Turning Focus on Calima Energy’s Highly Prospective Montney Project

Based in Subiaco, Western Australia, Calima Energy Limited (ASX: CE1) is an international oil & gas (O&G) company, engaged in making investments in O&G exploration and production projects, globally. Its principal asset lies in the super liquids-rich window of the Montney Formation in British Columbia, while others include four offshore Production Sharing Contracts (PSCs) in the Saharawi Arab Democratic Republic (SADR) and an investment in Bahari Holding Company Limited.

Good Read: All That Investors Need to Know About International O&G Company, Calima Energy Limited

Calima’s primary focus remains on the drilling, testing and analysing the prospectively of the Montney Formation.

About Montney Formation:

In August 2019, Calima announced the successful acquisition of TSV Montney and TMK Montney, targeted towards the consolidation of the ownership of the Montney Project in a single entity, resulting in more simplification, greater efficiencies and cost savings. Additionally, the company unveiled about the onboarding of Mr. Mark Freeman, a strategic advisor from TSV Montney, to implement the merger integration and provide business development services.

CE1 has 72,014 acres of drilling rights over acreage considered to be highly prospective for the Montney Formation, the most active oil & gas region in British Columbia, Canada. Some of the neighbour companies with operations include international operators such as ConocoPhillips, Shell and PETRONAS, signalling better prospect for the project.

Montney Formation Resources and Geological Description:

The Montney Formation consists of liquids-rich gas, dry gas and oil windows, and as per the National Energy Board of Canada in 2013, the Montney Formation is expected to contain:

¾ 449 trillion cubic feet of commercial natural gas,

¾ 14,521 million barrels of commercial Natural Gas Liquids,

1, 125 million barrels of commercial oil.

It is worth mentioning that the vertical thickness of the Montney exceeds 300m in few places than the minimum 200m exploitable vertical pay for commercial development. The Montney siltstone characteristics are well suited to fracking resulting in exceptional fracture stability.

The Montney formation forms part of ‘Deep Basin’ system of Western Canada – a hydrocarbon system with tight reservoirs near matured hydrocarbon-expelling source rocks for organic-rich shales and siltstones. The sedimentary rock siltstone dominates the formation with varying degrees of dolomitisation. The thickness ranges from 100-300m, i.e. 0 -300m from its eastern and north-eastern edges to western side. The depth from the surface to the top ranges from 700m at the northeast to 4,500m at the southwest side.

Drilling Operations at Montney Formation:

During 2018, the company had announced plans to drill one vertical well and two horizontal wells in the region. The three-well drilling program was designed to deliver flow rates and demonstrate the liquids rich nature of the acreage, as well as convert the maximum acreage possible into 10-year leases.

In line with the drilling plan, the Calima-1 vertical well (official designation - Calima Tommy A-54-C/94-G-09) was spudded in January 2019 and drilled to a total depth of over 1,800 m to collect core data over a substantial section of the Montney interval followed by the acquisition of a full suite of wireline logs, with wireline data expected to verify the depth of the two horizontal wells. The top of the Montney Formation was encountered at 1,559.5 m and the company logged 256.5 m of formation, with core data successfully collected over ninety percent of the Montney interval.

Meanwhile, the positive result for horizontal drilling campaign, i.e. Calima-2 and Calima-3 was announced on 29^th March 2019. The Calima-2 well achieved a condensate-gas-ratio (CGR) of 20.06 bbl/mmcf (plant recovery estimate 40.12 bbl/mmcf) with a peak hourly value of 22.15 bbl/mmcf (plant recovery estimate 44.30 bbl/mmcf) through a choke size of 38.1mm. The company had planned to enhance the liquids ratios further after the production and recovery of water injected during stimulation operations.

The Calima-2 initial results outperformed the peer group within the top quartile. Additionally, the Calima-3 test of the Upper Montney unloading rate, i.e. recovery of water injected during stimulation was consistent with the early Calima-2 test rates, i.e. excess of 2.5mmcf/d. The company anticipated to have the same flow rates as Calima-2, indicating the productive potential of both wells.

CE1 also appointed McDaniel & Associates to update assessment of the hydrocarbon resources contained within the Montney Formation, which resulted in upgrade of some of the company’s resources in the vicinity of the wells to the Contingent (2P) category.

The total contingent and prospective resources within Calima Lands are:

For the period 1 September 2019 to 31 December 2019, drilling leases of Pocketknife over ~7,539 acres between Northwest and Southeast would expire, thereby reducing the prospective resources by up to 15%.

On 28 October 2019, the company released an update regarding the conversion of 49 sections of land covering 33,643 acres, representing 56% of Calima’s Core Lands, into 10-year leases expiring in 2029. The 10-year Continuation Lease was awarded by the British Columbia Department of Energy, Mines and Petroleum Resources as a result of the successful 2019 three-well drilling campaign on the Calima Lands. Most of the remaining licences over the Core Lands are scheduled to mature in 2022.

Upcoming Measures to Commercialisation:

In line with the company’s plan to bring the production of Calima Lands cost-effectively, regulatory approval for the construction of a 19.5 km steel 8-inch service pipeline with capacity up to 50 Mmcf/d of wet gas and 1,500 bbls/d of well-head condensate was secured in December 2019. The pipeline would connect existing and future Calima wells to regional sales network in the direction of revenue generation.

The company’s current strategy remains focused on securing requisite approvals, permits and authorisations to complete a Field Development Plan to Fastrack the Calima Lands development for a future operator or JV partner. The company is also well funded with a $5.6 million working capital along with the receipt of $2.9 million from the sale of the PEL 90 and an additional Canadian GST receivable of ~$1.3 million by February 2020. CE1 has also taken costs savings measures such as a reduction of 50% in headcount coupled with a cut in overheads cost.

The super liquids-rich spot of the Montney Formation is anticipated to arise as one of the pinnacles plays not only in Western Canada but maybe in North America too. The liquids-rich hydrocarbon reserves in the region are being targeted by Calima Energy for the export of liquefied natural gas (LNG), in addition to other opportunities in the domestic and international oil markets.

The stock of Calima Energy was trading at $ 0.008 on 27 December 2019 (AEDT 03:24 PM) with a market cap of $ 17.24 million and approximately 2.16 billion outstanding shares.

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