Clearwater (RBC) February 8, 2022
Canadian E&P Perspectives – Clearwater
Clearwater Monthly: Jockeying for Pole Position
Our view: Clearwater oil volumes closed out 2021 above 62,000 bbl/d, growing at a monthly clip of nearly 5%. The play continues to attract material capital and screens as the third most active in the WCSB, behind the Montney and the Viking (see here). Producers continue to delineate areas outside the core Marten Hills/Nipisi region, pushing both south (Jarvie, Ukalta, Figure Lake) and west (Peavine). Initial results have exhibited some variability but broadly support further development driven by strong economics. We expect increased activity in 2022 with roughly 50% growth in overall play volumes, as the Clearwater has become a priority for producers on both the public and private sides of the aisle.
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Clearwater oil production now exceeds 62,000 bbl/d. Clearwater spuds have nearly doubled from 2019 levels, pushing regional volumes above 62,000 bbl/d in December 2021. Private producers account for nearly 65% of current production volumes. Sub-C$40/bbl supply costs (15% Btax IRR) in key regions are driven by simple open hole completions (well costs of $1.0–1.4 million) and continue to drive significant producer activity, which we believe will persist through 2022. Additionally, Clearwater assets continue to transact at premium metrics relative to broader oil-weighted assets in Canada and land sale activity has ramped up (Exhibits 6 and 7). Based on our survey of Clearwater producers, we expect play volumes to approach 90,000 bbl/d by year-end.
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Marten Hills – Heart of the play. Marten Hills has been dominated by Spur Petroleum and Deltastream Energy (private) and Headwater Exploration (public), with initial development beginning early 2017. Marten Hills remains the most active area, with production volumes exceeding 36,000 bbl/d. We expect the upward growth trajectory to continue, with the three primary MH producers each expected to grow volumes by 30%+ this year. Headwater recently announced successful exploration results at West Marten Hills, derisking two new pools, and plans to drill 24 expl/dev wells in 2022 (note here).
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Nipisi – A regional workhorse. Nipisi has exhibited material growth driven by Spur, Deltastream, and Tamarack Valley, with early activity starting roughly a year after Marten Hills. Well results are fairly consistent, with peak rates coming in around 160 bbl/d. We expect activity to remain strong; several active producers have recently pushed the boundaries of the region, with stepouts from Tamarack and Spur exhibiting encouraging rates. Tamarack’s 5Y outlook exhibits Clearwater volumes growing to 14,000 boe/d by year-end 2022, compared to roughly 6,000 boe/d in December 2021 (note here).
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South Clearwater – Activity increasing. The South Clearwater region has ramped significantly since early 2020, with activity spearheaded by Tamarack and Rubellite on the public side, alongside Summerland and Rolling Hills on the private side. Oil volumes exceeded 8,000 bbl/d in December 2021. In a recent operational update, Rubellite noted two IP30 rates of 185/175 bbl/d at Ukalta, compared to its type curve estimates of 140 bbl/d on a 6-leg, 8,400m lateral. Rubellite remains active at Figure Lake as well, noting positive indications from its first two 8-lateral wells.
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West Clearwater – Early innings, but initial results encouraging. West Clearwater remains in its infancy, though interest in the region increased through 2021 as producers moved to evaluate the play’s potential. Notably, Baytex’s Peavine development (Clearwater analog) has garnered investor attention with its 11-31 and 13-27 8-lateral wells showcasing significant productivity at over 100 bbl/ d per lateral on peak calendar rates, among the best in the play. The company plans to bring 18 wells on-stream in 2022, bringing Clearwater volumes to approximately 6,000 boe/d (note here).
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Top ideas for Clearwater exposure. Public producers with Clearwater exposure include Headwater Exploration (TSX: HWX), Tamarack Valley Energy (TSX: TVE), and Baytex Energy (TSX: BTE). Each Canadian royalty company has indirect exposure, with our favourite name being Freehold Royalties (TSX: FRU).