Alberta light oil play sparks interest.
PetroBakken Energy Ltd. has bought junior oil and gas producer Berens Energy Ltd. for $336 million, a move placing the company in one of Canada's oldest, but increasingly attractive light oil plays.
Berens has estimated production of 3,650 barrels of oil equivalent per day, 78 per cent weighted to natural gas, predominantly from the Notikewin formation in the West Pembina area of Alberta.
But it was the potential Cardium light oil resources contained in the Pembina formation that drew PetroBakken to the junior's data room late last year.
"We've been following the Cardium oil play, and this was our entry into it," said Gregg Smith, chief operating officer.
PetroBakken, a leader in the use of horizontal multi stage drilling technology, will be utilizing skills honed in Saskatchewan Bakken light oil and British Columbia shale gas plays to access reserves previously seen as uneconomical.
The acquisition, expected to be completed at the end of February, will provide the company with access to more than 100 net potential light oil sites. Berens has drilled two successful horizontal wells into the Cardium and is completing a third well in the zone.
Costs of $3 million per well were high, but balanced by initial high rates of around 200 barrels per day of production during the first month, allowing rapid recovery of upfront costs, Smith said.
The Pembina field is gaining favour with producers such as ARC Energy Trust, Bonterra Energy Corp. and Bellatrix Exploration due to new technologies allowing companies to unlock its light oil resources.
In west-central Alberta, Pembina was touted as the largest oilfield (by area) in North America on its discovery in the 1950s.
The field was notoriously difficult from which to produce, with half the recovery factor of other oilfields, requiring massive amounts of water pumped down wells to squeeze oil from its tight grip.
But the legacy field is being revitalized by technology, in particular the use of bilateral multistage wells, which PetroBakken excels in, noted analyst Brian Kristjansen with Genuity Capital Markets.
"It's worked out phenomenally well for them in the Bakken," Kristjansen said. "And the Cardium is going to be even better than the Bakken with (Alberta's) royalty credits."
Under temporary royalty measures, PetroBakken will pay only a five per cent royalty on the first 5,000 barrels of oil produced from the wells, then revert to 50 per cent under the New Royalty Framework.
Kristjansen noted the play would still be economic without the royalty credits in a $70 per barrel world, but savings of 45 per cent make for very attractive netbacks.
PetroBakken said Monday's offer of $2.70 per share represented a 34 per cent premium over the weighted average closing price of Berens' shares for the 20 trading days ended Dec. 31.
Details on how the acquisition will be funded through a wholly owned subsidiary have not been released.
Horizontal drilling in the notoriously tight region could see recovery of 175,000 barrels per well, implying 17.5 million barrels of oil equivalent of unbooked Cardium oil resources to PetroBakken, UBS Securities analyst Andrew Potter said in a morning report.
The gamble seems expensive at around $92,000 per flowing barrel of oil equivalent, and $30 for proven and probable reserves, Potter noted.
"However, when incorporating the 17.5 million barrels of oil equivalent of unbooked Cardium upside, the transaction is reasonable."
PetroBakken shares gained 72 cents to close at $33.05 per share on the Toronto Stock Exchange on Monday.
Source: The Calgary Herald