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- Calima Energy spudded the first of the three horizontal wells planned on the Sunburst formation in Brooks area on 31 May 2021.
- The three-well drilling campaign is expected to cost around C$2.7 million, funded partly by operational cash flows and partly by the National Bank debt facility.
- At the current WTI crude oil price of US$60/bbl, a payback period of 6 months is expected.
- The Brooks asset is estimated to have a 2P reserve of 11.62 mmboe, with 48 wells being drilled to date to tap the reserve.
In the backdrop of a strong WTI crude oil price in international markets, Calima Energy Limited (ASX:CE1) is making good progress on its development plan on the newly acquired asset in the Brooks area. The Company recently commenced three horizontal Sunburst formation drilling program to boost the production at Brooks area. The first well was spudded on 31 May 2021.
Each well will take around 7-10 days to get drilled and 20-35 days to complete and tie it with the existing production facilities in the area. The drilling campaign is budgeted for C$2.7 million and funded through operational cash flow and the National Bank debt facility.
Drilling rig in action on Gemini 1 Pad (Image source: Company update, 1 June 2021)
At the current WTI crude oil price of ~US$60/bbl, the payback period is expected to be around six months. The Brooks asset has an estimated 2P reserve of 11.62 mmboe and 48 wells have been drilled to date to bring the hydrocarbon to the surface from the prolific Sunburst formation.
The operator has identified additional 147 new well locations for the optimum production and recovery, and currently has planned three wells in that series. Calima can plan additional 1-2 wells post these three wells, and the management is expected to decide about it early in June 2021.
Mr Jordan Kevol, the CEO & the President of Calima Energy, expressed his views on the ongoing drilling development on the Sunburst formation and is confident to complete the wells within allocated budget, thanks to the Company’s extensive experience in dealing with the sub-surface conditions. Mr Kevol said that the newly drilled wells would produce at or above the well-type curves. He emphasised on drill to on-stream time of 30-45 days as the geological risk is pretty low and short tie-ins.
“If we like what we see on the first three wells, and oil prices continue to be strong, we have two more top-tier Sunburst drill locations ready to go ,” Mr Kevol added.
To hedge its investment on the three wells- Gemini 1, 2 & 3, Calima will execute the WTI and the Western Canada Select (WCS) swap contracts for the next 12 months. The futures contracts will hedge against any downside in international crude oil prices in the next 12 months.
The Company believes that this strategy will ensure that the cost recovery of the capital program is secure and will allow for net cash flow to be recycled into future drilling programs over the coming 24 months.
Brooks asset location (Image source: Company update, 3 May 2021)
The future contracts are traded on the exchanges, and traders and refiners often buy futures contracts to hedge their position.
Sunburst wells are typically horizontal wells, which do not require hydraulic fracturing for well stimulus or production enhancement. The well trajectory has two sections - one vertical section, from the surface to the build-up depth, and then a curved horizontal section, which penetrates the pay zone. In a typical Sunburst well, the horizontal section is 775m, while the true vertical depth or TVD is around 1,000m.
Since the horizontal section inserts deep into the formation, downhole production tubing is exposed to more surface area than the traditional vertical wells.
Since no fracking is required, the cost of the well completion is under C$1 million and provides an excellent opportunity to achieve significant economics.
Sunburst well economics at WTI~ US$60/bbl (Image source: Company update, 1 June 2021)
The shares of CE1 are trading at A$0.008 (as at 1:30 PM AEST) each. The Company has a market cap of A$92.46 million as of 1 June 2021.
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