Image Source: Company update, 9 June 2021
- Calima Energy has recorded a boost in revenue and operating netbacks, reflecting increased production from Blackspur wells and higher commodity prices.
- The Company has upgraded production and adjusted EBITDA guidance for the next eight months.
- Calima has executed swap contracts to hedge its capital on each new well drilled on the Balckspur assets.
- The Company is also advancing drilling operations at Brooks and Thorsby
Canadian oil & gas producer Calima Energy Limited (ASX:CE1) is flying high post its merger with Blackspur Oil Corp.
Today, the Company released an operational update for Blackspur for May 2021 coupled with revised guidance through to year end-2021.
For the month of May, the data suggests strong performance on all fronts, including production, revenue, and operating netbacks.
The exit production increased 11% month-on-month (MoM) to 3,100 boe/d. The average daily production registered an uptick of 2% from the previous month and was recorded at 2,900 boe/d.
The corresponding revenue from sales reached C$3.9 million, up by 15% MoM, on account of increased production and higher price realised for crude oil.
The Company’s strategic move to merge with Blackspur at an opportune time – when the demand for oil & gas was heating up, and crude oil prices were climbing up – is paying off now. Calima earned C$68.07 for each barrel produced from its oil fields, resulting in an increase of 9% MoM in operating netbacks to C$2.4 million.
On the back of strong performance during May, Calima has upgraded its guidance for the next eight months to December 2021.
Estimating a significant upsurge in its average daily production, Calima has upgraded production guidance to 3,700 boe/d, up 23.3% from the previous guidance. Adjusted EBITDA guidance has been increased from C$18 million to C$21.2 million.
The Company has kept the operating cost guidance unchanged and has considerably increased capital expenditure (CAPEX) and net debt guidance.
The CAPEX guidance now sits at C$20 million and net debt guidance at C$14 million, up 36% and 47% from the previous guidance, respectively.
Calima Energy recently commenced a three-well drilling program on the Sunburst formation at its core Brooks area, a capital-intensive operation. The program is being funded through operating cash flows and National Bank debt facility.
In order to hedge its investment in the wells, Calima has opted for an aggressive hedging mandate to address the downside risk of crude oil prices.
Calima has entered into WTI and Western Canadian Select (WCS) swap contracts for the next 12 months. Hedging has been done strategically for a year, as Sunburst and Sparky wells would typically take six to nine months to achieve payback.
As the Company plans to drill more wells on the project, each well is expected to be tied to swap contracts to protect the investment made. The swap contracts will ensure a fixed revenue for the next 12 months for nearly 50% production coming from the Company’s assets while exposing the rest 50% to rising crude oil prices.
Last month, on 26 May, Calima executed a swap contract for 163.8 Mbbl WTI (~450bbl/d) for the period from July 2021 to June 2022 at an average price of US$62.33/bbl.
For WCS, a price of US$14.66/bbl has been negotiated for swap contracts for 163.8 Mbbl WCS for the same period as for the WTI.
Under the three-well drilling campaign, the first well spudded on 31 May 2021 reached its target depth by 7 June. The Company will soon kick off completion operations on the first well, Gemini #1.
As the horizontal wells on the Sunburst formation do not require hydrofracking, the completion operation is not time- and cost-intensive. The rig has been mobilised to next pad to drill Gemini # 2.
Drilling rig in action on Gemini 1 pad (Image source: Company update, 9 June )
The Brooks asset has 2P reserves of 11.6 million barrels of oil equivalent. The Brooks wells can generate internal rate of return (IRR) of more than 500% at WTI crude price of US$60/bbl with a net payback period of 6-9 months.
Moreover, Calima is planning to add 1-2 wells to the current drilling campaign, taking the total tally to 5 Sunburst Wells. The additional wells will be drilled in late June or early July this year.
On Thorsby, Calima is finalising plans for a three-well drilling campaign, targeting the Sparky oil pools. So far, 11 wells have been drilled with gross production estimated in the range of 358-468 mboe with 79% oil.
The Company will drill multiple wells from a single pad to save on capital costs and reduce its environmental footprint.
Thorsby has 2P reserves of 10.9 million barrels of oil equivalent, and the Company has identified 89 net Sparky and 12 net Nisku wells to be drilled for optimised production from the field. To increase the current production from the existing wells, Calima is evaluating the scope of higher proppant hydrofracking.
CE1 traded at AU$0.009 on 9 June 2021.