Calima moves to compulsory acquire remaining TMKM and TSVM shares, consolidates 100% of Montney Project
- Calima has acquired >98% of the shares of TMKM and >91% of the shares of TSVM. Calima has moved to compulsorily acquire the remaining shares in both TMKM and TSVM.
- Completion of the Offers and the compulsory acquisition of the remaining TVSM and TMKM's shares will consolidate 100% of the Montney Project into Calima, creating a leading Montney-focused exploration, appraisal and production company.
- TMKM shareholders who accepted the Calima's takeover offer were issued Calima shares on 13 July 2018. Compulsory acquisition settlement will occur approximately 2 to 4 weeks later.
- TSVM shareholders who accepted the Calima's takeover offer will be issued on the 27July 2018. Compulsory acquisition shares will settle mid-August 2018
- Calima is well advanced in its preparations for drilling its first wells in late 2018, recently announcing the appointment of key engineering contracts1 .
The Board of Calima Energy Limited (ASX:CE1) (“Calima” or the “Company”) is pleased to provide an update on the acquisition of TMK Montney Limited (TMKM) and TSV Montney Limited (TSVM), which was announced to the market on the 2 May 2018.
Under the Calima takeover offers to the ordinary shareholders of each of TSVM and TMKM (Offers), as at the date of this announcement Calima has acquired 98.08% of TMKM's and 91.20% of TSVM shares on issue, and, as a result, has moved to compulsorily acquire the remaining shares it does not already own in both companies.
On the compulsory acquisition of the TSVM and TMKM shares, and imminent consolidation of 100% of the Montney Project into Calima, Calima Managing Director, Alan Stein, said,
“As we complete the acquisition of TSVM and TMKM we welcome new shareholders to the Company and look forward to developing the benefits that come from the simplified ownership structure over the 72,000 acres of drilling rights in the Calima Lands. “
“Our plans for drilling late in 2018 remain on track and we are excited by continued drilling successes in the Montney near the Calima Lands and the overall improved outlook for infrastructure across the whole play, which we believe will have a positive impact on valuations.”
As previously highlighted, completion of the Proposed Transaction will result in a number of key benefits, including, but not limited, to:
- Consolidation of the Montney Project 100% into a single entity, which is likely to attract greater market interest;
- The enhanced structure and larger market capitalisation will likely provide improved access to capital to fund the forward work program and removes any risk associated with TSVM and/or TMKM funding its share of development costs;
- Consolidation removes any potential impediments or misalignment of separate JV interests; and
- Additional synergies include the removal of duplicated technical and administrative costs.
Calima to benefit from ~ A$72 Billion of proposed investment in Western Canadian gas pipeline infrastructure
- Calima has undertaken a strategic review of current and near-term investments in gas pipeline capacity relevant to the Montney Formation in Western Canada.
- The review has identified more than C$70 billion (~A$72 billion) of proposed infrastructure investments potentially adding more than 8 bcf per day of new gas pipeline capacity which would more than double the export capacity of the basin.
- The productivity of the basin has run ahead of its pipeline capacity which means producers have to compete for access to markets in eastern Canada and the US and, as a consequence, gas from the Montney is currently selling at a significant discount to US benchmark prices.
- The introduction of new infrastructure will ease pressures on producers as well as introducing access to international markets for the first time via LNG.
- A forecast for increasing gas prices combined with growing demand for condensate should have a positive impact upon Montney producers and demand for acreage.
Australian oil and gas company Calima Energy Limited (ASX: CE1) (“Calima” or “the Company”) has undertaken a review of current and near-term investments in gas pipeline capacity relevant to its position in the Montney Formation where it Operates 72,014 acres of drilling rights.
Based on the Company’s detailed review, infrastructure developments either underway or in advanced stages of planning (Figure 1 and Table 1) will increase demand and/or export capacity in the region by an estimated 8.4 bcf/d. This represents an investment of C$70 billion (A$72 billion) which will more than double the export capacity of the basin.
The Montney Formation currently produces 7 bcf/d of gas, which is 40% of Canada’s total production. Due to the highly productive nature of the Montney, the rate of gas production has recently been increasing by more than 20% year-on-year and as a result production has run ahead of the capacity of the pipeline infrastructure, which exports the gas to markets in eastern Canada and the US.
This has meant producers are having to compete for access to pipeline capacity, resulting in lower gas prices. The benchmark gas pricing hub in Western Canada, AECO, has been trading at a significant (60%) discount to the US benchmark Henry Hub gas price. This is a common feature of the larger resource plays in North America and in common with these other plays, it is expected that the price discount will be significantly reduced as new export infrastructure is introduced.
Independent Resource Report - Calima Lands
Independent resource auditor, McDaniel & Associates, estimates gross un-risked prospective resource of Calima Lands to be 2.1 Tcf of gas and 114.4 MMbbl of condensate and other natural gas liquids.
The resource estimation was based on new mapping undertaken by the Company as well as analysis of recent wells being drilled by Operators on adjacent land, such as Saguaro Resources Ltd.
Calima Energy Limited (ASX:CE1) (Calima or Company) operates 72,014 acres of drilling rights over acreage (Calima Lands) in British Columbia, Canada. McDaniel & Associates (McDaniel), a leading independent geological consulting firm with extensive experience of the Montney Formation, was commissioned to prepare an evaluation of the crude oil, natural gas and natural gas products prospective resources of the Calima Lands.
McDaniel’s best estimates of total un-risked prospective resources within the Calima Lands are summarised in Table 1.
- Natural Gas Liquids (propane and butane) volumes do not include Condensate.
- Sum of Condensate and Natural Gas Liquids. Based on public domain data and the results of wells drilled on adjacent land McDaniel estimate that the average condensate to gas ratio for wells in the Calima Lands would be 23 bbl/MMcf (wellhead condensate/gas ratio). Additional liquids would be stripped from the gas upon processing. The adjacent Operator, Saguaro, recovers more than 50 bbl/MMcf after processing and obtains more than 50% of its revenue from condensate and other natural gas liquids. (Saguaro Resources Ltd. Investor Presentation, January 2018)
- Barrels of Oil Equivalent based on 6:1 for Natural Gas, 1:1 for Condensate and C5+, 1:1 for Ethane,1:1 for Propane, 1:1 for Butanes. BOE's may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
- Prospective resources are the estimated quantities of petroleum that may potentially be recovered by the application of a future development project(s) related to undiscovered accumulations. These estimates have both an associated risk of discover and a risk of development. Further exploration appraisal and evaluation is required to determine the existence of a significant quantity of potentially moveable hydrocarbons. The prospective resources have also been classified using a deterministic method of petroleum reserves estimation having an evaluation date of December 31st, 2017.
- Company has the right to acquire up to 55% of the Calima Lands pursuant to a farmin agreement with TSV-Montney Ltd and TMK-Montney Ltd. Details of the farmin agreement were announced in the Company Prospectus dated June 30, 2017.
Alan Stein, Calima’s Managing Director commented:
”This is an excellent result which significantly increases our confidence in the potential of the Montney Formation in the Calima Lands. This independent estimate of prospective resources confirms the significant scale of the project. With an estimated 2.1 Tcf of recoverable gas and 114 Mmbbl of condensate and other natural gas liquids, the Calima Lands are able to be developed as a standalone project. We look forward to providing additional information related to the project as we progress towards the multi-well drilling campaign planned for the end of the year. The drilling campaign will convert some of the prospective resources into reserves or contingent resources and will also convert a significant number of the drilling leases into longer tenure production leases. Both of these outcomes will have a bearing on how we monetise this investment”
The prospective resource estimates have been prepared and presented in accordance with the Canadian standards set out in the Canadian Oil and Gas Evaluation Handbook (COGEH) and National Instrument 51-101 (NI 51-101), and have been classified in accordance with the Society of Petroleum Engineers’ Petroleum Resources Management System (SPE-PRMS) and reported in the most specific resource class in which the prospective resource can be classified under SPE-PRMS.
In accordance with the applicable guidelines the volumes presented in the McDaniel’s report were risked for the chance of commerciality. The chance of commerciality is the product of the chance of discovery and the chance of development. The chance of discovery in an unconventional resource such as the Montney is associated with the likelihood that commercially viable concentrations of hydrocarbon within a given region exist (i.e. sufficient thickness and porosity), and not necessarily whether hydrocarbons of any concentration will be found. The presence of hydrocarbons within the Montney resource is considered broadly mappable; however, area
specific thicknesses and differences in reservoir quality will ultimately determine commercial viability. The chance of discovery factor is assessed to be 75% given the limited data points within the Calima Lands at this time and a chance of development factor was assessed to be 70% as the Company is in a relatively early stage of development