Calima Energy Limited (ASX: CE1), on 19 February 2020, achieved a major milestone, as it secured the Tommy Lakes infrastructure acquisition, giving a cost-effective connection to the Jedney processing facility and NorthRiver Midstream pipeline. The acquisition would help Calima with entry to the regional markets through the network of major pipelines, namely NGTL, Alliance and T-North.
Strategy of CE1 is well placed with the market status quo, helping the Company to remain on toes for future volatility in either prices or economic uncertainties.
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Also, it is worth mentioning that the steps taken by CE1 are in line with the December 2019 quarter plan, focusing on obtaining the needed approvals, authorisations and permitting to complete Field Development Plan (FDP).
The acquisition is the critical component of the FDP that will promote the Calima Lands to a ready-for-development project, subject to pending Final Investment Decision (FID). The optimism around the acquisition among the investors can be weighed with the stock price surge of 60% on 19 February 2020 (AEDT: 12:20 PM).
Interesting read Calima Energy's Asset Performance and Future Outlook
Tommy Lakes Infrastructure – A Strategic Acquisition
The Company has secured the acquisition of compression facilities, associated pipelines and infrastructure (“the Facilities”) in the Tommy Lakes Field from Enerplus Corporation, located 20 km to the north of the Calima Lands.
The Facilities form the synergy with CE1 due to short distance, resulting in a tie-in point to regional pipeline networks and processing facilities in a cost-effective way. The Company has already obtained the regulatory approval to construct a pipeline to connect its suspended wells on Pad A to the Tommy Lakes Facilities, thereby further boosting the strategic value created by the acquisition.
The Facilities include the following components: -
- Compression, processing and associated pipelines with a capacity to carry up to 50 Mmcf/d of gas and 1,500-2,000 bbls/d of well-head condensate to NorthRiver’s Jedney processing facility;
- Centre controlled field office along with flexible camp facilities appropriate for drilling operations;
- Yearly off-loading and condensate storage facilities.
The Facilities are currently processing gas and condensate from the Tommy Lakes Field, which has a more than twenty years of production history with the use of conventional completion techniques from the Dog/Halfway Formation, situated immediately above the Montney Formation.
Calima Energy Gaining Access to Regional Markets
The acquisition would connect Calima Energy to the NorthRiver Jedney processing plant through a raw (wet) gas pipeline of the Tommy Lakes field, enabling further access to the major export routes such as NGTL/AECO, Alliance and T-North/Station 2. Also, the pipeline with the capacity increase will enable gas transportation towards the LNG Canada Facility of Shell/Petronas via the proposed Woodside/Chevron LNG Facility at Kitimat and the Canada Coastal Link pipeline.
NorthRiver Midstream Jedney Facility and Calima have been in talks, under which the latter sought to get access to a maximum gas volume of 50 million cubic feet per day from the processing plant; however, the current capacity allows CE1 with 25 million cubic feet per day.
As the raw gas line linked to the facility is capable of handling well-head condensate, CE1 plans the removal of most of the condensate at the offloading station in the Tommy Lakes with additional condensate and other natural gas liquids recovered subsequently from processing at Jedney.
Cost of Tommy Lakes Infrastructure Acquisition
Maintained in accord with a high standard integrity management program, the Facilities of the Tommy Lakes infrastructure are fully compliant with the Oil & Gas Commission of British Columbia (OGC) conditions and can be operated efficiently and safely. The due diligence has confirmed the pipeline and other assets are in an excellent working condition.
The replacement cost of the assets being acquired is reported to be around A$85 million while principal acquisition cost that CE1 needs to bear is valued at around A$825,000, including the cost of facilities’ shut down and a refundable performance bond payment to OGC. The annual costs concerning the Facilities’ maintenance in a shutdown state is anticipated to be ~ A$420,000.
Also, Calima is liable to the restoration and abandonment costs of the Facilities at the end of operational life. However, the cost constitutes only ~6% if compared to the combined Contingent and Prospective Resources attributable to the Calima Lands and 50 Mmcf/d in production for ten years as per the Calima land lease. It is worth mentioning that in 2019, McDaniel assessed maiden contingent resource of 196.1 Mmboe, and gross-unrisked prospective resources of 497.3 Mmboe at the project.
Parallelly, the Company has also entered into an option agreement to acquire 11 gas production wells in the Tommy Lakes field on or before 1 April 2022. The Tommy Lakes wells will help Calima to use gas as a fuel in its start-up sequence, if required for the Facilities. If the option is exercised, Calima is required to further post the security bond with OGC and accept legal responsibility for subsequent abandonment.
Approval for Transaction – Positive for All Stakeholders
The Company has been working closely with the OGC to close the transaction in a timely manner, resulting in the transfer of the required licences and permits to Calima. The deal or transaction structure of the Tommy Lakes infrastructure is designed in such a way that it benefits all the parties. It helps especially the BC Government, as the agreement provides the development of Calima Lands on a timely basis with lesser capital expenditures and disturbance to the environment.
The Company is presently looking towards the acquisition completion, since it is an essential component of the FDP, lifting Calima Lands’ assets to a ready-for-development project. Calima Energy is awaiting the Final Investment Decision (FID), which is subject to securing funding either via a JV partner and/or project financing facilities on the back of sustained increase in gas prices.
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Stock Price Information
The CE1 stock was trading at A$ 0.007 on 20 February 2020 (AEDT 02:11 PM), with a market cap of A$ 15.09 million and approximately 2.16 billion outstanding shares. The last one-month return of the stock was noted at 25%.
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