Small capped ASX-listed Calima Energy’s swathe of liquids-rich gas ground in Canada’s revered Montney formation looks well placed with corporate activity worth hundreds of millions of dollars happening all around it. This month, Painted Pony Energy Ltd agreed to sell its undeveloped acreage in the Montney to Canada’s largest oil and gas producer, Canadian Natural Resources Ltd, for C$469m.
The sale of Painted Pony’s 185,704 net acres of Montney ground - which in some parts is only about 30km to the south-west of Calima’s 61,000 acres - represents an extraordinary C$2525 an acre.
Just last month, ConocoPhillips acquired 140,000 acres of leases in the Montney Formation from Kelt Exploration in a C$550 million deal which appears to value Kelt’s undeveloped leases at up to C$2,000 per acre.
The northern tip of that land package is just 70km to the south-east of Calima’s ground.
Closer to home the very successful Tourmaline has also been flexing its muscles in the region, earlier this year picking up private company, Polar Star’s ground that abuts Calima’s package on the south-east corner.
Tourmaline also made a bid for Chinook’s ground earlier this year that lies about 40km to the south-east of Calima.
Whilst investment market crystal ball gazers have been trying to see through the COVID-19 inspired fiscal fog to get a take on the future of energy prices, big companies like Canadian Natural Resources, Conoco and Tourmaline have their ears laid back and are sweeping up ground in the Montney at will.
Oil companies in the USA have been shutting in their domestic oil wells at an alarming rate due to low, year-end oil prices and many have slashed and burned budgets. With this comes an associated reduction in the flow of natural gas from those oil wells, leading to what some pundits suggest will be a surge in gas demand in areas like the Montney due to the reduction in US supply.
The Montney Formation is Canada’s hottest oil and gas play right now and currently boasts around four times the gas resource volumes of Western Australia’s revered North West Shelf according to Calima.
Unlike the North West shelf, however, the Montney is an onshore deposit with pipeline infrastructure already in place to feed into one of the world’s biggest gas markets just across the border in the USA.
Calima carved out an unusual advantage for itself in the region after it picked up the transformational Tommy Lakes oil and gas processing infrastructure just to the north of its ground last year in a deal worth A$85m.
The company has been able to upgrade its oil and gas resource assessment on the back of the Tommy Lakes acquisition, with 12.4 million barrels of light oil and 248.9 billion cubic feet of gas moving from the “Development on Hold” category to “Development Pending” category.
These are the resource volumes that would immediately be elevated into the 2P Reserves category, subject only to securing funding.
Notably, LNG Canada is building a terminal for the liquefaction, storage, and loading of liquefied natural gas in the port of Kitimat, British Columbia, Canada that will export gas from the Montney.
Calima says that LNG Canada, operated by Shell, is due to come on line in 2024 and is likely to soak up fifty per cent of Canada’s current gas production to feed the facility.
The Canadian gas price is set at Alberta Energy Co’s AECO gas storage facility known as the “AECO hub”, one of North America’s largest natural gas hubs. Calima says the Canadian gas price peaked in May this year at around C$2.50 per MMBTU after prices ramped up by 50 per cent over the last 12 months. The spot AECO hub gas price currently sits at a tad over C$2.20 but is forecast to climb back well above C$2.50 going into the northern hemisphere winter, according to Gas Alberta Inc’s latest price forecast.
By comparison, North America’s other big gas hub, “Henry Hub”, down in the bayous of Louisiana, is currently trading gas at around US$1.80 per MMBTU and has been on a downward trend for some time, according to America’s Energy Information Administration. Henry hub is a spaghetti junction of around a dozen pipelines that move gas all around the lower 48 states of the USA.
Oil and gas is often about timing and Calima’s timing in sneaking into the northeastern sector of the Montney before it hit the radars of the majors was exquisite.
Calima’s current gross ‘2C’ Contingent Resources estimate sits at 888.1 billion cubic feet of gas and 44.4 million barrels of light oil and gas liquids, equating to over 1.15 trillion cubic feet of gas.
With $3m in the bank at last look, a relatively manageable monthly cash burn and majors doing deals all around it, Calima can afford to sit quietly for a while until one of them comes knocking – and it is looking increasingly likely that they will.