Leucrotta Exploration was sold to Vermilion Energy in May 2022. Freshly-incorporated Coelacanth Energy was spun out as a new company as part of the arrangement. Leucrotta was a pure-play Montney producer with assets predominantly located in the Mica and Two Rivers properties. The arrangement, for which Vermilion paid a net cash purchase price of $477 million, saw Vermilion acquire the Mica property that had an estimated 2023 production potential of 13,000 BOE/d. Coelacanth, on the other hand, acquired the largely undeveloped Two Rivers properties. With Q2 2023 earnings season now underway, we wanted to assess this transaction and examine what has taken place since the Leucrotta business arrangement closed in May 2022.
Map of Mineral Rights Owners in the Gas Condensate and/or High GOR Light Oil Windows of the Montney Fairway (Source: Coelacanth April 2023 Corporate Presentation)
Coelacanth’s asset acquisitions were structured as a spin-out in Leucrotta’s sale to Vermilion. Coelacanth, which was incorporated in March 2022, acquired Leucrotta’s Two Rivers project. These assets were largely undeveloped, with the company’s 100,000 net acres containing an estimated 40 non-abandoned drilled wells as of the transaction’s close on May 31, 2022. The company is positioning itself to invest heavily in infrastructural development and an expanded drilling program with an eventual mature production target of around 20,000 BOE/d. The Two Rivers project, which the company has divided into East and West sub-projects, accounts for a majority of the company’s operations. Production has been kept minimal as the company scales up its infrastructural capabilities in the region; Petro Ninja gross licensed production data indicates that the company has oscillated between approximately 280 and 315 BOE/d since October 2022. The company recently announced that it had received approval to drill 14 wells at its East Two Rivers project, which has the potential to significantly alter the company’s near-term production profile.
Coelacanth Wells Spud Before and After The Business Arrangement (Pre-Arrangement Wells in red, Post-Arrangement Wells in blue)
Following the carve-out of assets obtained by Coelacanth, the remainder of Leucrotta’s assets were transferred to Vermilion. The transferred assets centered around Leucrotta’s Mica property in the Peace River Arch. While Vermilion has held assets in western Alberta for years, this transaction represented the company’s first foray into British Columbia and was considered a strategic extension of their existing holdings. While a number of mineral rights remain officially licensed to Leucrotta, it’s safe to say that these assets are owned de facto by Vermilion. According to the company’s most recent corporate presentation, Vermilion holds 80,000 net acres in the Mica property compared to 450,000 net acres in west-central Alberta and 275,000 in Saskatchewan.
Vermilion Wells Spud Before and After the Arrangement (Pre-Arrangement Wells in red, Post-Arrangement Wells in black)
| UWI | Province | Field | Spud Date | May 2023 Oil (BBL/d) | May 2023 Gas (mcf/d) |
| 100102308114W600 | BC | MICA | 2023-01-29 | 417.60 | 5,138.30 |
| 100152308114W600 | BC | MICA | 2023-02-11 | 411.40 | 4,781.60 |
| 100062708113W600 | AB | DOE | 2023-02-27 | N/A | N/A |
| 100032708113W600 | AB | DOE | 2023-03-12 | N/A | N/A |
| 100012808113W600 | AB | DOE | 2023-03-26 | N/A | N/A |
| 100032808113W600 | AB | DOE | 2023-04-07 | N/A | N/A |
With respect to future development of these acquired assets, Vermilion has indicated a long-term production target of 28,000 BOE/d for its Montney assets. The company is currently building out its BC infrastructure, with development projects including a 16,000 BOE/d battery and a multi-well pad that has received regulatory approval. As demonstrated by the production chart below, which includes both acquired wells and wells spud by Vermilion on acquired mineral rights, output from these wells has been trending positively in the past few months despite a wildfire-impacted May 2023; in April 2023, the company achieved 5,344 BOE/d in production from 19 wells.
Given Vermilion and Coelacanth’s lofty ambitions for production growth from these assets, there’s a lot of potential for the Leucrotta business arrangement to generate significant value in the Montney play. To keep an eye on future developments by each company, check out BOE Intel.