American Sands Energy (AMSE) - Eastern Utah by David Riedel.

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Oil sands are a critical source of oil for America. Canada is our largest source of imported oil sending two million barrels a day over the border. Half of that comes from oil sands.

There are extensive oil sands on the U.S. side of the border especially in Eastern Utah where it is estimated that 12 to 19 billion barrels of oil reside.

While fracking and natural gas get so much of the attention these days, oil sands have the potential to become a major domestic energy source.

One of the major challenges with mining and processing oil sands is the fact that traditional approaches use several barrels of water in the processing of one barrel of oil.  This is where one company is significantly different—its process uses no water.

American Sands Energy (AMSE) is a development stage company focused on oil sands deposits in Utah. It has licensed technology to process oil sands without using any water and at a cost well below competitive approaches. Since AMSE’s process uses no water, it creates no tailings or other waste that requires containment or permits.

AMSE is raising capital to build out a 5,000 barrel per day facility in Eastern Utah to process sands from mining claims that it owns or partly owns.  The company currently has 150 mn barrels of likely reserves that it controls and is confident it could add 500 mn barrels of reserves in the area quite easily.

American Sands has licensed technology from Universal Oil Recovery Corp., which has a proprietary solvent and process that allows for a very clean, low energy process that uses no water and results in no emissions or waste products. This technology has been tested on a pilot plant for the past two years and has proven to work efficiently. Once up and running in 2015 the plant will be at break-even at oil prices of $45/barrel (WTI crude is currently at $106 per barrel).

AMSE’s unique process mixes a proprietary solvent with the oil sands that separates the oil (in the form of bitumen) from the sand.  The sand is then re-heated allowing the solvent to escape and be recycled for reuse. The process results in clean dry sand that can be sold or used in mining operations and bitumen that can be used as is in road paving operations or processed into other products.

Risks include permitting risk, processing plant scale risks, considerable related party transactions and exposure to a commodity market.

American Sands is currently loss making and has a market cap of $10 million.  The company estimates that its total capital requirements are $70 million to put all of its properties into production.

We have estimated the company’s value using three popular methods for valuing development stage oil companies. Averaging these three estimates and adjusting for CAPEX and time to reach production provides a value of $58.8 million or $1.56 per share. We believe American Sands Energy is significantly undervalued and represents a unique way to play alternative energy sources in the U.S.

More in: AMSE Initiation Report July 2013.