In the midst of constraint of oil & gas (O&G) egress capacity in British Columbia (BC), Western Australia-based oil & gas exploration and production company, Calima Energy Limited (ASX: CE1) seems on track to lift its BC-based asset from drilling to a development ready project.
The Company’s primary asset lies in the Montney Formation, a super-rich liquid spot in BC, expected to become one of the top plays not only in Western Canada but in North America too. CE1 has drilling rights for 64,475 high-class oil & gas acreage (Calima Lands), considered highly prospective for the formation.
How Calima Lands Will Become A Ready-for-Development Project?
Any project with all the apt infrastructure in place from extraction to distribution for sale can be said as a development ready project. The status gives immense certainty in commercialisation and revenue generation via O&G sale.
In the milieu of which, Calima Energy recently strategically secured Tommy Lakes Infrastructure, gaining access in a cost-effective way to the Jedney processing facility and NorthRiver Midstream pipeline. This would also aid CE1 with access to regional markets via NGTL, Alliance, T-North and other major pipeline networks.
Significance of Tommy Lakes Infrastructure
Tommy Lakes Infrastructure with an estimated replacement cost of A$85 million and purchase cost of around A$825,000 offers an excellent prospect to the Company both in terms of cost-effectiveness and reducing the requirement of securing few regulatory approvals. Also, re-usage of existing facilities scores high in reducing the environmental impact than the hurdling in new facilities’ planning.
It is worth mentioning that the infrastructure is completely compliant with all the requirements of the Oil & Gas Commission of British Columbia. Further, it is in excellent working condition and has been reported efficient and safe to operate.
Also, apart from export routes to NGTL/AECO, Alliance and T-North/Station 2, the Company will gain access to gas transportation to the planned Kitimat Woodside/Chevron LNG Facility and Shell/Petronas' LNG Canada Facility post the increased pipeline capacity.
The Company has already taken regulatory approval to connect Calima's Pad A suspended wells to the Tommy Lakes Facilities via a pipeline with a carrying capacity of ~50 Mmcf/d of gas and 1,500-2,000 bbls/d of well-head condensate to NorthRiver's Jedney processing facility. The facilities being acquired also include a field office with a control centre along with flexible camp facilities appropriate for drilling operations and continual yearly condensate storage and off-loading facilities.
To Know More About Tommy Lake Infrastructure, click here
How Is the Gas Pricing at The Market?
It has been observed that Canadian producers sell their product at a discount price due to the constraint of pipeline capacity, owing to which the North American nation is estimated to lose C$20 billion per year. TC Energy's NGTL system accounting for approximately 80% market share in gas supply in Western Canada experienced more congestion due to the pipeline constraint. However, the NGTL network was relieved in late-2019 after T-South resumed its full capacity of ~1.7 Bcf/d after facing an obstacle in the pipeline due to rupture in 2018.
Having said that, come 2020, North Montney Mainline came on stream in February 2020 with a flow capacity of ~2bcf/d, resulting in a new outlet from northeast BC and lowering the Station 2 gas price discount, which is happened to be the closest pricing point from Calima Energy.
It is also important to mention that the expansion of Trans Mountain is under construction and Enbridge is anticipated to add ~100 MB/d in 2020 via the Express system expansion and Mainline optimisation.
Hence, the addition of new pipeline capacity is likely to increase the gas price in future, which in turn is expected to aid Calima Lands economies, as C$2.00 Gj is a threshold positive inflection point.
Long-term Future Prices and Condensate and NGL (Natural Gas Liquid) Prices
Presently, Calima Energy is moving toward the completion of Tommy Lake Infrastructure acquisition, a quintessential step toward Field Development Plan (FDP), making Calima Lands a development-ready project. Around 70% of production from Calima Lands is expected to be gas.
As of now, the Company is focusing on finalising a Final Investment Decision, which is subject to securing fund from either project financing facilities and/or JV, supported by the sustained increase in gas price.
The CE1 stock closed the day’s trade at A$0.005 on 12 March 2020 and the Company has a market cap of A$12.93 million.
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