a. Shell Canada is seeking a JV partner to develop its Nikanassin Play in its Chinook Asset and has engaged TD securities as its exclusive financial advisor.
b. Offering 25 – 50% equity in its lands to JV partner.
c. Seeking cash with a capital component.
d. Level of carry is a function of term and working interest acquired.
e. Term is anticipated to be 3-5 years.
Figure 1: Map location of the Chinook Asset. Source, TD Securities.
Chinook Asset Summary
a. Located in Deep Basin of Western Canada (See Figure 1)
b. Average Shell working interest is ~ 90%
c. Area covers ~ 102,000 mostly undeveloped gross acres
d. Resource potential is large with 12 Tcf OGIP with Shell estimated recoverable resource > 4Tcf
e. Shell has invested in infrastructure and facilities resulting in lower operating costs (as low as $0.55/Mcf)
f. Currently producing ~ 35 MMcf/d with plans to ramp up to 150 MMcf/d by 2015 and possibly 250 MMcf/d or higher.
Nikanassin Formation Summary
a. Present across the deep basin with gas trapped in stratigraphic and structural settings.
b. Thick, stacked siltstone – sandstone reservoir sequence
c. OGIP of 60 – 80 Bcf/ Section is higher than all other area formations
Nikanassin compared to other North American shales by TD (Broker)
Figure 2: Comparison of various parameters between the Nikanassin and other similar unconventional plays. Source, TD Securities.
Benefits for JV partner
a. Shell is a major player with extensive capabilities and experience in unconventional plays.
b. Reduced drilling costs by 50%
c. 50% reduction in drilling time
d. 40% reduction in completion costs
e. Prior investment capital has already flowed into project.
Shells Current Activity at Chinook Asset
a. Drilled three horizontal wells in Q4-2010, all tied in and initially producing > 5 mmcf/d
b. Completed drilling first syncline well in Q1-2011 (Figure 3) which is awaiting completion and tie-in Q2-2011
c. Plans to drill second syncline well and four development wells in remainder of 2011
Figure 3: Subdivision of the Nikanassin play according to Shell. Source, TD Securities.
Recent activity by other operators
Source, TD Securities.
Derrick estimates the value of this deal to be between $25 - $100 million assuming a 50% JV based on acreage metrics from the June 2011 activity land sales published by the Canadian government.