Here’s a summary of some review work and thoughts of mine pertaining to IBR’s Nov 2017 Corporate Presentation that I wanted to share:
I managed to create economic type well models for both IBR’s Moderate and High Cases using info they’ve provided in the Nov/17 Corporate Presentation and Q3/17 report. The NPV10 values of my models (using McDaniel’s Jul/17 price forecast) were $3.6MM and $6.8MM respectively. With “mid-period” uplifting I get $3.9MM and $7.3MM so I’m very close to IBR’s results – a very reasonable match I think. Some obvious sources of error come from converting the graphical type curves into numerical monthly rates and the assumed exponential forecasts/final production rates for both cases (both final rates were 40 boe/d). The point here is that I was able to show that the recent public information given for such things as op/transportation costs, royalty rate and liquid (oil+ngl)% are consistent with their type well NPV10 case values. Nothing I see in the type well models (IP rates, declines, reserves, ngl yields, Op/transport costs, etc.) looked the least bit aggressive and McDaniels’ price forecasts are known for being on the conservative side. It’s also interesting to note that the Liquid% (oil + ngl’s) in the Moderate and High Cases were run by IBR at 33.6% and 30.4% respectively match the numbers given in the Q3/17 Report’s “Elmworth Montney Update” section.
Looking at the Elmworth Development Well Layout Map in the Corporate Presentation I counted about 264 Hz’s (give or take) on a single development layer divided roughly into 3 groups: 89 x 1-mile wells, 61 x 1.5-mile wells and 114 x 2-mile wells. Most of the wells are put into 6 well pads. I decided to play development planner and assume that IBR drills 3 pads (~18 wells) per year which equates to 14.7 years of consistent drilling. The I assumed that 1 mile Hz’s had the Moderate Case NPV10 value of $3.9MM, the 2 mile Hz’s had the High case NPV10 value of $6.9MM and the 1.5 mile Hz’s were the average of the two cases with a $5.4MM NPV10 value. This gave a total average development well NPV10 value of $5.5MM/well which I used over the full development drilling period which in turn results in a $751MM single layer value. I know this is a rougher estimate than 80 grit paper but gives me some kind of ballpark look at total net asset value (works out to $4.81/sh). Keep in mind that only current (2018) type wells were used - if McDaniels' forecast commodity increases, which early on exceed inflation, come to pass the type wells for 2019 onward will be worth much more. There would be facility and gathering infrastructure costs to be netted of course but those costs would be spread over many wells and could very possibly be substantially offset by value created from further improvements in well design. Also this does not take into account the potential of the other two Montney layers that could be productive enough to add more wells. So although this is a very rough spreadsheet based economic exercise these numbers show the importance of the upcoming Hz’s. Good execution with results that meet expectations will prove up value should attract some serious attention – with stock value multiples higher than $0.69.
Another thing is that I noticed that IBR in their presentation gives the Mid-Montney a 20.5 MPa reservoir pressure which for a 2200m TVD deep Montney wells works out to a 9.27 kPa/m gradient (slightly under-pressured) which is pretty much what I expect for where those lands are located on the trend. Again the numbers jive.
I really like that a sliding sleeve completion system is planned (possibly NCS?). The 80 stages (30m/stage) at 1.25 tonnes/m proppant loading I think will give a great stimulation but also reduce risks of sandoff, frac’ing out of zone and connecting with what I think might be more mobile water in the Upper-Montney. There is also a strong correlation to number of stages vs production so that might help to possibly exceed their current type well curve. It would be a “nice to see” if they could try using something like a 70% quality foam but the previous 1600m slick water Hz does show to me that slick water can work in this rock.
Anyways like I said before I found the Corporate Presentation very informative and I’m pleased to see the level of consistency in the details. It does make me believe that there’s excellent shareholder value here. Which explains in spades why Bison’s so darn interested in acquiring more…