Calima looks to deal on Montney oil and gas acreage

Calima Energy is seeking to deal on its lucrative oil and gas acreage in the Montney formation in Canada after commencing oil production at its newly acquired Brooks and Thorsby project, also in Canada. Options on the table include an asset sale, joint venture, asset exchange or some other transaction. Calima has engaged Canada’s leading investment bank, Peters and Company to run the ruler over the options.

The company’s liquids-rich Montney gas and condensate asset is development ready with a significant prospective resource of 1.68 Tcf and 84 Mmbbl oil. The landholding is 60,000 acres of prime Montney oil and gas leases in northeast British Columbia. Calima holds a 100 per cent working interest in the acreage with drilling rights and a 10-year continuation lease earned through its 2019 drilling campaign. Calima says the Montney formation is gaining global attention as the massive Shell lead LNG Canada project moves closer to commercialisation. Recent global developments have focused North America on the gas market with prices continuing to rise, surpassing C$4.65/GJ on the spot market recently with futures trading at C$5.00/GJ.

The Canadian Montney play is considered a first-class address for oil and gas production and is inhabited generally by the very large players with even larger chequebooks. Montney wells provide amongst the highest rates of return for basins in North America. The play produces light oil, liquids-rich natural gas and easily marketed dry gas.

In 2019 Calima completed a three-well program at its Montney project. Calima’s first three wells at the Montney are 2,500m horizontal wells with 92 stage completions. The Calima 2 well provided a substantial 10.2 MMcfd/d under test and long-term reservoir monitoring confirmed excellent pressure maintenance according to the company. Calima’s Montney project has a large resource potentially capable of long-term production with 195.6 MMboe 2C resources and estimated ultimate recoveries of 8.4 Bcf per well. Drilling licenses requiring validation prior to the scheduled expiry in 2022 hold the remainder of the acreage.

In addition to its undeveloped oil and gas resources in the Montney, Calima owns the associated Tommy Lakes production and pipeline facility designed with a capacity of 50 Mmcfd and 2,500 barrels of oil daily. The plant alone has a replacement value of $85 million. Tommy Lakes is connected to the NorthRiver Midstream pipeline that provides access to all major gas pipeline networks in the region and with Shell’s LNG exports from Canada on track to commence in 2024, the region is hotting up.

Calima’s Montney assets are development-ready, with all major approvals in place now for construction of a short tie in pipeline from the Calima 2 and 3 wells to the Tommy Lakes processing infrastructure that it picked up a year or so ago in a separate deal. A previously constructed well pad will accommodate up to 20 wells.

Calima has recently been focused on its Brooks and Thorsby producing oil and gas assets to the south of the Montney that it picked up in a deal earlier this year that saw it take over private Canadian firm Blackspur.

The Brooks and Thorsby assets catapulted Calima into producer status overnight and the company now has a spring in its step and cash in its treasury as it seeks to expand those projects.

Recent merger and acquisition activity in the oil and gas industry has been running hot and while the Montney remains a strategic resource for Canada and the US market, corporate activity in the Canadian oil and gas sector is starting to look like a stampede.

Recent transactions include the C$8.1 billion merger of the almighty ARC Resources and Seven Generations Energy, an impressive Black Swan sale to Tourmaline for C$1.1 billion. Transactions coming in under a billion include ConocoPhillips’ C$550 million purchase of Kelt’s asset package, Canadian Natural Resources C$461 million purchase of Painted Pony and Saguaro’s sale of its fifty per cent interest in production and facilities that hold 9,000 boe/d to Tourmaline for $205 million.

Saguaro’s ground abuts Calima’s Montney project in places and notably Saguaro has pumped hundreds of millions into its neighbouring ground.

Commenting on the company’s plan to deal on its Montney ground, Calima CEO and President Jordan Kevol, said: “Peters & Co. brings the necessary experience to identify, evaluate and execute potential alternatives for Calima’s Montney assets. They have executed on a majority of transactions in the Montney and know the value opportunity better than most. Our Montney acreage is a material long life asset with significant resources and upside in a proven basin that is currently the centre of activity in gas consolidation in Canada.”

“With the commissioning on LNG Canada by SHELL drawing nearer and continued strength in gas prices, we feel that now is the time to either find a strategic partner to fund the development or to monetize the asset.”

Calima is set to stage a significant transaction on its Montney asset and no doubt any consideration received will come in handy when it comes to ramping up the number of wells it puts down at its Brooks and Thorsby assets.

Given that the cost to produce a barrel of oil equivalent at Brooks and Thorsby is currently between US$30.85 and US$35.10 and the WTI price is running at around US$68, it is perhaps not surprising that Calima has the bit between its teeth at those two projects now.

Is your ASX-listed company doing something interesting? Contact: matt.birney@wanews.com.au