The Montney

“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”

BMO Capital Markets Research Note

Introduction

The Lower Triassic Montney Formation of Alberta and British Columbia (BC) has been the target of oil and gas exploration since the 1950s. Until recently most of the investment was directed towards conventional sandstone and dolostone reservoirs, however there is also a considerable thickness of siltstone, saturated with oil and gas, which cannot be developed using conventional technology.  With recent advances in horizontal drilling, multi-stage hydraulic fracturing and completion design it has become possible to develop these siltstones and as a consequence the Montney has become the most active oil and gas play in Canada and one of the most attractive plays in North America.

According to the National Energy Board of Canada (2013) the siltstones of the Montney Formation are expected to contain 449 trillion cubic feet (TcF) of marketable natural gas, 14,521 million barrels of marketable Natural Gas Liquids (NGLs), and 1,125 million barrels of marketable oil. One of the most notable features of the Montney is its vertical thickness, which exceeds 300m in some places in BC. Most producers have at least 200m of exploitable vertical pay, presenting the opportunity for commercial development to involve several layers of wells which improves the productivity of each well pad. It is also notable that the interval being developed is a reservoir with natural porosity (average 6%) rather than a shale which results in enhanced productivity per well.   The characteristics of the Montney siltstone are well suited to fracking resulting in exceptional fracture stability. Calima has used a proprietary geological work-flow to identify and capture a significant land position within the super liquids rich window of the Montney play in British Columbia where the presence of a significant proportion of natural gas liquids and oil results in improved economics.


Location, Location, Location….

Calima Energy holds over 63,000ac of Montney rights in the “liquids rich” fairway in NE British Columbia Canada. The land position started assembly in 2014 and continued into 2018. Through a successful exploratory drilling program in 2019, Calima was able to convert ~60% of the core acreage to 10 year leases. 

The Montney Formation is an Early Triassic aged formation in the Western Canadian Sedimentary Basin extending over 130,000 sqkm from north-east British Columbia to north-west Alberta. The Montney Formation forms part of the Western Canada ‘Deep Basin’ system, a pervasive hydrocarbon system of organic rich shales and siltstones where tight reservoirs exist in close proximity to matured hydrocarbon-expelling source rocks. The sediments were deposited in a shallow marine shelf environment in which sediments flowed into the basin in a south-westerly direction as a series of channel and fan deposits. The Montney Formation is dominated by siltstones with varying degrees of dolomitisation. The thickness of the Montney typically ranges from 100-300m, thinning to zero at its eastern and north-eastern edges while increasing to over 300m on its western side. The depth from surface to the top of the Montney ranges from 700m to 4,500m, increasing from northeast to southwest.


Reserves

Calima has drilled, three wells in the Montney.  The first well retrieved 240m of core from the Montney formation.  The second and third wells each had 2500m horizontal legs and were located in the upper and middle Montney formation.  These wells were successfully completed and tested resulting in a maiden contingent reserve estimate of 1.176 TCFE/ 1,247 Pje.  McDainel’s and Assoc. is currently updating the reserve book with 2020 costs and pricing, as well as incorporating “development ready, pending investment” reserves. 

The first attempt to employ multistage hydraulic fracturing in a Montney horizontal well occurred in July 2005, near Dawson Creek. Initial production commenced at rates four-to-five times greater than previously drilled vertical wells in the same target horizon. This was quickly followed by other successful horizontal wells which, along with subsequent drilling and coincident geologic investigation, eventually defined the regional unconventional resource play trend. The Montney Formation has emerged as one of the most commercially attractive and compelling unconventional prospects in North America. More recently, following exceptional results in liquids-rich areas, a rush to find new liquid-rich sweet-spots has ensued.


Tommy Lakes Infrastructure Acquisition Provides Egress

Calima closed on the acquisition of the Tommy Lakes infrastructure in April 2020. 

The Tommy Lakes infrastructure includes over 30km of pipe, three compressor stations, an accommodations camp and a tie-in to a 12” sales gas line.  The design capacity of the infrastructure is 50mmcf/day of gas and 2,500bbs/d of condensate.  The sales line has capacity to accommodate an expansion of the Tommy facilities in the future.  The Tommy Lakes infrastructure is currently preserved in a shut-in state and ready for reactivation.  These facilities have a replacement value of A$85 million.

Calima has the permits in place to construct the pipeline to tie-in the Montney wells at Pad A-54 to the Tommy Lakes infrastructure.  The tie in could be completed in one winter season and the facilities would be restarted within the same timeframe.


Commodity Prices

Canadian markets continue to see strengthening in spot and long term pricing.  Year over year strip pricing has increased $1.00/Mmbtu.  Improved egress from TC Energy investing over C$5B into the NGTL infrastructure supports pricing. 

Station 2 and AECO pricing hubs are seeing pricing parity from a historical differential favouring AECO over Station 2. 

LNG Canada continues to construct their 14 million tonne per annum project on the West coast of Canada.  A projected on stream date of 2024 continues to bring optimism to NE British Columbia gas producers as ~30% of the current base production from the region is the volume necessary for the first phase of the LNG Canada export facility.

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