Calima Energy Ltd (ASX:CE1) is thinking long and hard about the future of its Montney portfolio — a suite of development-ready natural gas assets in northeast British Columbia, Canada.
The energy stock is out to maximise the value in its Montney holding, but whether that’s done via an asset sale or exchange, a joint venture or other solution remains to be seen.
Calima isn’t taking its responsibilities lightly: Montney is the most active oil and gas play in Canada, and the current energy climate could maximise the value of Calima’s holding in the formation.
With energy security at the forefront of the global conversation, Calima’s position in a prolific gas play — estimated to hold 449 trillion cubic feet of gas and 1.1 billion barrels of oil — is increasingly attractive.
The story so far
In September last year, Calima teamed up with Calgary-based investment bank Peters & Co to consider the next steps for its Montney assets.
Calima’s open to a number of solutions — a deal could see the company team up with another explorer or part ways with the assets altogether.
The bottom line, however, is that the deal must maximise the portfolio’s value and align with shareholders’ best interests.
Here’s what’s on the table: Calima owns and operates more than 34,000 acres of Montney land rights, as well as a 10-year petroleum and natural gas lease that’s set to expire in 2029.
The energy stock’s landholding is estimated to hold around 160 million barrels of oil equivalent in contingent resources.
What’s more, Calima’s Montney assets have been maintained in a development-ready state, with all major approvals in place to construct a pipeline from the Calima 2 and 3 wells to a nearby infrastructure tie-in point.
Considering the oil and gas space today, it’s a portfolio that represents great promise for the right stakeholder.
Wheeling and dealing in the Montney Formation
Canada’s iconic Montney oil and gas formation is no stranger to mergers and acquisition: In 2021, more than C$8.5 billion changed hands thanks to M&A activity across the gas play.
More recently, Vermillion (NASDAQ:VRML) Energy announced it would pick up Montney explorer Lucrotta Exploration, which owns 77,000 net acres in the formation and generates 4,250 barrels of oil per day, for a whopping C$477 million.
Moving ahead, those in the know think the Montney wheelers and dealers aren’t just focused on incorporating the large deals made in 2021: they’re looking to expand their holdings yet again.
You can see the appeal if you look at the natural gas futures: pricing remains strong, fetching upwards of C$5 a gigajoule on Alberta’s natural gas exchange.
The May-December futures are also trading strong at roughly C$5.40 a gigajoule, and the recent significant rise in oil prices is further supporting the sector.
Source: Gas Albtera.
All eyes on LNG
The liquefied natural gas (LNG) market is its own beast. Geopolitical tensions across Eastern Europe have driven up demand and pushed LNG prices to record highs in recent months.
Looking ahead, there’s a new development coming that’ll continue to shake up this side of the energy market.
The Shell-led LNG Canada export project, located on the west coast, has been under construction since late 2018.
Once it comes online, it’ll be Canada’s first LNG export facility, with commercial start-up set to kick off in 2025.
The ultimate demand for gas from this facility is estimated at between four and five billion cubic feet a day.
Down the line, this means the LNG can be sold into robust Asian and European markets at much higher prices than are currently being realised in North America.
What does this mean for Calima? The long tenure of its Montney holding extends well past the Shell project’s start date, meaning it’s poised to keep benefitting from rising natural gas prices in the country and beyond.
Unlocking value at Montney
With all this in mind, Calima’s leadership is considering every option when it comes to maximising value in the Montney Formation.
“Since we announced the initiation of this process, spot natural gas prices are up approximately 30% and futures are up approximately 20%,” Calima president and CEO Jordan Kevol explained today.
“Throughout 2021, significant consolidation occurred immediately adjacent, and leading up to, our asset position.
“We are also pleased to see the first Montney deal of 2022 with the Vermillion and Leucrotta deal.
“Current strong gas prices have reaffirmed to Calima that significant inherent value exists in this asset, and more time is needed to seek out the proper way to unlock it.”