the Orange Basin in 2013.

The Chariot/Petrobras/BP joint venture has also announced that subject to further evaluation, it may potentially drill a well on its Orange Basin acreage, to the east of AOS, in 2013. The Namibia Licenses cover an area of approximately 2.7 million acres and are also situated directly west of the Kudu Gas Field.

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The intriguing thing about Namibia for AOS and other operators in the area is that it is a potentially direct analogue to offshore Brazil.

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Offshore Namibia also has the identical age and rock type as the discoveries in offshore Angola to the north that has had major oil discoveries. Combined, Angola and Brazil have nearly 30 billion barrels in discovered reserves.

Namibia is quite underexplored with only 16 wells drilled in 20 years, the majority of which were shallow shelf wells. BP (BP), Petrobras (PBR), Repsol and others are out in the deepwater around AOS hunting elephants.

One well that could have big implications is the one that HRT will be drilling in August 2013 on its PEL-24 block which borders the AOS blocks 2712A and 2812A.

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This HRT well is a billion barrel plus prospect from which well results should be known early this fall.

In total, there should be at least five more wells drilled and $500 million to $1 billion being spent offshore Namibia over the next 12-18 months. This fits well with the AOS intention of being in an active basin where larger companies are spending big dollars around them trying to prove up major discoveries.

International Asset 3 - Democratic Republic of Congo Project

Alberta Oilsands Inc. ("AOS") and Pan African Oil Ltd. ("PAO") are jointly pursuing a production sharing agreement in Democratic Republic of the Congo with respect to two blocks, the Kalembe Block (Block 5) and the Fatuma Block (Block 6) (the "DRCBlocks"), in which the AOS may earn a 43.75% interest in the DRC Blocks. PAO will be the operator of the DRC Blocks.

The DRC Blocks comprise over one million acres (gross) covering the Kalemie sub-basin on Lake Tanganyika, in the Democratic Republic of the Congo - and in the heart of the East African Rift System. Blocks 5 and 6 are adjacent to acreage held by Total S.A.

Balance Sheet/Financing

AOS obviously is a company with lots of opportunities with assets in the oil sands and Africa. There are two things the company hasn't recently had.

One is debt. The other is the cash to develop or explore these assets itself.

With the $2 million cash payment coming from Crescendo Resources for the farm-in on the Algar leases, AOS will have no debt and $7 million of net cash.

The $50 million cash that could/should be coming from the return of the Clearwater property obviously changes everything. AOS will now have a much greater number of options when it comes to financing the development of its assets.

Valuation

One sector that the stock market does not like these days is Canadian heavy oil and bitumen assets. For a company actually named Alberta Oilsands that isn't a good thing.

For the last 24 months AOS has traded for basically the cash on its balance sheet.

A $50 million windfall of cash should therefore be good news for shareholders as it is going to require a significant revaluation by the market.

Assuming AOS receives $50 million of cash for Clearwater, the company will have $57 million of cash on the balance sheet. That means that AOS would have a net cash balance of more than double the current share price.

You don't see that every day.

On top of the value of the cash, AOS has some oil assets. Some things to consider about the value of those assets would be:

Algar Lake Oilsands Project - AOS just completed a farm-out transaction on Algar Lake that involved the new partner acquiring 75% of the property in exchange for $2 million of cash and the drilling of 5 wells over the fairly near term.

Those five wells, if successful, could result in AOS having a pretty decent cash flow machine from its 25% interest in this property. Remember, Algar Lake could be similar to Canadian Natural's premier property which is nearby.

With $50 million of cash in the bank and a highly profitable cold flow project to invest it in, AOS would be sitting pretty.

Grand Rapids Oilsands Prospect - While not as far along as Clearwater where AOS has spent $50 million Grand Rapids has a significant amount of oil in place.

In total, Grand Rapids has 119 million barrels of contingent resource. At ten cents per barrel, this property would be worth almost as much as the current AOS stock price.

The last list of heavy oil / oilsands transactions that I came across suggests that 10 cents per barrel is awfully pessimistic.

The average SAGD/Cold Flow Non-producing transaction was completed at $0.74 per barrel. Post 2007, the average transaction was completed at $0.81 per barrel.

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African Properties (Zambia, Namibia) - I don't have a clue how to value these assets and I don't think anyone really does. The answer is that these assets are worth somewhere between nothing and a whole lot.

There could be hundreds of millions of barrels of recoverable oil on the AOS African leases or there could be none.

The only thing I know for sure is that the market is pricing these assets as being worthless. At the current share price, an investor pays considerably less than the expected cash on the balance sheet and gets all of the oil sands and African assets for virtually free.

If you buy into the idea that AOS is attractively valued, the good news is that there are multiple catalysts to move the stock price higher.

Those catalysts would include:

- Success in Namibia by neighbor HRT in September or October

- Confirmation from the Alberta Government on the Clearwater Proceeds

- Announcements of partners on African properties

- Success with the Algar Lake cold flow program

Insider Transactions

While insider buying doesn't always mean good things, it is never a bad sign. AOS has had the following recent insider transactions:

Jul 12/13	Jul 12/13	Goodisman, Adrian Howard	Direct Ownership	Common Shares	10 - Acquisition in the public market	80,000	$0.053 USD
Jul 12/13	Jul 11/13	Goodisman, Adrian Howard	Direct Ownership	Common Shares	10 - Acquisition in the public market	69,000	$0.050 USD
Jul 10/13	Jul 10/13	McDowall, Stuart Bruce	Direct Ownership	Common Shares	10 - Acquisition in the public market	626,000	$0.045
Jul 10/13	Jul 10/13	McDowall, Stuart Bruce	Direct Ownership	Common Shares	10 - Acquisition in the public market	544,000	$0.040
Jul 10/13	Jul 10/13	McDowall, Stuart Bruce	Direct Ownership	Common Shares	10 - Acquisition in the public market	787,000	$0.035
Jul 10/13	Jul 10/13	McDowall, Stuart Bruce	Direct Ownership	Common Shares	10 - Acquisition in the public market	837,000	$0.030
Jul 12/13	Jul 9/13	Goodisman, Adrian Howard	Direct Ownership	Common Shares	10 - Acquisition in the public market	10,000	$0.034 USD
Jul 5/13	Jul 5/13	Goodisman, Adrian Howard	Direct Ownership	Common Shares	10 - Acquisition in the public market	231,000	$0.030 USD
Jul 5/13	Jul 2/13	Goodisman, Adrian Howard	Direct Ownership	Common Shares	10 - Acquisition in the public market	110,000	$0.030 USD
Jun 7/13	Jun 7/13	Goodisman, Adrian Howard	Direct Ownership	Common Shares	10 - Acquisition in the public market	35,000	$0.044

Management

Binh Vu, LL.B.

CEO

Binh Vu is a lawyer practicing in the area of corporate finance and securities law. He was previously a partner at Aird & Berlis LLP where he advised resource and energy-based clients in respect of equity and debt financings, mergers and acquisitions, divestitures and corporate restructurings. Mr. Vu holds a Masters of Tax from the University of Waterloo (2005), an LL.B from Queen's University (2000) and a Bachelor of Science from the University of Toronto (1997).

Michael Galloro, CA

CFO

Michael Galloro is a member of the Institute of Chartered Accountants with over 17 years of experience having earned his designation while working for KPMG LLP. Mr. Galloro provides consulting services to private and publicly listed companies on various projects in securities legislation compliance, valuations, mergers and acquisitions and initial public offerings.

Board of Directors

Robert Metcalfe

Chairman

Robert Metcalfe has been counsel at Metcalfe, Blainey & Burns LLP since 2001, and, prior to that, he was a senior partner with the law firm Lang Michener LLP for 20 years. Mr. Metcalfe currently serves on the board of various natural resources companies. These would include a Director of Gran Colombia Gold Corp. (gold), Lead Director of PetroMagdalena Energy Corp. (oil and gas), Lead Director of Xinergy Corp. (coal), and Director of Axmin Inc.

He is the former President and Chief Executive Officer of Armadale Properties (office building construction, finance and land development), and has served as a director of numerous other natural resource corporations. Mr. Metcalfe has also served as a director of Canada Lands Company Limited, one of the largest real estate corporations in Canada, and as Director and Chairman of CN Tower Limited, the tallest communications structure in the world. Mr. Metcalfe brings to the board of directors his extensive experience serving on the boards of numerous natural resources corporations.

Joseph A. Francese

Joseph A. Francese is Vice-President of PROSPER Limited Partnership. Mr. Francese consults as a Chief Investment Officer for a private financial firm and has over 20 years of financial and capital markets experience. As CIO, Mr. Francese is responsible for analyzing and monitoring existing and prospective investments, as well as developing investment strategies. Over the years, Mr. Francese has sat on many industry and charitable boards, including: Vice-President, Edmonton CFP Association (1995-1997); Trustee, Sturgeon Hospital Foundation (1997-2002); Director, St.

Albert Help Society (2000-2004); Director, Edmonton Catholic Cemeteries (2001-2004); Director, EasyRock Products (2008-2010); and Director, Titan Trading Analytics (TTA.V). Currently, Mr. Francese sits on the following boards: Vice-President, Edmonton CFA Society; and Director, Kids Kottage. Mr. Francese obtained his BA (Economics) from the University of Alberta and has also earned the CFP designation and is a CFA (Chartered Financial Analyst) Charterholder.

Stuart B. McDowall

Stuart B. McDowall is an executive with significant international government and multicultural experience. Since 2002, Mr. McDowall has been the principal of McDowall Developments, an international consulting firm that specializes in the petroleum sector, including export, financing, corporate governance and corporate social responsibility. Prior to establishing McDowall Developments, Mr. McDowall held the position of Chief Executive Officer at Blue Mountain Energy Ltd. where he identified various international oil and gas exploration and development opportunities in developing countries, including Africa, South America and the Far East. Mr. McDowall also served as the Chief Executive Officer of Fosters Resources Ltd., Director of Wilton Resources Inc., Softrock Minerals Ltd., and Ground Star Resources. In addition, Mr. McDowall served in Canada's Foreign Service from 1961 to 1999, including as Canada's Ambassador to the United Arab Emirates and has diplomatic experience in the Middle East, Latin America, Europe, Africa and United States. Mr. McDowall has served as a Director of the international E&P company Groundstar Resources Limited since 2005 and was Director General of Talisman Energy, where he was responsible for investor, government and community relations in Sudan. Mr. McDowall holds a Bachelor of Science degree in Civil Engineering from the University of Alberta (1962), and an Advanced Management certificate from the University of Western Ontario (1984). Mr. McDowall is also a member of APEGGA and AIPN and is a past President of the Engineering Institute of Canada - Calgary Chapter.

Paul Moase

Paul Moase has had more than 25 years experience in the financial and capital markets. Currently an independent consultant, he was formerly the Managing Director to MGI Securities in Toronto, responsible for capital markets. Prior to this, he was at HSBC Securities as Managing Director Investment Banking and Mergers and Acquisitions, as well as a number of other senior executive positions with other large investment and brokerage firms. Mr. Moase holds an MBA from the University of Western Ontario (1987) and a Bachelor of Commerce from Mount Allison University (1981).

Adrian Goodisman

Adrian Goodisman is the Managing Director of Scotiabank. Mr. Goodisman has investment banking experience specializing in mergers and acquisitions and more than 18 years of experience in the exploration and production sector in the United States, Canada, Asia, Europe and South America. He currently sits on the Advisory Board of the Bilateral U.S.-Arab Chamber of Commerce. He also serves on the Capital Markets Committee of the Independent Producers Association of America (IPAA). He holds a B.Sc. (Mathematics) from the University of Salford, United Kingdom and an M.Sc. in Petroleum Engineering from the University of Texas, Austin. Additionally, Mr. Goodisman is a registered representative in the U.S. holding Series 24, 7 and 63 FINRA licenses.

Leonard Sokolow, CPA

Mr. Sokolow's company is in the financial services industry and is focused on high-net-worth and institutional investors and high-growth companies. Its subsidiaries, National Securities Corporation and Finance Investments, Inc., provide investment banking, retail and institutional brokerage services across the United States and in Latin America, Canada and Europe. Previously, Mr. Sokolow was President of Genesis Partners, Inc., a private financial business consulting firm, from 1994 to 1998, and Chairman and Chief Executive Officer of the Americas Growth Fund, Inc., a public closed-end management investment company. He has also been a director of Consolidated Water Co. Ltd. and Chairman of its audit and nominations committees, since 2006 and 2009, respectively. Mr. Sokolow is a Certified Public Accountant and holds his B.Econ. degree from the University of Florida, a J.D. degree from the University of Florida, Levin College of Law, and an LL.M. (Taxation) from the New York University Graduate School of Law.

Binh Vu

Binh Vu is a lawyer practising in the area of corporate finance and securities law. He was previously a partner at Aird & Berlis LLP where he advised resource and energy based clients in respect of equity and debt financings, mergers and acquisitions, divestitures and corporate restructurings. Mr. Vu holds a Masters of Tax from the University of Waterloo (2005), an LL.B from Queen's University (2000) and a Bachelor of Science from the University of Toronto (1997).

Curtis Cohen

Mr. Cohen graduated from the University of Chicago Laboratory Schools (Baccalaureate) in 1971 and has geology degrees from Lawrence College (BA, 1975) and Columbia University (MA, 1979). For fifteen years, Mr. Cohen worked in Exxon Mobil affiliates, including the Europe-Africa Division of Esso Exploration Inc. in the UK and US, Esso Nigeria, Esso Norway, Esso REP France, Esso Australia and Exxon Co. International and lived a decade abroad. After returning to the US, Mr. Cohen was recruited by Pogo Producing Co. (Pogo) in 1995 and spent the next dozen years leading exploration offshore Thailand, the North Sea and New Zealand, resulting in the drilling of nearly 500 exploration and development wells.

When Pogo was acquired in 2007, Mr. Cohen joined Terralliance Technologies Exploration (TTI), a private start-up funded by Goldman Sachs and Kleiner Perkins, as the New Ventures Manager. TTI rebranded as Neos GeoSolutions and Mr. Cohen became the Exploration Manager for its affiliate Energy Operations Argentina in Buenos Aires. Mr. Cohen has participated in the discovery of 600 MBO in Nigeria OPL 222/223 for Esso Nigeria, 500 MBOE in Thailand B8/32 for Pogo Thailand and 100 MBOE in Longtom & East Kingfish field for Esso Australia.

Mr. Cohen is a member of the American Association of Petroleum Geologists (AAPG), The Society of Exploration Geophysicists (SEG), The Geological Society of America (GSA) and The Society of Petroleum Engineers (SPE). He is also a biographee named in Who's Who In Frontiers Of Science & Technology and has published more than a dozen professional articles in Bulletins of the Geological Society of America and the American Association of Petroleum Geologists and Tectonophysics, among other publications.

Risks/Final Thoughts

This is a micro-cap resource company and that brings with it some unique risks:

- Lack of liquidity in the stock

- Challenges arranging financing for projects in a difficult market

- A volatile stock

- Commodity price (oil) will influence the value of assets and ability to attract financing

- All assets are non-producing

The $50 million of cash expected from the cancellation of the Clearwater leases truly does change this company. There is certainly a risk that the entire $50 million won't be received. I don't know how exactly to handicap that risk, but by the letter of the law, it would seem like the company should get that amount of money.

If that $50 million in cash is confirmed, the AOS stock price is going to double quickly. If AOS only gets half of that amount, the stock price should still move higher. And even with no cash from Clearwater, this is a debt free company with a decent cash balance.

The size of this company and the fact that it is in the commodity business puts it in the high-risk category, so please remember this is one for a diversified portfolio. The lack of debt, incoming $50 million and the lottery ticket type potential of the various assets is what makes it attractive to me.