Profit from the High-Liquid Montney Play

The Montney Shale Natural Gas Field was a lucrative play back in 2008. Today, with pitiful prices of $2.15 per thousand cubic feet of natural gas (Mcf), most of this giant formation that straddles the British Columbia–Alberta border is deserted, with one exception: the Bigstone formation.

Situated primarily on the Alberta side of the Montney field, Bigstone is drawing attention for its high liquid content and has enticed mid-cap players such as Delphi Energy TSX:DEE, Celtic Exploration TSX:CLT and Trilogy Energy TSX:TET, as well as smaller but well-positioned juniors such as Blackbird Energy TSXV:BBI, Donnybrook Energy TSXV:DEI and Pennant Energy TSXV:PEN.

"The attractiveness of Bigstone from the Montney perspective is indeed the liquids content and not just the amount of it, but the quality of it," says Dave Reid, President/CEO of Delphi Energy. "There's a lot of free condensate produced and/or light oil in the case of Trilogy Energy."

On a quality scale, measured on the API gravity index, the condensate produced at Bigstone is higher and thus lighter than that of typical crude oil, especially compared to that produced from the oilsands. Bigstone's condensate registers at an API of 53 degrees–56 degrees, while the standard for West Texas Intermediate (WTI), the North American benchmark, is much lower at around 39.6 degrees. Bigstone condensate is close to jet-fuel purity, which allows producers to charge a premium.

"This essentially gets you an Edmonton reference price," Reid says. "And in today's market, that equates to about $100 a barrel. So, relative to gas, it is worth more than 30 times more. That's what has made the economics work, and the plays are there. The reservoir produces," says Reid.

Bigstone operators are more than happy to disclose their results, because the gas is coming with high amounts of the precious natural gas condensate at a rate of at least 50 barrels per million cubic feet of gas (MMcf). This spares them the backlash typically received when they hit dry gas.

Delphi made a big splash at the beginning of the year on its 1-19-60-22 W5M well, which produced 12.5 million cubic feet of gas per day (MMcf/d) but, more important, was accompanied by 770 barrels of free condensate per day (bbl/d), of 62 barrels per MMcf (bbls/MMcf). A second Bigstone East Montney well at 4-2-60-23 W5M resulted in similarly economic rates, producing approximately 10.3 MMcf/d with 515 bbl/d of condensate or 50 bbl/MMcf.

Delphi has led the pack, but the developments by its neighbors have been equally as enticing to investors. The trio of Blackbird, Donnybrook and Pennant ended Autumn 2011 with their first Bigstone well at 14-29-60-22W5. Tests revealed approximately 4.3 MMcf/d and 295 bbl/d, at an enviable liquid production rate of close to 69 bbl/MMcf. Since then, construction on production infrastructure has commenced, and two more wells have been drilled.

Blackbird and Donnybrook made a further pooling agreement with bigger player Trilogy last month, enabling an extended-reach horizontal joint well on their pooled lands. After the juniors experienced some difficulties with the completion of the partnership's second well, bringing in Trilogy's expertise for their third well was seen as a wise move.

"With Donnybrook as the drilling operator and Trilogy as the completion operator, we've put two very good teams together to execute on our third well," says Garth Braun, CEO of Blackbird Energy.

The third well will have a lateral length of 5,150m or longer, with possibly greater than 20 stages of fracking scheduled.

"Not only are we going to be flow testing our third well, we will be tying in the production of not only our first and second wells but also the soon-to-be completed third well into our facilities," Braun reports. "This is really important, as Blackbird is graduating on the Bigstone project from being an exploration company that's so far had shut-in gas and liquids, to being a producer that will be flowing in April."

As Blackbird and its partners move closer to production, this makes them and their fellow juniors in the region possible takeover targets, especially as land prices in the Bigstone region are essentially pricing out future juniors who want in on the play.

Resource Clips