viewCalima Energy Ltd

Calima Energy acquires Tommy Lakes facilities and direct access to major export routes in Canada

The company has drilling and production rights on 64,475 acres in the Montney region of British Columbia.

Calima Energy Ltd - Calima Energy acquires Tommy Lakes facilities and direct access to major export routes in Canada
It is predicted that British Columbia’s share of Canadian gas production will rise from 33% to 47% by 2040

Calima Energy Ltd (ASX:CE1) recently acquired the Tommy Lakes facility, including associated pipelines and infrastructure, from Enerplus Corp (TSE:ERF).

Tommy Lakes lies immediately to the north of the Calima lands in British Columbia and saves the company (and any future partner) an $85 million investment in infrastructure.

Calima managing director Alan Stein said: “This is a significant strategic acquisition that gives the company access to markets in a very cost-efficient manner.

 “With a replacement value of $85 million, the re-use of Tommy Lakes significantly reduces capital cost however, just as importantly, avoids the time involved in permitting and constructing new facilities. 

“The Calima Lands are now ready for development once a funding partner is secured.”

The infrastructure acquired includes gathering pipelines, compression facilities and associated facilities capable of transporting up to 50 million cubic feet/day of gas and 1,500-2,000 barrels per day of well-head condensate

Production start-up from existing wells could commence the first quarter 2021 subject to third party funding.

Strategic acquisition

The principal consideration for the acquisition is around $825,000 which will include the cost of shutting down the facilities and the payment of a refundable performance bond to the Oil & Gas Commission of British Columbia (OGC).

Calima has also entered into an option agreement to acquire 11 gas production wells on or before April 1, 2022 in the Tommy Lakes field. 

The wells would provide the company with the option to use gas as fuel as part of the start-up sequence for the facilities, if required.  

As it stands, the strategic acquisition means Calima avoids regulatory work that could otherwise take years to approve and can leave the existing facility on suspension until it’s ready to start production.

Pipeline and processing access

The acquisition also provides Calima cost-efficient access to the North River Midstream pipeline and Jedney processing facility.

The processing plant in turn provides immediate access to major export routes including TC Pipelines LP’s (TSE:TRP) Nova gas transmission pipeline and the Alliance pipeline.

Importantly, new pipeline investment and capacity growth will allow for gas to be directed towards the Shell/Petronas’ LNG Canada Facility via the Canada Coastal Link pipeline and the proposed Woodside/Chevron LNG Facility at Kitimat.   

Major pipelines and export routes in Canada 

Condensate, gas and project economics

The company estimates around 77% of production in terms of barrels of oil equivalent (boe) from the Calima lands would be gas, and condensate would be expected to account for around 50% of production revenue from the Calima Lands.

While Calima’s project economics are underpinned by condensate, the gas price offers leverage.

Canadian producers have been under pressure from low gas prices for several years, but now Western Canadian gas prices are improving as more pipeline capacity is made available.

Stein said: “With gas prices showing consistent increases over the last 6 months, development economics are showing steady improvement.”

Calima regards $2 per gigajoule as an inflection point in delivering acceptable project economics and prospects to secure long-term pricing at or above $2 is looking strong this year.

Regional context

The Montney region of British Columbia produces 7 billion cubic feet/day of gas (greater than 40% of Canada total), and 400,000 barrels/day of condensate.

New projects and pipelines are expected to create demand and capacity for more than 10 billion cubic feet/day over the next seven years – requiring a significant increase in production.

Pipeline capacity and domestic gas demand is predicted to overtake supply sometime between quarter four 2019 and quarter one 2021 and to date the Canadian Government has approved five significant LNG projects to ride the wave of increased demand.

It is predicted that British Columbia’s share of Canadian gas production will rise from 33% to 47% by 2040.

With gas reserves equivalent to half total reserves of Qatar, most of this growth will come from the Montney region – where Calima will be waiting and ready to start production.

Proactive CEO session

Calima will be presenting at Proactive March CEO Sessions.

Register for the CEO Sessions today

Sydney details, Monday, March 23, 2020

Melbourne details, Tuesday, March 24, 2020

Quick facts: Calima Energy Ltd

Price: 0.006 AUD

Market: ASX
Market Cap: $13.15 m

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