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Joel Chury

Joel Chury

Joel Chury has a degree in Economics from the University of Alberta. He has worked in the resource sector as a surface land agent and…

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Money Flowing into the Montney (and for Good Reason)

A thirst for liquids is driving capital into the Alberta Montney at a surprising rate these days.

In the last two months, 7 private equity firms have come to Calgary to open up shop, and giants like Encana [ECA.TO] are starting to refocus their efforts into developing their liquid Montney assets.

What’s causing this surge?

It appears there are three drivers that are causing this movement:

LNG is becoming a reality soon, and the market knows it.

Large scale oil sands development should stretch condensate supplies.

a.   Demand for condensate could be up to 800,000 bbls/d by 2018.

b.   Current supplies are between 125-150,000 bbls/d.

c.    Thus condensate prices could be going up dramatically.

We now know that the Upper and Middle Montney are productive (and the Deeper Montney is a write-off).

a.    When combining both the Upper and Middle, we get approximately a tall office building’s worth of charged pay.

b.   The economics of both formations is proving to be incredibly lucrative with recycle ratios above 6.5x.

By the looks of it, there is enough activity going on to warrant more of our attention.

The region includes such players as Encana, Nuvista [NVA.TO], Paramount [POU.TO], Shell [RDS.NYSE]; each with market caps well north of a billion dollars. Also among those big caps is a micro cap called Blackbird Energy [BBI.V], whose 27 sections of multi-zone Montney rights in the corridor put them solidly on the map.

In terms of development of the play, many eyes will be Encana, Nuvista, as well as Blackbird to see what’s done next, especially in the area known as Elmsworth. Already both the Upper Montney and Middle Montney are being proven to be extremely economic, and their development will be a focal point for many to come.


 On its most recent investor presentation, Encana lists the Montney at the top of their Five Core Growth Assets. Their focus is to return to previous greatness. Already the company is the long running leader in Canadian gas production, but they need more liquid to thrive into the future. It appears they believe their position in the Elmsworth district of the Montney will get them there.

They’ve already drilled their 5th multi-well pad in Gordondale, with scheduled production in the near future upon completion of new processing facilities.

At the moment they have 9 wells currently drilling. Those rigs could be drilling for a long time, as Encana sees decades of production ahead out of a gross inventory of 3,700 locations. We’re talking an estimated possibility of more than 50,000 bbls/d potential at stake.

Where does this optimism come from? Look no further than Encana’s 4-9-70-8W6 well. It was drilled into the Upper Montney resulting in production of 1,000 boe/d (including 500 bbls/d of 54 API condensate). Other successes surrounding them dictate a reason to believe the play is quite repeatable.

Encana’s 2014 capital budget allots $800-$900 million towards the Upper Montney. Normally we don’t get the frequency of updates on production from majors like we do with the juniors, but suffice it to say, Encana is pumped about what they have seen so far.


Success from private company Inception Energy turned heads, and elevated expectations on the Middle Montney formation. Inception’s success seems to have spurred NuVista into action, as it prepares its full court press on the Middle Montney.

Now NuVista is targeting the same depth that Inception drilled its 13-27-69-W6M well. That well 1,800 boe/d of 45 API condensate. According to NuVista’s latest presentation, there is now quite a bit of optimism regarding the play.

Nuvista talks about the massive potential when combining the Upper Montney and Middle Montney. In total, some believe both zones together account for approximately 200 meters of charged pay.

As a visual for Calgarians, they need not look beyond the two Bankers Hall buildings on 8th Avenue. Each of those buildings is 197m in height.

So, roughly the size of a Bankers Hall tower, charged with petroleum. That’s what these two formations amount to, when the Montney is fully charged, with multiple zones.

NuVista has upgraded its type curves on its North Block (Elmworth). Based on recent wells due to frac design and other industry data, they moved it from 4.4 Bcf to 6.0 Bcf with 29% liquids. They peg the condensate production to be 45 bbls/MMcf. Plugging in 2013’s numbers results in netbacks above $24.

Development of the Middle Montney will certainly see a boost this year with further activity from NuVista. Like Encana, NuVista has high hopes, and will be devoting a bulk of rigs and capital to see the play through.


It’s important to note that not all Montney is equal. One recent example comes from a smaller market cap company about a tenth the size of NuVista, and that’s Donnycreek Energy [DCK.V].

I recently pointed them out as a comparable for the up-and-coming High North Resources [HN.V]. However, a recent disappointment for Donnycreek on a Deeper Montney well at their Wapiti 1-26 well cost more than $12 million to drill, and arrived as a noticeable setback.

While there were a lot of expectations on the well, it was very quickly shut-in and deemed uneconomic. A lack luster million cubic feet of gas, and a 10% H2S contamination shot down the whole thing.

Unfortunately, the well was so deep that the thermal intensity had cooked all the gas and condensate off and turned it into bitumen.

It had the potential to be absolutely incredible, but it wasn’t. So what has it done? It’s refocused capital into a tighter corridor on the Montney.



Over the last 8 to 10 months, a micro-cap named Blackbird Energy [BBI.V] acquired 27 sections of Elmsworth Montney in the 2-zone corridor for a total land cost of $1.6 million.

If that accomplishment alone hasn’t sunk in yet, let’s bring you up to speed. Today, land near Blackbird’s is going for $2,000,000… per section.

However, that value hasn’t been plugged into the stock price yet. At its current market cap of around $41 million, it’s easy to dismiss it when multi billion dollar caps such as NuVista and Encana are making the most waves.

However to overlook BBI in this area due to its micro cap stature, would be foolish.

Given that four nearby sections have recently gone for $1.8 million a piece, and another two that were even closer to BBI’s property have gone for $2.18 million, that puts their 27-section Elmworth portfolio easily in the range of $54 million ($13 million more than the current mkt cap).

While compared to Encana and Nuvista’s market caps, Blackbird barely is visible. However on a map, the size and location of land controlled by the junior are plain as day to see.

Directly adjacent to Encana’s southeast corner of their Elmsworth properties, and northeast of NuVista’s properties, Blackbird is sitting on valuable real estate in this up and coming neighborhood which to date has had 60 Montney hz wells drilled, and 107 locations licensed.

Blackbird has yet to drill its property here, as the costs of drilling are quite high for a company of this size. However, the size of the prize is pretty large.

Encana’s 4-9-70-8W6 Upper Montney well delivered 1,000 boe/d (including 500 bbls/d of 54 API condensate). Inception’s 13-27-69-W6M Middle Montney well was at the same depth as NuVista’s targets, and delivered 1,800 boe/d of 45 API condensate.

Encana’s well alone looks to have a recycle rate of 6.7 to 7x. With those kinds of numbers, just having two wells like this would make the company self-financing.

Even if they were to entice a bigger partner to take on the costs of drilling and completion, as long as Blackbird can hang on to 50% WI, they could self-finance the rest of their wells for decades to come.

On their 27 sections alone, they believe there are over 120 wells that can be drilled. Would a larger entity be willing to shell out for such an arrangement? Well, at a recycle rate of 7 they darn well should be.

By G. Joel Chury

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