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Calima Energy buoyed by growing interest of large players in Montney Formation oil & gas

Canada’s biggest oil & gas producer Canadian Natural Resources intends to acquire Painted Pony Energy and its western British Columbia assets.

Calima Energy Ltd - Calima Energy buoyed by growing interest of large players in Montney Formation oil & gas
The company has large gas resources in the Development Pending category

Calima Energy Ltd (ASX:CE1) (FRA:R1Y) is encouraged by strong and continuing interest by large oil & gas companies in the Montney Formation in northeast British Columbia, Canada, in which it holds a highly prospective position.

The high level of interest is evidenced by this week’s intended purchase by Canada’s biggest oil and gas producer Canadian Natural Resources Ltd (TSE:CNQ) (NYSE:CNQ) of Painted Pony Energy Ltd.

Canadian Natural’s proposed acquisition for about C$469 million is part of plans to expand its western Canada acreage and will see it take on about $358 million of Painted Pony’s debt.

Positive for future

Calima sees the movement and consolidation of land in this region as being positive for the future of its Calima Lands property at which a significant portion of its 61,000 acres is regarded as being development ready.

With the company also holding the Tommy Lakes property and facilities, this development-ready status is subject only to securing the necessary funding to construct a tie-in pipeline.

Resources upgraded

Calima recently upgraded oil & gas resources with 248.9 billion cubic feet of gas and 12.4 million barrels of light oil and natural gas liquids of Contingent Resources now in the Development Pending category up from Development on Hold.

Once funding is secured then, according to the reporting standards, these resources could be classified as 2P reserves.

These resources, which have been independently assessed by McDaniel & Associates, lie within the acreage recently secured under a 10-year Continuation Lease.

Per acre developed value

The company notes that Canada Natural’s ‘land only’ based metric for Painted Pony's 185,704 net acres comes in at C$2,525 per acre.

This is based on estimates by Stifel FirstEnergy using 4.1x net operating income (NOI) in 2021 (at strip) or 5.9x NOI based on their 2020 outlook.

Painted Pony will hold a special meeting of security holders in September 2020, where it requires 66.67% of votes in favour of the transaction to close.

To that end, the company’s executive suite, board of directors and two largest shareholders, which represent an aggregate 25% of shares outstanding, have entered into agreements to vote in favour of the transaction.

ConocoPhillips purchase

Canada Natural’s move in the Montney Formation follows the recent ConocoPhillips (NYSE:COP) C$550 million Kelt acquisition in the south of the area with a value of C$2,000 per acre undeveloped.

There was also a series of smaller acquisitions in the region by Tourmaline Oil Corp (TSE:TOU) (OTCMKTS:TRMLF) of Polar Star, Chinook and Painted Pony acreage with a total value of C$82 million.

Calima is also buoyed by recent developments in the North American oil & gas industry.

Positive signs emerging

In a company newsletter, it said that while the COVID-19 pandemic and associated restrictions had impacted on its plans, there were some positive signs emerging.

“We continue to have all eyes on overheads and are diligent on expenses. We have $3 million-plus in cash, our monthly burn rate is down below A$150,000 and our current working capital position supports the company into 2022.

“As oil wells across the US are shut-in production of associated gas has also gone down, creating an increase in demand for Montney gas.

“This along with the significant increases in the western Canadian pipeline infrastructure, over 6.6 BCF/day of gas transport capacity has been constructed or under construction, creating improved pricing across AECO, Station 2 and other Canadian gas price points.

“AECO is presently trading at C$2.21/GJ and GLG Forecasts AECO to be above C$2.50/GJ into 2021 and beyond.”

Tourmaline in neighbourhood

Calima added: “We are encouraged to see Tourmaline, one of the Montney’s best-performing operators, moving into our neighbourhood and regard this as an encouraging sign for ongoing Montney consolidation in northeast British Colombia.

“These are difficult times but, as ever, the beat goes on and the Calima team continues to work towards realising value from its significant resource position.”

Quick facts: Calima Energy Ltd

Price: 0.01 AUD

Market: ASX
Market Cap: $22.07 m

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