Mako Energy and Partners Considering Potential Sale and/or Farmout Options for their Rock Creek Project and Duvernay Shale Acreage

Mako Energy Limited has announced that it, and its joint venture partners, Transerv Energy Limited and Kilgore Oil & Gas Ltd, are planning a potential farmout or other disposition of all or a portion of their Duvernay and Rock Creek mineral rights in West Central Alberta. They have engaged Macquarie Capital as advisor.

The land holding of the joint venture within the Duvernay and Rock Creek fairway totals 261.08 gross sections (167,040 gross acres). Mako holds 50% interest in both the resource plays, and the remaining is held by Transerv (34%) and Kilgore (16%).

Rock Creek Project

  • The total land holdings of the joint venture within the Rock Creek project is 132.28 gross sections (84,659 gross acres). The land position extends across Niton, Pembina, Willesdon Green and Rimbey fields.

  • Highly analogous to the Bakken and Cardium unconventional light oil plays.

  • Proven Production reservoir-20 MMbbls of liquids and 1 Tcf of gas.

  • The project has estimated recoverable resources of 30 MMBOE, gross P90 resources of 189.78 MMBOE (80% Oil) and gross P10 resources of 286.58 MMBOE (Source: Sproule and Associates).

  • The average Estimated Ultimate Recovery per well is 168,000 BOE.

  • Plan to commence a 3-well drilling program in September 2011 comprising horizontal wells with multi-stage fracs. Kilgore anticipates drilling and completion cost of approximately C$4.5 million per well.

  • Transerv reviewing options for select farmout to fund initial 3 well program.

  • Horizontal wells have been used to exploit the Rock Creek gas play for the last five years with approximately 30 wells. However, there have been only 5 applications of horizontal wells to the Rock Creek oil play, of which two are still confidential.

Duvernay Shale Acreage

  • The total land holdings of the joint ventures within the liquids rich Duvernay Shale is 128.28 gross sections (82,099 gross acres).

  • The Duvernay formation has been the focus of recent industry attention which generated a one day record land sale of C$750 million for 497 sections (318,080 acres) of land surrounding, or contiguous, with the joint venture’s lands with an average metric of about $2,000/acre ($5,000/hectare).

Comparable Deals

   • In April, 2011, Encana acquired about 190,000 net acres in the Simonette and Kaybob areas of the Duvernay shale in Alberta for approximately US$300 million or an average cost of about C$1,600 per acre (US$1,579 per acre). The company believed that the bulk of the acreage (~2/3 of total acreage) was located in the liquids rich window and planned to drill 3 to 4 horizontal wells in the year 2011, starting in around August. As no Proved Reserves were booked at the time, Derrick ascribed the entire deal value ($300 million) to Undeveloped Acreage ($1,579/ Acre).

  • In June, 2011, Talisman acquired a 100% WI in approximately 255,000 net acres in the Duvernay Shale play in Alberta through land sales for $510 million or $2,000/Acre. Talisman believes this to be a liquids rich shale play.

Duvernay Shale vs Other shales

Derrick Comments

Derrick values this package between $80-$100 million for

1. The value of the Rock Creek farmout option (~7.5 million): This farm out option was disclosed by Transerv (partner), where they are looking for a partner to fund a 3 well drilling program to begin in Sep, 2011. The drilling and completion cost of each well is estimated to be ~C$4.5 million (~US$4.6 million). Hence, the total cost for 3 wells is estimated to be ~$15 million. Assuming a 50% carry for the JV, the value is estimated to be ~$7.5 million.


2. Disposition of 50% of the  Duvernay Shale acreage (~82 million): The value of the JV’s acreage is estimated to be $164 million ($2,000/Acre). Assuming 50% to be sold, the value is estimated to be $82 million. The $/Acre metric is based on the recent June 2011 Alberta land sales where Talisman acquired Duvernay lands for $2,000/Acre ($5,000/Hectare).

The Mako JV Duvernay lands are adjacent to the land where Talisman paid a whopping $5,000/ Ha ($2,000/ acre) for 255,000 acres for a total consideration of $510 million in the 1 June, 2011 Alberta Crown Land Sale. The Mako JV lands were acquired previously for about $200/ Ha, as reported by Transerv. This is a substantial increase in the value of the shale acreage and the Mako JV is looking to capitalize on appreciation in their Duvernay shale property.

Oil resource plays- Causing a stir in the industry!! Back to back crown land sales in Canada hit ~C$110 million

Alberta- April 2011 sale

Alberta kicked off its first land sale of fiscal 2011/2012 on 6^th April, 2011 with a C$115.8 million land sale, fuelled once again by licences south of Grande Prairie and also several parcels near Lethbridge, which appears to be a continued chase for Exshaw/Alberta Bakken oil. The sale featured 233,431 hectares exchanging hands at an average of C$496.13 per hectare. Highlights included a sale high bonus bid of C$17.9 million by Scott Land & Lease Ltd for three tracts and several parcels at 61-24W5 and 60-24W5. The broker paid an average of C$8,735 per hectare (~C$3,500/acre) for the 2,048-hectare parcel, also a land sale high.

Saskatchewan- April 2011 sale
Heightened interest in the southwest's Shaunavon oil play has significantly boosted revenue from the latest sale of Crown petroleum and natural gas rights. The Shaunavon play accounted for more than half the total in April's sale, which brought in C$109 million in revenue for the province. Land sale revenues for the 2011 calendar year stand at C$152 million after two sales. The latest sale was the third best on record for an April sale. It also marked the seventh time in the last three years that a single land sale has topped C$100 million. The February-2011 sale of drilling and exploration rights raised C$43.4 million for the provincial coffers. 

The highest price for a single parcel was C$7.3 million, paid by Husky Oil Operations Ltd. for a 2,331-hectare exploration licence southwest of Estevan along the Canada-United States border. The highest price on a per-hectare basis was C$10,214 (~C$4,000/acre). Villanova Oil Corp bid C$320,000 for a 31-hectare lease parcel near Carnduff.

"This was a great sale, based on both the quantity and the quality of the bids we received," Energy and Resources Minister Bill Boyd said. "We had the usual strong interest in the Bakken play, but our rich oil resources in the southwest are obviously causing a stir in the industry.
Try this free document search tool

Unusually high acreage metrics in Canada!!

"Land sales are a key barometer of future activity in the industry, and based on what we've seen over the last 15 months from our sales, the forecast is very bright indeed for increased investment by the industry", said Bill Boyd. 

Land sale numbers tend to move higher in tandem with oil prices. These two recent crown land sales in Canada saw the acreage metrics running at C$3,500/acre and C$4,000/acre- relatively high for new land parcels! With the oil prices rising gradually, the oil resources plays like Bakken and Shaunavon are attracting flocks of companies. In particular, Saskatchewan is expecting Asians to invest in these oil rich plays. When Chinese were keen to make an entry into US shale plays in 2010, they wont' hesitate to venture into Canadian shales.

The following snapshot shows the 2010 M&A activity in Canada: 

Source: Derrick Petroleum- Global E&P Transactions 2010 Review