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Dear Subscriber
 
SIGNS OF LIFE ACROSS THE CANADIAN ENERGY SECTOR
 
Highlights   
  • $5,300/acre land sale by Painted Pony completes
  • Another LNG project for the west coast of British Columbia?
  • More new pipelines underway
  • New market for Canadian heavy crude?
  • Calima secures approval for production facilities
  • Canadian Discovery published an article about Calima’s drilling results
It might not have been the Canadian Federal Election result we wanted but Justin Trudeau is back in Canada’s big house and the oil industry will just navigate through another term of indifference towards the nation’s biggest contributor to GDP.  On the plus side he will have to form a coalition and based on Canada’s track record with coalitions we might see another election in two years.   In Australia we have seen what happens when a coalition frustrates the engine house of the economy.
 
It’s certainly been a rough year as the Canadian energy industry continues to struggle to get access to export markets through congested infrastructure.  It’s been called the Mother-Of-All-Down-Cycles and even if the Federal Government were willing to use the defibrillator there must be a pulse before you can use the paddles.  Fortunately, there are signs of life across the oil and gas landscape and it looks like the patient will recover irrespective of whether the Government chooses to stimulate because capital always flows to deep value.  While this might not be the end of the down-cycle or even beginning of the end it might perhaps be the end of the beginning.  (Apologies to Winston but I have been waiting years to use that).
 
One of the signs-of-life reported last week was the recent completion of Painted Pony’s sale of undeveloped Montney land for $5,300 per acre.   A stellar price and above the weighted average of $4,700/acre.  Investment bank Cormark reckon there is more to come.
 
With LNG shaping up to totally transform gas demand across western Canada the Rockies LNG consortium is now mulling plans for a floating LNG facility to open even more access to Asian markets.  
 
LNG certainly gets the headlines, but it is the quiet work being done in the background that is getting the job done.  TC Energy announced a $1.2 billion investment in its NOVA system.  This is just one of many such projects underway across Western Canada and investment bank AltaCorp predicts that western Canada will go long on egress over supply sometime over the next 18 months.  That should provide some welcome price relief to Montney producers and we note that Macquarie’s review of gas markets shows an encouraging upward trend in strip pricing for western Canadian gas (AECO).  Station 2 AECO went through $2/GJ last week as we head into winter with gas storage levels lower than usual.
 
Better strip pricing is already having a positive impact on the economics of development across the Calima Lands.  Progress with the Field Development Plan continues as we look to build strategic partnerships and position ourselves to be able to take a Final Investment Decision as prices improve.
Land Sales in the Montney - Painted Pony reported the completion of the sale of 8,460 net acres (13.3 sections) of undeveloped Montney lands for cash consideration of C$45 million or an implied transaction metric of $5,300/acre.  The National Bank of Canada estimates this to be in line with valuation received by adjacent operator Canbriam Energy in a recent corporate sale (spring 2019) and importantly >10% above the trailing two-year weighted average regional land sale price of ~$4,700/acre.  Commenting on the closing of the transaction, which was announced last month, Cormark noted that no additional details of location or counterparty were released.  Their expectation is that the buyer is “not yet done buying acreage in the area”.  They also expect Painted Pony to announce long term supply deals with LNG, utility or petrochemical buyers before year-end. Cormark continue to see Painted Pony as the largest potential benefactor of a tightening natural gas supply market in Western Canada that should accompany the approach of LNG projects on the west coast.   
 
Without drawing too much emphasis towards the acreage valuation as a read through for Calima at this stage, the Painted Pony transaction is symptomatic of a quiet change in sentiment that is becoming apparent in Canada. 
Historical AECO strip pricing reflects a growing sense of optimism regarding gas prices.  From April 2018 to April 2019 strip forecasts were declining.  Since then the trend has reversed with strip pricing getting progressively higher.

In a recent research note AltaCorp noted that they expect the Western Canadian Basin to go long on egress over supply sometime over the next 18 months.  This is before the impact of demand from LNG.
Another LNG Project – Rockies LNG Partners, a group of nine Montney producers, is considering the use of a floating LNG terminal to accelerate access to lucrative Asian markets.  This would be in addition to the two existing LNG terminals planned at Kitimat by Shell, Petronas, Chevron, Woodside and various partners plus the Woodfibre LNG terminal at Squamish by Pacific Oil & Gas. A copy of the article is available via the following link.
To view the article click here
More New Pipelines –TC Energy has announced a $1.2 bn expansion of its NOVA system called the West Path Delivery Program.  Anything that increases egress from the Western Canadian Basin is good news for Montney producers and contributes to the growing confidence regarding gas prices noted above. A copy of the article is available via the following link.
To view the article click here
A new Market for Canadian Heavy Crude - Repsol looks to Alberta to replace Mexican, and Venezuelan heavy oil.  Increases in demand for heavy oil is good news for Montney producers who supply condensate which is used to blend with the heavier crude.  Bloomberg reported this week that Repsol is looking to western Canada for oil for its European refineries amid dwindling supplies from Mexico and Venezuela.  The Spanish oil company is considering using rail to transport as much as 500K bbl/month of heavy crude 1,900 miles from Alberta to Montreal before loading it onto tankers bound for Europe. Repsol typically sources heavy crude supplies from Latin America, particularly Mexico and Venezuela, but civil strife and U.S. sanctions have crippled Venezuela's oil production, which has dropped below 700K bbl/day from more than 2M bbl/day four years ago, and Mexico oil production has fallen for 14 straight years to 1.83M bbl/day in 2018. 
Calima’s Production Facilities Approved – Calima has received approval for the installation of production facilities on its Pad A drill site.  This is another milestone in the Field Development Plan. A copy of the ASX announcement is available via the following link.
To view the ASX announcement click here
Press Coverage on Calima - Canadian Discovery, one of Canada's leading geological consulting and data analytics companies recently published a technical article on Calima’s drilling campaign.  They note that flow test data from the Calima-2 well compared favourably to rates encountered in offsetting wells and that results from both of our horizontal wells “suggest that the Montney’s northern frontier holds ample development opportunity”. A copy of the article is available via the following link.
To view the article click here
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Alan Stein Jonathan Taylor Glenn Whiddon
Managing Director Technical Director Chairman
E: astein@calimaenergy.com E: jtaylor@calimaenergy.com E: glenn@lagral.com
T: +61 8 6500 3270
 
T+ 44 77391 77805 T: +61 0 410 612 920
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