Sayer Energy Advisors has been engaged to assist Caledonian Midstream Corporation (“Caledonian” or the “Company”) with the sale of a royalty interest (the “Royalty”) in the Company’s Quirk Creek, Alberta natural gas property (the “Property”).
The Royalty consists of a 5% royalty interest (no deductions) on Caledonian’s mainly 100% working interest in 17,120 acres (26.75 sections) of land at Quirk Creek, on which there are currently 14 producing liquids-rich natural gas wells, two of which produce only seasonally. The wells produce natural gas from the Mississippian with a low decline rate which averages less than 7% per year.
Caledonian’s raw production from the producing wells at Quirk Creek has recently averaged approximately 12 MMcf/d, with recent natural gas sales averaging approximately 8.5 MMcf/d, with additional sales of approximately 475 barrels of natural gas liquids and 60 tonnes of molten sulphur per day. As the Royalty is not currently in place, but will be created upon acceptance of a satisfactory offer, there is no historical royalty production and revenue information to present at this time.
The Royalty is forecast to produce approximately 86 barrels of oil equivalent per day (368 Mcf/d of natural gas and 25 barrels of natural gas liquids per day), along with approximately three tonnes of molten sulphur per day. Forecast revenue from the Royalty for 2019 is $579,000.
Caledonian has identified significant potential to increase its natural gas production at Quirk Creek by as much as 40-50 MMcf/d through reworks, tie-ins of existing shut-in wells, recompletions, reactivations, development drilling and through acquisitions.
Success with these operations will allow the Quirk Creek Gas Plant to continue to operate for many more years. Once it is no longer commercial to operate the Quirk Creek Gas Plant, the Company’s natural gas could be rerouted to Shell Canada Limited’s Jumping Pound Gas Plant for processing.
GLJ Petroleum Consultants Ltd. (“GLJ”) prepared an independent reserves evaluation of Caledonian’s properties as part of the Company’s year-end reporting (the “GLJ Report”). The GLJ Report is effective December 31, 2018 using GLJ’s January 1, 2019 forecast pricing. As part of the GLJ Report, the Company had GLJ evaluate the present value of the Royalty.
GLJ estimates that, as of December 31, 2018, the Royalty contained remaining proved plus probable reserves of 2.5 Bcf of natural gas and 168,000 barrels of natural gas liquids (593,000 boe), along with 21 Mlt of sulphur, with an estimated net present value of $7.3 million using forecast pricing at a 10% discount. The proved developed producing reserves were valued at approximately $5.9 million using forecast pricing at a 10% discount.
Summary information relating to this divestiture is attached to this correspondence. More specific information is available at www.sayeradvisors.com. A package of more detailed confidential information will be sent to any party executing a Confidentiality Agreement (copy attached).
Offers relating to this divestiture will be accepted until 12:00 pm on Thursday, May 9, 2019.
For further information please feel free to contact: Tom Pavic, Ben Rye, Grazina Palmer, Ryan Ferguson Young or myself at 403.266.6133.
Alan W. Tambosso, P.Eng. P.Geol.
SAYER ENERGY ADVISORS
1620, 540 – 5th Avenue SW
Calgary, Alberta T2P 0M2
P: 403.266.6133 C: 403.650.8061 F: 403.266.4467