September has been a big month for one small Canadian oil company. Blackbird Energy Inc. (CVE: BBI) pulled off a major land acquisition deal, sold off non-core assets, entered into a strategic infrastructure MOU, and is gearing up for drilling operations on a very exciting oil and gas project.
The small company is based in Calgary but its operations focus on the Montney Shale, an oil and gas formation that stretches across parts of British Columbia and Alberta. The Montney Shale potentially holds 450 trillion cubic feet of natural gas.
Blackbird started out as a company with several sections of unconnected land in the Montney, and a minimal budget but through a steady and prudent land acquisition strategy, Blackbird has succeeded in building up its portfolio of highly prospective land. It got to the high liquids rich Montney corridor ahead of a lot of other companies, and its holdings grew in value as industry leaders moved towards Blackbirds land position proving up the immense resource and valuing up the lands in the corridor.
While flying below the radar for many months, Blackbird came out swinging in September by issuing a slew of announcements that demonstrated its growing confidence in core play Elmworth / East Wapiti. First came its September 2 news that it had completed several land purchases. It bought 85 net sections of land amounting to 54,400 in acreage. The best part about it was that the acreage abutted its existing holdings in the Elmworth Project, the company’s most promising asset. In total, the purchases increased Blackbird’s acreage in the Montney Shale by 366%, a bold move for such a small company.
A week later, the company announced that it had received its crown lease at the site of its first Elmworth well. It still needs a well license, but the company says that it will receive the remaining permits shortly.
With all the regulatory paperwork completed, Blackbird will begin drilling on its Elmworth Project in Q4 2014 as previously stated by the company, but drilling operations are contingent upon having enough cash on hand. That piece of the puzzle was finalized in mid-September when Blackbird closed on a deal to sell its Bigstone project, allowing the company to put $8.89 million in the bank. The cash infusion is huge relative to the company’s size. Bigstone was deemed by Blackbird to be a “non-core asset,” and the sale of the acreage will allow the company to redeploy cash to focus on Elmworth.
Finally, on September 22, Blackbird announced that it had secured $35.5 million in financings that was subsequently increased to over $37 million in proceeds that will allow the company to grow its operations. Garth Braun, Blackbird's CEO hailed the new capital as a game changer for its operations. “These financings are transformative for the Company and allow Blackbird to reach the next level in its development. Blackbird has captured an exceptional land base in its core Montney area and with these financings the Company is positioned to deliver additional value to its shareholders from an accelerated drilling program, ability to delineate its extensive liquids rich Montney resource and pursue incremental strategic acquisitions in its core area,” Braun said.
Why is Blackbird so aggressively building up its position in and around the Elmworth asset? Why is Blackbird so excited about Elmworth?
That is because Blackbird’s Montney acreage at Elmworth is located so close to some very productive wells being drilled by some of its competitors. One of the driving factors creating this profound excitement is that Encana Corp. (NYSE:ECA) in close proximity to Blackbird’s land position has now drilled over 46 wells. Most interesting though is that each subsequent well moving eastward towards Blackbirds land has yielded high condensate gas ratios effectively meaning the wells are proceeding to become even more economic.
The closest well to Blackbird’s land that Encana has drilled is only 5 miles away and produced at 3.3 mmcf/d and 204 barrels per million feet of gas which is approximately 1,100 boe/d –an extremely economic well with a conceivable payout of less than a year.
Encana’s wells are arguably some of the most important in the Upper and Middle Montney area, and with it located just next door to Blackbird’s Elmworth project, Blackbird’s management is confident that its acreage is energy rich as well in the Upper, Middle and Lower Montney.
Elsewhere, another company called NuVista (TSE: NVA) has drilled to the east and south of Blackbird’s holdings, and the results are also very promising. The outstanding ratio of liquids to gas is also encouraging. NuVista is producing 2,195 boepd from a single well nearby; the economics on this well are world class.
Blackbird’s initial strategy was to acquire land in a strategic and deliberate way, building up acreage in a region that holds great potential for oil and gas production. According to the company, it feels that it has succeeded in this phase. With recent land acquisitions nearby from other companies fetching around $4,500 per acre, or $2.9 million per section, Blackbird’s assets look more valuable than the market is currently giving them credit for.
Nevertheless, Blackbird’s stock has skyrocketed. Since the beginning of the year, shares are up by over 500%. A large part of that is because companies have drilled near to Blackbird’s acreage, each one providing more information about the bounty that lies beneath.
The next phase will be to begin drilling, and with the cash needed in hand, Blackbird is gearing up to do just that. In the initial drilling stage, Blackbird aims to delineate the extent of the upper and lower boundaries of hydrocarbons in the Montney Shale. After it completes a test well it can gather data on the flow rates and move on from there.
One thing that is extremely evident with Blackbird, is the management’s tireless pursuit to proactively address the challenges that seem to constantly impede the progress of oil and gas companies. With Blackbirds latest news release on September 25, 2014, it showed the market that is has entered into an Memorandum of Understanding which will proceed to a definitive agreement next year with a private, well financed midstream company to develop a gathering system, pipeline and facilities for the processing of Blackbird’s and other industry players resources.
ADVERTISEMENT
A read through of the announcement said that it was committed to supply the facilities with 20 mmcf/d of gas. This extrapolated would mean that Blackbird is expecting to produce approximately 3,333 boe/d of gas – and with the high liquids rich content in the area being greater than 100 bbls/mmcf of gas – Blackbird could exit 2015 with over 5,000 boe/d (3,333 boe/d gas; 2,000 bbls/d of oil/condensate/ngls) to 7,333 boe/d.
By all indications, Blackbird is sitting on some energy-rich acreage. With Drilling and Geological risk greatly removed and a plethora of catalysts to come in the next 12 months it should be without a doubt an exciting ride.
By James Burgess of Oilprice.com
Legal Disclaimer/Disclosure: Blackbird Energy Inc. is an Oilprice.com sponsor. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. No information in this Report should be construed as individualized investment advice. A licensed financial advisor should be consulted prior to making any investment decision. We make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Oilprice.com only and are subject to change without notice. Oilprice.com assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.
