CALGARY, Feb. 23, 2017 /CNW/ – Montana Exploration Corp. (“Montana Exploration” or the “Company“) (TSXV: MTZ) today announced that it has entered into an agreement (the “Farm-out Agreement“) with a private US-based family office group (the “Farmee“) pursuant to which the Farmee will fund up to US$20 million in drilling costs in the Company’s Montana oil and gas prospects (the “Participation“).
Funds committed by the Farmee under the Farm-out Agreement will be applied primarily to drill new wells following up on the success of the Company’s recently completed five well Shaunavon oil drilling program with Rioco Ltd. and to meet Montana Exploration’s commitment to drill 10 wells (including a minimum of six gas wells) on the Company’s farm-in acreage with a large Montana-based utility (the “Utility“). Pursuant to the terms of the Farm-out Agreement, the Farmee has committed a minimum of US$5 million for the first stage of a potential four stage drilling program. US$5 million must be invested by the Farmee in each stage to earn 12.5% of the Company’s pre-farmout working interests, excluding wells drilled and facilities in place at the effective date of the Participation, and subject to the rights of the Utility and the farm-in rights of Rioco Ltd.. Determined on a drilled well by well basis, the Farmee will earn 100% of Montana Exploration’s net interest prior to payout and 50% after payout, subject to Montana Exploration’s right to participate for 25% of its original net interest in each well. Montana Exploration will be the operator subject to the direction of a joint operating committee of Montana Exploration and the Farmee.
The obligations of Montana Exploration and the Farmee under the Farm-out Agreement are subject to the approval of the TSX Venture Exchange and all other third party or regulatory approvals as may be required.
Montana Exploration has now identified 36 Shaunavon oil prospects and 23 gas prospects (on seven potential horizons excluding potential in the shallow Eagle and Judith River formations) on over almost 400,000 acres of land held by Montana directly and through its farm-in with the Utility based upon partial interpretation of 315 square miles of 3D seismic. Proposed targets for the new drilling program with the Farmee may include up to 50 new wells with the objective of developing reserves and production associated with the Company’s recent drilling success, pursuing look-a-like oil objectives and drilling new gas targets.
The economics of the Company’s proposed drilling program with the Farmee for both gas and oil are compelling. The last five wells were drilled and cased in the Shaunavon at an average depth of 4,000 feet for an average cost of US$375,000. The completed and equipped cost of the new oil wells averaged under US$475,000. The wells are projected to pay out in less than one year. Through economies of scale, Montana Exploration expects to significantly improve upon present net revenues to the Company of $28 per barrel for an average 20 API crude after transportation costs, royalties, quality adjustments and field operating costs. Montana Exploration has reviewed the production histories of substantially all of the Shaunavon oil wells in the region. Initial type curve production for average stimulated Upper Shaunavon wells in the region is between 35 and 70 bopd and “estimated ultimate recoveries” per well are expected to be between 100,000 and 180,000 bbls.
“The Farm-out Agreement represents a significant step in the Company’s ongoing financing and development plan, bringing in quality partners and significant new capital that will primarily go into the ground to enhance the value and cash flow of the Company while minimizing dilution to existing shareholders,” said Charles V. Selby, Chairman and Chief Executive Officer.
Recent Drilling Results
Montana has now initiated oil production on two of the wells drilled in the recent five well conventional vertical drilling program with Rioco Ltd. at a combined initial gross rate of approximately 130 bopd without acid stimulation. A third well is expected to be completed as an oil well in the near future and a fourth well is expected to be completed as a gas well in conjunction with a proposed program to bring some of the Company’s shut-in gas production back into production. The Company’s recent drilling results are significant in that Montana Exploration has now drilled four oil wells over an area including four townships (144 square miles) encountering 100% oil and no observed oil water contacts to date in the prospects drilled in the Upper Shaunavon. Montana Exploration is using a conservative approach to completion and production procedures to confirm the pervasiveness of oil in the Upper Shaunavon and budgeted low costs of drilling and operations.
ABOUT MONTANA EXPLORATION CORP.
Montana Exploration Corp. is an oil and gas exploration and production company focusing on the Shaunavon oil and Eagle gas opportunities underlying its extensive land holdings and drilling rights in the State of Montana. In the United States, the company operates through its wholly-owned subsidiary, Montana Land & Exploration, Inc. The Company’s common shares are listed on the TSX Venture Exchange under the trading symbol “MTZ”. Additional information regarding the company is available at www.SEDAR.com or at www.MontanaExplorationCorp.com.