Was doing some DD on a new junior that just did a QT transaction that recently bought a huge land package in the region.... came across this article and thought some may like to see it (if you have not already) The company I bought into is a junior with some of its assets in the Duvernay area (125,000 acres) Company name (High North Resources Ltd (V.HN). Not trying to spam but like to purchase into junior space - noteable start-ups in a hot region.
At the bottom all post there website and bullboard where I have posted all the news for those interested in looking at a junior who has an aggressive program for growth.
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The multibillion-barrel trove of energy that lies trapped in tombstone-dense rock across a vast tract of west-central Alberta is not all in the hands of the oil majors, says Brian McLachlan.
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“Here, I’ll show you,” he says, jumping up from a boardroom chair and retrieving a map from the wall. “What I do believe we’re learning,” he says, spreading the oversized paper out on a table in the fashion of a 14th-century explorer, “is that certainly not all Duvernay is equal. You have to be in the sweet spots. And we are in a sweet spot – the thickest and the best part of the play.”
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Yoho Resources CEO Brian McLachlan thinks his company is sitting in the sweet spot of the Duvernay play
Photograph Bryce Meyer
.McLachlan, chief executive officer of Yoho Resources Inc., has quietly amassed 21 net sections in the Duvernay, in a window he believes is ideal for tapping a rich vein of rock soaked in petroleum liquids like propane and ethane.
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Other producers, including Encana Corp., Talisman Energy Inc., Shell Canada Ltd. and Chevron Corp., have followed suit, spending more than $3 billion since 2009 snapping up land in the sprawling formation, which could hold 11.3 billion barrels of natural gas liquids, plus 440 trillion cubic feet of natural gas and 61 billion barrels of crude oil, if appraisals by Alberta’s Energy Resources Conservation Board (ERCB) prove correct.
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By all appearances, McLachlan has positioned Yoho at ground zero of Alberta’s next petroleum bonanza. “So far we’ve had pretty good luck,” he says, noting that individual sections his company bought for $20,000 would now fetch $3 million. “Getting in early does help,” he adds, “especially when it starts working.”
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“We’re delineating a mine. Maybe we cut a deal with the BHP [Billiton]s of the world to spend the big money.”
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Crown land sales in Alberta have cooled dramatically since the buying frenzy of 2009, suggesting the play is indeed beginning to work. Sales of drilling rights totaled $579 million in the first six months of fiscal 2012, the province said in a second-quarter update. A recent land sale netted just $13 million, or $2 million shy of what Encana says it will cost to drill a single well on its Duvernay acreage.
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The slowdown underlines the shift away from resource appraisal – the slow work of peering under rocks and gathering data – in a shale play said to rival the Eagle Ford in Texas in size and potential production.
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“Everyone’s at varying stages [of development] depending on when they got in,” says McLachlan, whose outfit pumped an average of 2,200 barrels of oil equivalent in the year ended September 30, 2012. “But if you look at, for example, some of the Encana leases that they’ve licensed wells off of, the actual survey shows an eight-well pad. Shell’s drilling two wells off a pad already, so they’re actually ahead of us.”
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Hydraulic fracturing crews and completions outfits are among those mobilizing in response to the activity. Trican Well Service Ltd., to take one example, recently moved into a renovated lumber mill on a 25-acre lot in Hinton to capitalize on new business in the region. It also owns operation bases in nearby Grande Prairie and Whitecourt.
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Like others, Trican has been stung by tumbling natural gas prices and the resulting slowdown in field activity. It said third-quarter revenue fell 13 per cent last year, to $322 million, as the number of active drilling rigs in Western Canada fell by 28 per cent and completions declined 31 per cent compared to a year earlier. Canadian pricing declined six per cent over the same period, the company said.
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A shift away from exploratory drilling toward “pad” production in the Duvernay might help reverse that trend, suggests Rob Cox, vice-president of Trican’s Canadian geographic unit. He says a “major” client is planning a four-well pad in the play, although he won’t say whom. “That tells us you’re getting past the exploratory phase and closer to the development phase,” he says in an interview.
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The Duvernay is particularly attractive to pressure pumpers; it takes more energy to blast fissures in the formation that let trapped gas and oil flow. Horsepower requirements in the Duvernay, on wells with up to 15 stages per bore, are “on the high side, for sure,” Cox says, ranging from 17,000 to 30,000 hydraulic horsepower. “So you’re talking about needing anywhere from 15 to 20 or more horsepower pumpers just to do a frack.”
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Only a fool would tail-gate the lumbering machinery that makes a shale gas well hum. Along a two-lane rural highway northwest of Edmonton during a late-November storm, convoys of half-tonne pickups, pressure pumpers and mobile rigs kick up their own weather systems of blowing snow and howling wind.
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The trucks hauling gear into and out of hidden well sites belong to oilfield service giants Schlumberger, Halliburton and Baker Hughes, who have followed the explorers into the heart of the Duvernay. In the service hub of Whitecourt, Mayor Trevor Thain reports the telltale signs of an oncoming boom.
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Hotel rooms are booked solid, he says. Workers are scarce and getting scarcer – the local paper, the Whitecourt Star, now boasts 10 pages of want ads, up from two previously, he says. Meanwhile, retail sales have been strong, Thain says. So have sales of industrial land. As of November, the town had made $400 million selling industrial-zoned lots in 2012, mostly to oilfield support businesses in welding, trucking and fluid hauling, the mayor says. “And we’re not done yet. There’s still lots in the fire,” he says.
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The town’s proximity to the Kaybob liquids zone has been especially helpful. There are no hotel rooms in Fox Creek, the mayor says, where much of the activity is centered. “We’re seeing an influx of people that are moving into our community to service those areas,” Thain says, “even though they are upwards of 60 to 80 kilometers away from us.”
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For drillers, the absence of amenities located in close proximity to the most promising acreage only serves to increase exploration costs. Last year, for instance, Yoho pumped $13.5 million into just one well – about 70 per cent more than what the company raised in a private placement of securities last fall. “But you’ve got to remember, this is one well,” McLachlan says. “You’ve got to move in all that water, all that equipment, for one well.”
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He says costs will fall when multiple wells are drilled from a single pad. “You can imagine how much more efficient that is,” he says.
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Convoys of half-tonne pickups, pressure pumpers and mobile rigs kick up their own weather systems of blowing snow and howling wind.
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Another reason for optimism: monster yields of condensate and a ready-made market located next door in the oil sands. The ultra-light oil, which typically fetches a premium to the North American benchmark, West Texas Intermediate, is used by oil sands producers to make bitumen flow in pipelines. “The real key,” says Andrew Beaton, manager of the ERCB’s resource appraisal group, “is finding that right match where you have the right rock characteristics where you can actually get those liquids out.”
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Producers that perfect the combination stand to make a lot of money. Energy consultancy Wood Mackenzie projects the Duvernay is so soaked in condensate that individual wells could generate revenue of between $4.6 million and $5.6 million each on a net present value basis.
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Such windfalls only partially offset the capital required to commercially develop modern resource plays, however. McLachlan, who served as a director at Progress Energy Resources Corp., is not oblivious to the challenges faced by small companies with large holdings in promising resource plays. Yoho recorded an $8.8 million loss on falling gas prices in its last fiscal year. The company is carrying $18.5 million in debt and plans to spend between $35 million and $38 million this year, most of it in the Duvernay.
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It takes a “small town” of equipment to bring a shale gas or oil well on stream, McLachlan says, turning philosophical. “Maybe the small company’s role has changed,” he muses, comparing Yoho to a junior mining outfit. “I don’t think this is a heck of a lot different,” he says. “We’re delineating the mine, and maybe we cut a deal with the BHP [Billiton]s of the world to spend the big money.”
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Deals, Deals, Deals
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Encana Corp. received an early Christmas gift in the form of $1.18 billion from PetroChina after the two companies agreed to work together to develop the Calgary natural gas producer’s Duvernay acreage.
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Encana, Canada’s largest natural gas producer, agreed in December to sell a 49 per cent interest in more than 400,000 acres in the prospective shale field to Phoenix Duvernay Gas, a wholly owned subsidiary of PetroChina, for $2.2 billion.
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Encana said $1.18 billion was paid on closing, with the remainder to come over a four-year development program that will see the companies spend a total of $4 billion on new drilling, completions and processing facilities, according to a statement. Encana estimates its Duvernay holdings contain nine billion barrels of oil equivalent.
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The deal, announced less than a week after Ottawa approved the sale of Nexen Inc. to China’s CNOOC Ltd. and introduced new foreign investment rules for state-owned enterprises, “has big implications for Duvernay land valuations across the board which lends some credence to claims that the Duvernay could be the next Eagle Ford,” CIBC World Markets analyst Andrew Potter told clients in a note.
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Among the smaller companies that stand to benefit the most is Trilogy Energy Corp. “They seem to be in the right postal code,” says Patrick Reddy, an equity analyst with Leith Wheeler Investment Counsel Ltd. in Vancouver. He owns shares in Encana and recently bought a “small position” in Trilogy. “They’re partnering on a handful of wells with Shell,” he says of Trilogy. “Their lands are adjacent to one another, so they’re well situated, but it’s still quite early.”