For the next entry in our Asset Review series, we’re returning to the BC Montney for a look at a single piece of a much larger E&P puzzle. This time around, we’re focusing on the Sunrise asset of one of the play’s top producers: ARC Resources. With a reported corporate production in the area of 59,000 BOE/d, this asset is a major contributor to the company’s overall output of around 355,000 BOE/d. While ARC views its Attachie asset as a potential successor to its condensate-rich Kakwa position, the gas-weighted Sunrise appears to be a project with fortunes tied to the progression of LNG developments on the West Coast. With momentum gathering at various Canadian LNG projects, we view it as a good time to examine an asset that could be a crucial source of natural gas to fuel an export boom.
The company’s Sunrise asset is in the middle of large positions held by Shell, Ovintiv, and Murphy Oil along with a few sections owned by Tourmaline. Most of ARC’s rights at Sunrise have been held for years, although it has slightly expanded its position recently; our data suggests that a mineral rights transfer did take place for 2 sections from Pacific Canbriam in December 2023. Generally speaking, it does not appear as if any of the major companies at Sunrise are ready to give up their land near Sunrise; apart from the December 2023 transfer mentioned above, there hasn’t been a single crown mineral right transfer involving any company in the past 3 years.
Crown Mineral Rights Adjacent to ARC Resource’s Sunrise Position (ARC Licences in Black, ARC Resources Crown Rights in Red, Tourmaline Crown Rights in Green, Ovintiv Crown Rights in Orange, Murphy Crown Rights in Blue, Shell Crown Rights in Yellow)
With gross licensed production from the asset of just over 61,100 BOE/d in April 2024 from 119 producing wells, the Sunrise asset is undeniably prolific. Its production is virtually all natural gas, with an April 2024 liquids portion of under 1%. It’s also worth noting that ARC has reported a steady increase in production from Sunrise over the past 3 years, with April 2024’s output exceeding that of April 2019 by over 100%.
Drilling at Sunrise has been fairly consistent of late, with an average annual count of 18 spuds between 2018 and 2023 when you ignore 2019 (which saw no spuds recorded at all). With respect to 2024 drilling, the company’s May 2024 corporate presentation seems to suggest that 6 wells are planned at Sunrise in 2024. This means that the company’s drilling program for 2024 is already complete, unless there’s an unexpected change of spending.
In examining a map of licences by spud date, our only observation is that the company has thus far stuck to the eastern portion of the asset. This checks out with a slightly different map from ARC itself, which indicates that the Sunrise asset is only 37% developed. This suggests that there is plenty of runway for production increases, given that other companies seem to be generating solid production north, south, and west of the untapped portion of ARC’s Sunrise position.
ARC Resources Sunrise Crown Mineral Rights and Licences by Year (Mineral Rights in Yellow, 2024 Licences in Blue, 2023 Licences in Red, 2022 Licences in Green, 2021 Licences in Purple, 2020 Licences in Black, 2018 Licences in Brown, All Other Licences in Grey)
On the note of production increases, we’ve prepared a chart of Sunrise production by spud year covering spuds between 2018 and 2024. Please note that no 2024 spuds had come on production as of the writing of this article (although if prior year activity is any indication, the 2024 class of spuds could begin producing in June or July). While peak aggregate production for spuds from a given year seems to occur 12-18 months after the first wells come on production, ARC’s Sunrise wells do seem to demonstrate persistent productivity; the asset’s legacy wells from 2017 and earlier accounted for almost 9,000 BOE/d in April 2024.
With respect to the future at Sunrise, ARC Resources appears to view the asset as being closely tied to LNG projects in development along the West Coast. In particular, the company references Cedar LNG as a potential catalyst for demand growth in light of the Sunrise asset’s proximity to the Coastal GasLink pipeline. The company has previously announced an offtake agreement with Cedar LNG, wherein ARC “will deliver approximately 200 MMcf per day of natural gas for liquefaction by the Project for a term of 20 years commencing with commercial operations, anticipated in the second half of 2028“. With Cedar LNG having issued a Notice to Proceed (NTP) to contractors in April 2024, it is expected that the project will have a final investment decision by mid-2024. While Attachie Phase 1 project is the company’s current growth focus, if the company did end up deciding to ramp up production further at Sunrise, we may have advanced warning in the form of an expansion of its owned-and-operated infrastructure at Sunrise; at present, the company’s Sunrise infrastructural capacity is 360,000 mmcf/d compared to around 365,000 mmcf/d in April 2024 gross licensed natural gas production. It is possible that the company is going to maintain current production levels until there are further developments around LNG offtake, but they may also have other growth plans that are yet to be revealed. Nonetheless, current company guidance and full infrastructure likely mean that Sunrise is a “hold flat” or “drill to fill” asset for the time being.
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