Calima Energy Ltd (ASX: CE1): Positive testing results opens the Montney
• Calima has so far obtained very good results from the re-testing of the Calima #2 and Calima#3 wells. This could de-risk the initial development of the Montney with potential for production in 2024. This could also materially increase the likelihood of attracting an industry partner. Calima has been estimated to hold 2C contingent resources of 35.8 mmbbl of liquids plus 748 bcf of natural gas in the Montney.• At the Calima#2 well, Calima was retesting the Middle Montney. The well was flowed at a maximum constrained rate of 6.3 mmcf/d in a 2 3/8” tubing. This is a very good rate compared to what was achieved four years ago (10 mmcf/d but from a 5 ½” casing, i.e five times the flow area of the tubing used in 2023) and is well above the type curve.
• The peak condensate ratio of 248 bbl/mcf observed at Calima #2 is much higher than previously (155 bbl/mmcf in 2019). The average condensate ratio of 102 bbl/mmcf (22 bbl/mmcf in 2019) over the duration of the test is more representative for stabilized production and is also well above expectations. NGLs are also expected to be recovered through gas processing and could add 15-25 bbl/mmcf of liquids. Given that the majority of the revenue of the well is associated with the liquids production, this is very material. Condensates are sold at a premium to WTI, which is much higher than the rest of Calima’s production.
• Calima#3 tested the Upper Montney with a peak flow rate of 5.25 mmcf/d, proving that this horizon can produce significant quantities of gas (which was uncertain previously). The condensate rate peak was only 8.4 bbl/mcf but the well has not stabilized yet with only ~6% of the frack fluid recovered. 10-20+% of load fluid recovery is often needed to show long term well performance. Even if the condensate yield does not increase, the Upper Montney gas will boost the value of the development of the Middle Montney.
• Pending the end of the programme, we re-iterate our target price of A$0.50/sh.
Next steps
The testing will continue for another 3-10 days. Calima will also start construction related to the pipeline to connect the well pad to the Tommy Lakes facility. This work will be completed next winter ahead of putting Calima #2 and #3 in production. A development of the area could include 5 wells. Assuming 4 mmcf/d per well and an overall condensate + LPG ration of 100 bbl/mmcf could suggest an initial 2,000 bbl/d of liquids production.
Valuation
Calima is looking for an industry partner for the Montney. We are currently only carrying US$23 mm/C$0.12/sh for the asset, which might prove to be too conservative. We continue to forecast overall FCF of >A$55 mm across 2023-2024. Our “2P NAV” is A$0.30/sh and our ReNAV C$0.52/sh.
Calima Energy and its subsidiaries are engaged in investing in oil and gas exploration and production projects internationally and more specifically in West Africa.
Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector.
The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy.
Auctus has been set up at the beginning of a new decade in which we see significant opportunities in the Energy space. Globally, demand for energy is at record levels and continues to grow. Conversely, investment in traditional energy sources has been severely constrained. We believe this imbalance creates opportunities for both companies and investors.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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