Micro Cap no More – How a little known oil and gas company has put together a project with tremendous upside in the Canadian Montney Play in Alberta, Canada.
Canada is already known for its vast reserves of oil. The U.S. Energy Information Administration estimates that Canada is sitting on 173 billion barrels of oil, the third largest reserve in the world.
What is less known internationally though is that Canada also contains enormous reserves of natural gas – much of it located in the western provinces of British Columbia and Alberta.
One notable formation is the Montney, a formation that spans the border between British Columbia and Alberta in western Canada. This formation holds an estimated 450 trillion cubic feet of natural gas, which is equivalent to 145 years of supply given today’s consumption levels in Canada – making this one of the largest shale basins in the world.
While this resource is less known to the broader public, oil and gas companies have been scrambling to get their hands on prime acreage in the basin. Large companies such as Encana (NYSE:ECA), Exxon (NYSE:XOM) and Royal Dutch Shell (NYSE:RDS-B) have done just that and are now producing oil and gas in the region. This has led to a substantial increase in land prices in the region with individual sections of land (640 acres) now selling for approximately $3 million. The plan to export natural gas from Canada’s west coast through LNG facilities is adding even more fuel to the interest surrounding the resource in the Montney.
Amongst all this exciting industry activity, one tiny, intriguing company has been flying below the radar, snapping up prime real estate and positioning itself for immense growth in the Montney. Blackbird Energy Inc. (CVE:BBI), a small oil and gas explorer, is a fraction of the size of its much larger neighbors however has shown immense foresight and prowess in picking out highly promising acreage.
James Burgess of OilPrice wrote about Blackbird earlier this year after it acquired Pennant Energy, stating at the time that the company showed potential as a high-risk, high-reward bet because of some of its smart land acquisition decisions. Since then, it stock price has skyrocketed by over 500%.
Now, neither Burgess nor OilPrice knew that the stock price was going to take off in the way that it did, however due to the reasons Burgess laid out, Blackbird is succeeding on its strategy. It is for this reason that Blackbird should be on the radar for all investors out there.
Blackbird is not there yet on its strategy to become the “next great junior” producer in the Montney, however it is preceding strongly towards this goal. Initially, Blackbird set out to acquire prospective land before other industry leaders could do so, allowing it to pick up acreage at a low cost – this ability was aided by its size and nimbleness. This strategy may seem obvious, but Blackbird took a very deliberative approach to acquire land in areas that are prospective for highly liquids rich natural gas and oil production.
There are reasons the company is optimistic and it comes down to simple geology. Just to the west of Blackbird’s 100% working interest Elmworth project is a prolific well owned by Encana (NYSE:ECA), one of the largest operators in the Montney formation. The well produces an astounding 22.5 mmcf/d (million cubic feet of gas per day) however what is even more exciting is that it produce over 97 barrels of liquids per mmcf of natural gas for an equivalent 5,900 barrels of oil equivalent per day (boepd). A little further south Encana has another well that is producing 1,100 boepd.
It is not just Encana in the region that is producing incredible results, NuVista Energy (TSE:NVA) an intermediate oil and gas exploration company (market cap: $1.58 billion) is producing from several locations nearby as well with recent wells in proximity producing 2,195 boepd and another well producing in excess of 128 bbls/mmcf of liquids.
The immensely successful production of oil and gas in this area of the Montney, surrounding Blackbird’s land, has caused things to heat up dramatically. Intriguingly, NuVista just spent $35 miliion to acquire 12 sections (7,680 acres) directly west of Blackbird’s Elmworth land position (2 miles away). This purchase was done on metrics of just over $4,500 per acre – much higher than the market rate not long ago of just over $3,000 per acre which was a common occurrence earlier in the year.
In light of those lease figures, Blackbird’s announcement that it has put together 36 contiguous sections (over 23,000 acres) in Elmworth demonstrates the success of the company’s strategy to date. It has very strategically timed its land acquisition to the point that a tiny company now owns one of the larger contiguous acreages in the prospective liquids rich area of the Montney basin.
Drilling patterns also add further evidence and affirmation to the promise of Blackbird’s acreage. As time has passed, industry leaders have drilled significantly more wells in close proximity to Blackbird, the most prolific of these wells have occurred as the wells have moved closer to Blackbird’s Elmworth position.
Adding even more excitement to the Blackbird story is that recent drilling by the industry leaders in the area has begun to indicate that the Montney formation is more liquid rich as it moves to east. As wells are drilled closer to Blackbird’s lands the condensate to gas ratio – the ratio of petroleum liquids to gas – has continued to increase. The more liquid rich the wells are, the better the potential economics. This means that Blackbird could see a quicker payback, allowing them to redeploy funds to drill more wells elsewhere.
In order to finance the drilling of its Elmworth land, Blackbird has agreed to sell its 50% working interest in its non-core Bigstone project, which will earn it $8.8 million. After the sale is completed, Blackbird will have over $10 million in cash available which is exceptionally impressive given that just over six months its entire market was under this amount.
Blackbird’s executives have done a remarkable job de-risking its assets. By that, I mean that the leadership has demonstrated a thoughtful and patient approach to building up acreage in a region that has the proven ability to produce significant volumes of oil and gas. The production levels of Blackbird’s competitors, in acreage to the west and southwest in natural gas liquids and crude oil, has Blackbird confident that it can successfully explore and develop their Elmworth Montney assets.
Even more impressive is that Blackbird has now added an additional 77 sections of land (49,280 acres) of Montney prospective land to its portfolio of assets showing to the market it is not content with where it stands today. This company is aggressively pursuing growth through both land acquisitions and drilling.
This all creates a unique opportunity for investors – whereby they can participate in the growth of company that won’t let off the gas pedal as it pursues its goal of truly being the next great Montney producer. Over the last seven months the company has been rewarded through its share price for its diligence and although Blackbird’s stock price has rocketed over the course of 2014, things seem to just be getting started for this company.
By. Nick Cunningham of Oilprice.com
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