Optimistic Calima Energy’s Montney Formation Asset – A Leap in Canadian Market

  • Jan 20, 2020 AEDT
  • Team Kalkine
Optimistic Calima Energy’s Montney Formation Asset – A Leap in Canadian Market

The US Energy Information Administration (EIA) has forecast Brent crude oil spot prices to increase by 6.25% from US$64 per barrel in 2019 to US$68 per barrel in 2021, whereas prices of West Texas Intermediate (WTI) crude oil is expected to decline from US$7.35 per barrel in 2019 to US$5.50 per barrel in 2021.

The total world oil production is anticipated to remain in line with the consumer demand for both 2020 and 2021. In 2019, the mild scarcity of supply was noticed due to the limiting output as per the Vienna Agreement and US sanctions on Venezuela and Iran.

As per EIA, global production of oil is likely to increase from 100.86 million barrels per day (mb/d) in 2018 to 103.34 mb/d in 2021, whereas as per the Australian Department of Industry, Innovation and Science, gas production is anticipated to increase from 3,801 billion cubic metres (bcm) in 2018 to 4,016 in 2021. The demand is expected to be 103.49 mb/d for oil and 4,046 bcm for gas in 2021.

The coming years seem to be balancing the market for both oil and gas (O&G) with most of the growth in oil supply coming from non-OPEC countries in response to falling production in OPEC countries. The contribution from non-OPEC countries is expected to grow by around 2.6 mb/d in 2020 and 0.9 mb/d in 2021, with major contributors including the United States (US), Brazil, Norway and Canada.

Canada O&G Market – Fourth Largest in the World

Canada energy sector contributes around 11% in nominal GDP of the country. It stands 4th in both O&G production in the world. However, growth has impeded in the country due to stricter government regulations on oil and gas investment, which has resulted in anticipation of mere 0.2 mb/d contribution in total oil production surge in both 2020 and 2021.

High taxation, strict regulation and poor pipeline infrastructure have hindered the market. The delay or cancellation of pipeline projects has resulted in capacity constraint for oil export and thus causing a decline in Canadian oil prices.

Is O&G Challenging Environment Expected to Continue?

Canadian market is expected to improve with the recent slowdown in the US shale sector. The US production from top wells has shown reduced volume than anticipated. Therefore, companies have started spending more on drilling programs, leading to fewer funds available for exploration and production companies in the country.

Also, the recent approval for pipeline construction for future and existing wells of Calima Energy to connect them to the regional sales network is expected to spur demand in the near future and thus an improvement in the prices envisaged.

Australia-based Calima Energy Limited (ASX: CE1) holds an asset in the Montney Formation – a super liquids-rich window, in British Columbia, Canada. The company wholly owns the Montney project following the acquisition of TSV Montney (TSVM) and TMK Montney (TMKM).

To know more about Calima Energy’s assets, please read Calima Energy's Asset Performance and Future Outlook

Recent Update on Calima Wells in Montney Formation

  • Gross resources upgraded to 1 million barrels of oil equivalent (mmboe) (2C) based upon 124 wells across 20,549 acres and 497.3 mmboe (2U) based on 314 wells over 51,488 acres.
  • Ten years lease awarded by the government over significant acreage in Calima Lands expiring in 2029. This means that there is no requirement to drill any more wells to keep 56% of Calima’s Core Lands lease until 2029.
  • Grant of the permit for pipeline construction with capacity up to 1,500 bbls/d of well-head condensate and 50 mmcf/d of wet gas to connect Calima’s wells to the market.

Montney Formation has better plays than the US significant resources in terms of drilling cost and productivity. However, the real benefit has led to the oversupply of egress capacity which has resulted in the substantial discount of gas prices, which is expected to improve with outlet capacity and demand overtaking supply in next two years.

Interesting Read: Mapping O&G Company, Calima Energy’s Strategy and Initiatives

The coming years seem to be positive For Calima Energy, owing to upcoming pipeline project, increasing scalability in the market along with falling US shale market boosting the Canadian market.

Stock Price Information – The stock of CE1 was trading at $ 0.006 on 20 January 2020 with a market capitalisation of $ 12.93 million.

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