In today’s capitally restricted oil and gas environment, it is a difficult task to assemble the right resource and team to attract the attention of the market. Blackbird Energy Inc. (CVE:BBI) has done what many have failed to do over the past several years – graduate out of the perpetually difficult micro-cap arena- and get investors listening with its stock climbing over 400% since last year. This increase in share price has been as a result of Blackbird obtaining a $37.4 million equity financing and last week announcing a high impact multi-well drill program targeting both the Upper and Middle Montney – a mighty feat for a company that only 12 months ago had a market cap of approximately $10 million.
Blackbird it seems realized the challenges and confronted them head on at a very early stage first by getting ahead of the trend. This was done by building a model of what they believed was the highly liquids first fairway in the Montney and accumulating a position in it through slow and steady land accumulation – much before the large industry leaders in the area clued in. It might seem easy to do this but Blackbird analyzed over 2,400 well logs to do this amongst a myriad of other things which will be touched on. By Blackbird positioning itself early in this liquids rich corridor located in the Elmworth area, just south of Grand Prairie, it was able to assemble 117 sections (74,880 acres) total, 36 contiguous sections (23,040 acres) in Elmworth for the cost of approximately $25,000 per section compared to the current market rate of $2.9 million per section.
The Montney is nothing new to the oil and gas investor, however what Blackbird focused on was ensuring the size of the prize was large enough meaning the resource size (reserves and resource thickness) and the value and economics were great enough that it would attract other industry leaders to effectively delineate the resource with their capital. Blackbird’s Elmworth land base of 36 sections has Montney resource that is greater than 200 meters thick and contains 3 to 7 zones based on near proximity industry leaders Encana Inc. (NYSE:ECA), Nuvista Energy (TSX:NVA), Royal Dutch Shell (NYSE: RDS), and Chinook Energy (TSX:CKE). Based on four wells per section for three zones Blackbird can drill over 400 wells creating the large prize that has the above industry leaders drilling rapidly towards Blackbird. Nearby wells have shown total ultimate recovery of 4.4 bcf of gas and 330 mbbls of liquids which equates to approximately 1 million barrels of oil equivalent recoverable per well – equating to a potential total resource build of approximately 400 million boe.
Blackbird’s evolution has continued with the markets attention gaining even more steam as the company sought to solve the impediments that seem to affect most Canadian Montney players: access, H2S and egress. Blackbird very quickly addressed the question of access through the very location it had picked at Elmworth which has 12 month a year access and is close to both services and major highways. H2S issues were addressed through mapping of the entire regions H2S readings and discovering that as the resource moved eastward, towards Blackbird’s land base, H2S decrease significantly from ~4% to less than 1%. Egress was addressed recently with Blackbird signing a strategic Memorandum of Understanding with private midstream company Mistral Energy, an amazing feat for a junior oil and gas company and something that shows management understands what is needed to build true value in the Montney.
What is most intriguing though is that Blackbird has assembled right before our eyes an incredible team to delineate and de-risk the Montney resource. The fact that Blackbird has assembled a team of individuals that have all been part of successful resource companies shows that the corridor that Blackbird is located has the right resource, but furthermore that the new team members believe in managements philosophy and their extremely disciplined and high velocity approach to building a company.
All of the above boils down to one thing, Blackbirds ability to access capital in an extremely challenged market, as everyone knows without capital there is no ability to grow. This capital has allowed Blackbird to launch is first high impact drill program that should prove an immense resource build and further propel the company’s share price. The land validation these wells achieve can also allow Blackbird to add additional land within the framework of its low cost acquisition model.
The message this large drilling program is sending to the market is this: “Blackbird will not only drill wells, but will do so on a cost effective basis. Blackbird will also add further value from the wells beyond the resource and production build through land acquisition by way of drilling validation”, according to company CEO Garth Braun.
It is evident through its strategy and execution to date that Blackbird does not want itself to be viewed as a small company – and the market is noticing this – S&P has just included Blackbird in its S&P TSX Venture Select Index.
In the tough environment of resource stocks it is always difficult to decipher the winners and through its execution to date Blackbird is showing that it wants to be a significant Montney player and it is deserving of that title.
By. James Burgess of Oilprice.com
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