Exciting news in the Canadian energy sector this week, as it was announced that Tourmaline will buy Crew Energy for a total implied value of ~$1.3 billion.
Now is as good a time as any to examine the BC Montney from a production and ownership perspective after this transaction. To do so, we have created a shape in BOE Intel that generally encapsulates the majority (but not all) of the Montney activity in BC. You can see this polygon in Figure 1.
Figure 1
Next we broke down the production by formation and by company, specifically targeting those Montney volumes that we are interested in. These volumes are on a gross licensed basis, so wouldn’t incorporate the working interest split for, say, Ovintiv’s 60/40 partnership with Mitsubishi, Shell’s 80/20 partnership with PetroChina at Groundbirch, etc. Nonetheless, what’s left is a pretty interesting view of who produces the most out of the Montney in this area of British Columbia.
From this data we can see that, after giving Tourmaline credit for the Crew volumes, ~78% of BC Montney production from this area is licensed to 5 operators (Ovintiv, Tourmaline, PETRONAS, ARC Resources, Canadian Natural Resources) as shown below in Figure 2. With the addition of the Crew volumes, Tourmaline will be very close to the top BC Montney producer in this area on a gross basis, and almost certainly will be on a net production basis. It’s also worth noting that this list drops off pretty sharply if you go to producer #11 on the list, which would be Vermilion (~7,500 BOE/d). In other words, there aren’t many options for securing supply in the area, particularly with LNG Canada starting to require volumes in the somewhat near future. Perhaps that’s another way of explaining why the Crew sales process was a “competitive process”, as described by Tourmaline CEO Mike Rose in an interview on BNN Bloomberg. BC Montney volumes don’t come up for sale very often, so when they do, it draws a lot of attention.
Figure 2 – Gross licensed production* by formation for area drawn
*does not account for working interest sharing agreements
Now that there are only 9 producers of decent size remaining in the BC Montney, what will become of them? (Keep in mind Mitsubishi, PetroChina, and others have non-op working interest not shown here) Will they all continue to exist as is? Will the race to secure volumes before LNG Canada starts up continue to drive more M&A activity? Does Shell have enough resource to satisfy its desire to vertically integrate LNG Canada? What about ConocoPhillips’ growth ambitions in NE BC? Where does that leave Murphy, a company not currently committed to an LNG project in Canada? And of course there is the biggest company in Canada, Canadian Natural Resources. Lots of questions without an answer, but you can bet that the major LNG players are all watching this area closely.
To provide a little more context, we’ve put together a map of mineral rights ownership in northeast BC among those top 10 producers. We left off CNRL unfortunately as the company just frankly has mineral rights everywhere and so the map wasn’t very visually pleasing. Apologies to CNRL! We also coloured Crew and Tourmaline the same colour for obvious reasons.
Figure 3 – Mineral rights ownership among top 10 BC Montney producers
*Map is for illustrative purposes only. Mineral rights represent all rights, and are not specific to just the Montney. Map colouring is given priority based on the order in the map legend.