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.

Shell Canada Seeks JV Partner to Develop its Canadian Deep Basin Nikanassin Play in its Chinook Asset

Main Features

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. 

Analyst Comments

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.

KNOC acquires Eagle Ford acreage for ~$14,000/acre through $1.55 billion JV with Anadarko. KNOC hungry for foreign oil assets!!

Anadarko signed a joint-venture agreement with KNOC, whereby KNOC will earn approximately one-third of Anadarko's 71% interest in the company's Maverick Basin assets, located in southwest Texas. KNOC's $1.55 billion investment will be made entirely in the form of a carry, funding approximately 100% of Anadarko's 2011 post-closing capital costs in the basin, and up to 90% thereafter until the carry is exhausted, which is expected to occur by year-end 2013. KNOC will also reimburse Anadarko for net cash outflows, relative to their acquired interest, subsequent to the effective date, which are expected to be approximately $50 million. The transaction differs from other recent joint ventures with the fact that there is no up-front cash consideration.

Through this JV, KNOC will receive:

-- Approximately 80,000 net acres in the liquids-rich Eagleford Shale play

-- Approximately 16,000 additional prospective net acres for the deeper dry-gas Pearsall Shale, as well as Pearsall opportunities underlying the aforementioned Eagleford acreage

-- Reserves of 116 million barrels of oil equivalent and production of 6,628 barrels a day.

A look at the Eagle Ford acreage metrics

KNOC is believed to pay ~$14,000 per Eagle Ford acre after allocating a value for the reserves and Pearsall shale acreage. This $14,000/acre is the highest price per acre paid till date in the Eagle Ford and represents a premium of 27% when compared with the recent Eagle Ford transactions. The following data source from Derrick Petroleum Services shows the acreage metrics of the 2010 Eagle Ford transactions.

Recently, KNOC acquired 95% of Altius Holdings Inc for $515 million. Altius Holdings owns four oil blocks in Kazakhstan- Akzhar, Besbolek, Karataikyz and Alimbai - with reserves totaling 56.9 million barrels, the South Korean ministry said. Altius is the Kazakh arm of Arawak Energy.

KNOC in shopping spree!!!

KNOC said in February that it plans to invest as much as $4 billion in overseas oilfields this year to secure supplies for an economy that relies on imports for almost all its oil needs. The company aims to raise daily output by 60,000 barrels to 240,000 barrels by the year-end. These two recent acquisitions may boost KNOC’s output by 16,500 barrels a day. KNOC Vice-President Kim Seong-hoon said, “KNOC is focusing on acquiring assets with high upside potential and little investment risk.” This is in line with their production milestone, with the acquisition train starting from Kazakhstan and US. The acquisition train might stop in US (Bakken and Niobrara shales) for a while or it might travel towards the upcoming oil frontiers like Brazil and West Africa.