Calima Energy advances its liquids-rich Montney play
Thursday, Sep 07, 2017
  • Licensed 60 km of Montney 3D seismic data over core of Calima Lands
  • Acquired extensive well database with more than 60 wells within 35 km
  • Sub-surface evaluation well advanced, integrating new seismic and well data 
  • Initiated well planning studies with a view to drilling in 2018

Calima Energy Limited (ASX:CE1)  (“Calima” or the “Company”) continues to advance the liquids-rich Montney play and has licensed a high-quality 3D seismic database covering a significant portion of Calima’s landholding (“Calima Lands”) in addition to acquiring a regional well log database that includes more than 60 Montney penetrations within 35 km of the Calima Lands. The seismic and well database will be used in the subsurface evaluation and well planning, with a view to commencing drilling activities in 2018. The company is pleased to provide the following regional update and briefing.

The Calima Lands, in the Caribou area of British Columbia, cover an area of 51,455 acres that has quietly been built up over the past three years through established open land sale auctions in British Columbia. The Company continues to participate in regular Government land sale auctions with a view to increasing its position to 65-70,000 acres by year-end, providing a sound foothold in the basin and providing significant scale in a Tier 1 basin.

Based on a proprietary mapping methodology developed using more than 1,400 wells across the Montney play, including well penetrations of the Montney in, and immediately adjacent to, the Calima Lands, the Company expects the area to be liquids-rich and comparable to the acreage being operated by Saguaro Resources Limited (Saguaro) immediately to the southeast.

Saguaro has invested more than C$400 million in drilling and infrastructure. As of August 2017, Saguaro has drilled 46 wells with current production (from 36 wells) averaging c. 10,500 boed (peak daily production in July 2017 exceeded 15,500 boed). Condensate and Natural Gas Liquids (NGLs) account for ~25% of Saguaro’s production volume but deliver almost 50% of revenue. Saguaro reported estimated ultimate recoveries (EURs) of 6 to 8 Bcf per well which gives an IRR of 40 to 3% respectively, at current prices.
Alan Stein, Calima’s Managing Director commented: “The existing wells in and around our acreage position have confirmed our view that the Montney Formation in the acreage acquired by Calima is directly analogous to the acreage being successfully developed by Saguaro Resources immediately to the southeast. It is fortunate that we have been able to acquire a substantial land holding in the core of the liquids-rich play fairway on advantageous terms ahead of the industry.

“We believe that proving up the play by drilling and completing three horizontal wells will be a key value catalyst, and we have initiated well planning studies to drill these in 2018.”

The Montney Play
The Lower Triassic Montney Formation of Alberta and British Columbia (BC) has been the target of oil and gas exploration since the 1950s and, until the mid-2000s, historical investment activity was directed towards conventional sandstone and dolostone reservoirs. With recent advances in horizontal drilling and multi-stage hydraulic fracturing it has become possible to develop these siltstones, which are up to 300 meters thick, are saturated with oil and gas and have natural porosity.

As a consequence, the Montney has become the most active oil and gas play in Canada and is one of the most economically attractive plays in North America, with the basin currently responsible for the greatest number of rigs operating in Canada today.

According to the National Energy Board of Canada the siltstones of the Montney Formation are expected to contain 449 Tcf of marketable natural gas, 14.5 Bnbbl of marketable NGLs, and 1.1 Bnbbl of marketable oil.

Drilling Activity & Deal Flow
The Company believes that growing levels of investment into the Montney and the presence of an active asset transaction market creates optionality in how the Calima Lands are developed, monetised or otherwise transacted to deliver value to shareholders.

The pace of activity and acreage deal flow in the Montney appears to be on an upward trend. According to Wood Mackenzie it is currently the most active play in Canada with C$5.2 bn in investment planned for this year, which is predicted to rise to C$7.5 bn by 2022. Current production is 4.9 billion cubic feet of gas per day and 247,000 barrels of condensate and other liquids per day. This is predicted to more
than double by 2022.

The number of wells drilled into the Montney Formation in BC during 1H 2017 is 67% higher than the corresponding period in 2016. In the June and July 2017 auctions for Crown land there were successful bids for 149 sections, which is an increase of almost 100% over the same period last year. The July auction was particularly noteworthy with a bid of C$77m for c. 13,700 acres (~C$5,600/acre) in the liquids-rich part of the play in the Attachie area of BC, some 120 km to the south of the Calima Lands.

In June 2017 the Government noted that it has received a request for c. 100,000 acres to the east of the Calima Lands to be included in an upcoming land sale. This is an unusually large tract of land to be included in a land sale and it would extend the play limit far to the east of the Calima Lands.

In a recent note (22 July 2017) on Montney deal metrics the Bank of Montreal (BMO) commented that certain areas of the liquids-rich Montney play generated comparable, if not superior, economics to the mainstream US plays including the Permian. BMO noted that in light of this that there was an apparent disconnect between typical transaction metrics of $2,500-5,000/acre in the Montney with c $30,000/acre in the Permian. In the four month period to July 2017 there were C$1,256 bn of asset transactions in the Montney. The weighted average cost per acre was C$3,776.

Enhanced Economics - Liquids Rich Fairway
Although predominantly a gas play, most recent activity in the Montney has been focussed on those parts of the play that are rich in condensates and other NGLs as they offer superior economics. Wood Mackenzie noted that breakeven costs in the liquids-rich part of the play were currently around US$1.70/mcfe, one of the most competitive in North America. A recent research note by BMO said:

“The super liquids rich window of the Montney in British Columbia will emerge as one of the top plays in Western Canada and perhaps in North America.”

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