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January 2015

The Outliers

Finding Triple Digit IRRs in the Unconventional Montney Fairway

Outlier

>100% IRR

Liquids

(Thermal Maturity)

Set in Stone

Deliverability - IP

(Depth, Pressure, Completion)

Capital - $

(Depth, Pressure, Execution)

Source: Modified after EIA (US Energy Information Administration)

Unconventional Montney fairway spans an estimated 37,000 sq. km

2

3

4

5

6

7

8

30

40

50

60

70

80

90

100

110

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

$/G

J

$/b

bl

Edmonton Light WCS AECO

WCS -49.2%

AECO -32%

Edm. Light -48.3%

Catching the Falling Knife

Source: Bloomberg, all prices in CAD

As of January 9, 2015

CANADIAN COMMODITIES (SINCE JAN. 1, 2014)

It All Begins with the Rock…Thick and Brittle

Source: BMO Capital Markets, WCSB Atlas fig 16.24, Sherwin GeoEDGES, GeoSCOUT

ALBERTA

CSPG Bulletin, Year: 1997, Issue: December

Unconventional Conventional

Kobes Representative

Karr Representative

BRITISH COLUMBIA

CSPG Bulletin, Year: 2010, Issue: June

a-086-K/94-H-15, 717.5 m

MONTNEY LITHOLOGICAL MAP

A10-3-62-22W5, 7,572 ft

Normal Pressure Line

North

Montney

South

Montney

ALBERTA BC

Conventional

C.I. = 250 m

1000

2000

3000

4000

TOTAL VERTICAL DEPTH TO TOP OF MONTNEY

Over-pressured Reservoir Increases Deliverability, Storage and Capture

Source: BMO Capital Markets, GeoSCOUT, geoEDGES, BC OGC

*Halfway River First Nations Area of Cultural Significance

**Peace Moberly Tract

City of Dawson Creek

Unconventional Conventional

Nov. 5, 2014 Crown sale: ~30,000 acres in 2 parcels, Bonus $190MM via brokers

MONTNEY CROWN HOLDINGS

Only Entry Point is to Buy an Existing Position

Source: GeoSCOUT, BMO Capital Markets

*The Halfway River First Nations Oil and Gas Consultation Agreement. Retrieved from www.bcogc.ca/node/8241/download

**The Peace Moberly Tract Sustainable Resource Management Plan. Retrieved from http://www.for.gov.bc.ca/tasb/slrp/plan106.html

Lands are tightly held across the fairway and have been for sometime

UNCONVENTIONAL HORIZONTAL MONTNEY GAS

The Play is Mature Enough to Start Identifying Outliers

Source: GeoSCOUT, GeoEDGES, BMO Capital Markets

UNCONVENTIONAL HORIZONTAL MONTNEY GAS PRODUCTION

Production from the fairway is quickly approaching 4 Bcf/d

Montney, in general, is known for its high heat content gas

Due to the dilbit demand in Western Canada, condensate is

the most desirable hydrocarbon stream

0

1,000

2,000

3,000

4,000

Pro

du

cin

g D

ay

Ga

s R

ate

(M

Mc

f/d

)

Encana Corp

Progress Enrg Cda Ltd

Shell Cda Ltd

ARC Rsrcs Ltd

Cdn Nat Rsrcs Ltd

Other

Jedney

Nig

Blueberry/Inga

Altares

Attachie

Sunrise

Pouce Coupe

Knopcik

Elmworth

Wapiti

Kakwa

bbl/MMcf

Normal Pressure Gradient

10.0 kPa/m (0.43 psi/ft)

Sub 100% IRR Areas

Emerging Areas

Outlier Areas

Outlier Areas

Septimus

Conventional

OUTLIER LIQUIDS FAIRWAY MAP

Where is the Money? – Following the C5+ is Key

Source: GeoEDGES, GeoSCOUT, BMO Capital Markets, BC OGC

Note: Liquid Yields used in the type curve economics were assumed to be flat over the life of the curve. Rather than model a

declining yield curve, C5+ values are estimated at approximately 60% of the values shown on the Outlier Liquids Fairway map

Areas: 4 Outlier, 2 Emerging, 3 Potential

BC Drill Credit Line

0

150

300

450

600

0.0

1.5

3.0

4.5

6.0

0 12 24 36 48

Co

nd

en

sa

te R

ate

(bb

l/d)

PD

GR

(M

Mc

f/d

)

Month

Gas Profile

Constant Yield

ELMWORTH TYPE CURVE WITH CONSTANT YIELD (CASE 1)

Payout 8 months

18 months*** 50% of BT-NPV@10%

33 months 45 months***

Constant Yield 75 bbl/MMcf

0

150

300

450

600

0.0

1.5

3.0

4.5

6.0

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Co

nd

en

sa

te R

ate

(bb

l/d)

PD

GR

(M

Mc

f/d

)

Month

Gas Profile

Declining Yield

ELMWORTH TYPE CURVE WITH DECLINING YIELD (CASE 2)

0

150

300

450

600

0.0

1.5

3.0

4.5

6.0

0 12 24 36 48

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nd

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(bb

l/d)

PD

GR

(M

Mc

f/d

)

Month

Gas Profile

Flat for 4 yrs then decline at 25%/yr

ELMWORTH TYPE CURVE WITH FLAT THEN DECLINING YIELD (CASE 3)

Payout 8 months

17 months***

50% of BT-NPV@10% 31 months

45 months***

Initial Yield 100 bbl/MMcf

Payout 8 months

18 months***

50% of BT-NPV@10% 30 months

42 months***

0

150

300

450

600

0.0

1.5

3.0

4.5

6.0

0 12 24 36 48 60

Co

nd

en

sa

te R

ate

(bb

l/d)

PD

GR

(M

Mc

f/d

)

Month

Gas Profile

Constant Yield

Declining Yield

Payout on constant yield

Payout on declining yield

Payout on flat then declining yield

IRR 224%

69%***

IRR 212%

63%***

IRR 224%

69%***

ELMWORTH TYPE CURVE WITH ALL YIELD CURVES

NOTE: the yield profiles shown in cases 1 and 2 are identical since the yield is flat for 48 months in both cases. The IRRs are also identical, but the time to 50% of NPV is lower in case 3. This is because the NPV in case 3 is lower but the BT cash flow is the same as in case 1

***Updated price deck $C4/GJ (AECO) and $US44.50/bbl (WTI) or $C50.00/bbl realized condensate pricing

BT-NPV@10% $19.5MM

$8.7MM***

BT-NPV@10% $21.1MM

$9.2MM***

BT-NPV@10% $17.4MM

$7.9MM***

How Best to Model Condensate Yields – Declining Yields vs Constant Ratios

LOCATOR MAP

0.0

4.0

8.0

12.0

16.0

0 12 24 36 48

PD

GR

* (M

Mc

f/d

)

Month

* Normalised on Peak IP30

Kakwa/Karr

INPUT SENSITIVITY TO THE BASE VALUE IRR

The Outliers – Karr/Kakwa – IRR 350% (66%)***

Source: GeoSCOUT, BMO Capital Markets, BC OGC

**Flat pricing with $C4/GJ (AECO) and $US90/bbl (WTI)


AREA PRODUCTION BY OPERATOR

TYPE WELL FORECAST

IP30 5.4 MMcf/d

C5+ Yield 150 bbl/MMcf

BT-NPV@10% $28.3MM

$10.2MM***

IRR 350%

IRR 66%***

Payout 0.5 yrs

Payout 1.3 yrs***

Drill Credit $3.3MM

Drill Credit $3.3MM***

Active Operators:

Seven Generations

Paramount

NuVista

CNRL

Harvest

XTO

Exposure:

Kicking Horse

(Donnycreek + Contact)

$76.97/bbl

$13.2MM

120 bbl/MMcf

4.5 MMcf/d

$3.21/Mcf

4.4 Bcf

$115.45/bbl

$8.8MM

180 bbl/MMcf

6.3 MMcf/d

$4.81/Mcf

6.6 Bcf

0 100 200 300 400 500 600

Condensate Price

Capital

Condensate Yield

30 Day IP

Gas Price

EUR

Change in IRR from base value (%)

Base Value**: BT-NPV@10% = $28.3MM, IRR > 350%

350

$96.21/bbl

150 bbl/MMcf

5.4 MMcf/d

$4.01/Mcf

5.5 Bcf

$11.0MM

0

25

50

75

0

25

50

75

We

ll Co

un

t

PD

GR

(M

Mc

f/d

)

Seven Generations

Paramount

XTO

Well Count


10.0 kPa/m (0.43 psi/ft)


0.0

4.0

8.0

12.0

0 12 24 36 48

PD

GR

* (M

Mc

f/d

)

Month


LOCATOR MAP

The Outliers – Elmworth/Wapiti – IRR >220% (69%)***




TYPE WELL FORECAST


IP30 5.8 MMcf/d


BT-NPV@10% $21.1MM

$9.2MM***

IRR 224%

IRR 69%***

Payout 0.7 yrs

Payout 1.5 yrs***

Drill Credit $2.6MM


$10.8MM

$76.97/bbl

60 bbl/MMcf

$3.21/Mcf

5.1 MMcf/d

4.4 Bcf

$7.2MM

$115.45/bbl

90 bbl/MMcf

$4.81/Mcf

6.4 MMcf/d

6.7 Bcf

0 50 100 150 200 250 300 350 400 450

Capital

Condensate Price

Condensate Yield

Gas Price

30 Day IP

EUR



224

$9.0MM

75 bbl/MMcf

$4.01/Mcf

5.8 MMcf/d

5.5 Bcf

$96.21/bbl

Active Operators:

Encana

SINOPEC-Daylight

NuVista

Paramount

Shell

CNRL

Exposure:

Chinook

Birchcliff

0

50

100

150

0

50

100

150

We

ll Co

un

t

PD

GR

(M

Mc

f/d

)

Nuvista Enrg Ltd

Sinopec Daylight Enrg Ltd

Encana Corp

Paramount Rsrcs Ltd

Other

Well Count

Elmworth/Wapiti



10.0 kPa/m (0.43 psi/ft)


0.0

3.0

6.0

9.0

12.0

15.0

0 12 24 36 48

PD

GR

* (M

Mc

f/d

)

Month


LOCATOR MAP

The Outliers – Septimus – IRR >440% (95%)***




TYPE WELL FORECAST


0

50

100

150

0

50

100

150

We

ll Co

un

t

PD

GR

(M

Mc

f/d

)

Cdn Nat Rsrcs Ltd

Crew Enrg Inc

Well Count

IP30 3.9 MMcf/d


BT-NPV@10% $18.1MM

$7.4MM***

IRR 444%

IRR 95%***

Payout 0.5 yrs

Payout 1.2 yrs***

Drill Credit $0.8MM


Active Operators:

Canadian Natural

Crew

$5.6MM

$75.37/bbl

80 bbl/MMcf

3.4 MMcf/d

$3.21/Mcf

3.4 Bcf

$3.8MM

$113.05/bbl

120 bbl/MMcf

4.4 MMcf/d

$4.81/Mcf

5.1 Bcf

200 250 300 350 400 450 500 550 600

Capital

Condensate Price

Condensate Yield

30 Day IP

Gas Price

EUR



444

$4.7MM

100 bbl/MMcf

$94.21/bbl

3.9 MMcf/d

$4.01/Mcf

4.2 Bcf

Septimus



10.0 kPa/m (0.43 psi/ft)


0.0

3.0

6.0

9.0

12.0

15.0

0 12 24 36 48

PD

GR

* (M

Mc

f/d

)

Month

*Normalised on Peak IP30

LOCATOR MAP

The Outliers – Altares – Approaching 100% IRR (34%)***




TYPE WELL FORECAST


0

25

50

75

100

0

25

50

75

100

PD

GR

(M

Mc

f/d

)

Canbriam Enrg Inc

Progress Enrg Cda Ltd

Suncor Enrg Inc

Well Count

BT-NPV@10% $13.6MM

$5.2MM***

IRR 98%

IRR 34%***

Payout 1.1 yrs

Payout 2.2 yrs***

Drill Credit $2.6MM


IP30 5.4 MMcf/d


$12.0MM

4.3 MMcf/d

$75.37/bbl

$3.21/Mcf

34 bbl/MMcf

5.4 Bcf

$8.0MM

6.5 MMcf/d

$113.05/bbl

$4.81/Mcf

50 bbl/MMcf

7.1 Bcf

0 20 40 60 80 100 120 140 160 180

Capital

30 Day IP

Condensate Price

Gas Price

Condensate Yield

EUR



98

$10.0MM

$94.21/bbl

$4.01/Mcf

42 bbl/MMcf

6.2 Bcf

5.4 MMcf/d

Active Operators:

Canbriam

Progress

Suncor

Altares



10.0 kPa/m (0.43 psi/ft)



The New World Order - $50 Condensate?????

Liquids-Rich Montney Can Withstand Tremendous Pressure on Pricing

Sweet Spot Areas C5+ EUR % Liquids Capital Drill Credit BT-NPV@10 IRR PI@10% Payout

(MMcf/d) (bbl/MMcf) (Bcfe) (%) ($MM) ($MM) ($MM) (%) (x) (years)

Karr/Kakwa 5.4 150 10.8 54 11.0 3.3 10.2 66 0.9 1.3

Elmworth/Wapiti 5.8 75 8.3 40 9.0 2.6 9.2 69 1.0 1.4

Septimus 3.9 100 7.1 46 4.7 0.8 7.4 95 1.6 1.2

Altares 5.4 42 8.0 31 10.0 2.6 5.2 34 0.5 2.2

IP30 C5+ EUR % Liquids Capital Drill Credit BT-NPV@10 IRR PI@10% Payout


Jedney 3.8 15 2.4 23 5.0 0.8 (0.2) 8 (0.1) 6.5

Nig 4.1 25 4.1 27 5.0 0.8 2.3 33 0.5 2.4

Blueberry/Inga 3.0 50 3.6 35 5.0 2.2 2.6 31 0.5 2.7

LOCATOR MAP

Close But Not There Yet – Nig/Jedney/Blueberry/Inga – IRR 29-91% (8-33%)***

Source: GeoSCOUT, BMO Capital Markets, Corporate Presentations


TYPE WELL FORECAST

0.0

1.5

3.0

4.5

6.0

0 12 24 36 48

PD

GR

(M

Mcf

/d)

Month

Jedney

Nig

Blueberry-Inga

ECONOMIC SUMMARY - SUB 100% AREAS

Active Operators:

Artek

Black Swan

Bonavista

Carmel Bay

CNRL

ConocoPhillips

Painted Pony

Paramount

Progress

Shell

Storm

UGR

Jedney

Nig

Blueberry/Inga

?

? ?



10.0 kPa/m (0.43 psi/ft)

Attachie

Sunrise

IP30 C5+ EUR % Liquids Capital Drill Credit BT-NPV@10 IRR PI@10% Payout


Sunrise 5.9 8 5.0 14 5.9 0.9 3.1 39 0.5 2.1

Attachie 1.0 100 1.4 46 5.9 0.9 - - - -

Emerging Areas – Sunrise and Attachie – The First Indicators are There

Source: GeoSCOUT, BMO Capital Markets, Corporate Presentations


TYPE WELL FORECAST

ECONOMIC SUMMARY – EMERGING AREAS

0.0

1.5

3.0

4.5

6.0

0 12 24 36 48

PD

GR

(M

Mc

f/d

)

Month

Sunrise

Attachie

Attachie Operators:

ARC

Crew

Sunrise Operators:

ARC

Tourmaline

LOCATOR MAP



10.0 kPa/m (0.43 psi/ft)

Increasing IP to 4.0 MMcf/d provides

a 41% IRR

OUTLIER LIQUIDS FAIRWAY MAP

bbl/MMcf

Pouce Coupe

Knopcik

Jedney

Nig

Blueberry-Inga

Altares

Attachie

Sunrise

Elmworth

Wapiti

Kakwa

Septimus

Conventional

Source: GeoEDGES, GeoSCOUT, BMO Capital Markets, BC OGC

Note: Liquid Yields used in the type curve economics were assumed to be flat over the life of the curve. Rather than model a

declining yield curve, C5+ values are estimated at approximately 60% of the values shown on the Outlier Liquids Fairway map

What to Watch For

OUTLIER AREAS

Focus on continued well performance in the ranges

observed to date

For the outliers, control over infrastructure solutions will be

key to success

Continued improvements in capital efficiencies – will we see

declining cost structure?

EMERGING AREAS

Here the focus will be on consistent C5+ results from

appraisal wells

Continued improvements in deliverability as completion

practices are refined

Lay the groundwork for thoughtful development of

infrastructure – particularly liquids

SUB 100% IRR AREAS

Movement of the drill credit line east will materially and

positively impact the economics at Nig and Jedney

Changes in well completion techniques that could improve

the co-production of C5+ (slow back, larger fracs etc.) and IPs


10.0 kPa/m (0.43 psi/ft)


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warranty is made as to the accuracy or completeness of such information. BMO assumes no obligation to correct or update these materials. These materials do not

contain all information that may be required to evaluate, and do not constitute a recommendation with respect to, any transaction or matter. Any recipient of these

materials should conduct its own independent analysis of the matters referred to herein.

BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Harris Bank N.A. (member FDIC),

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Accordingly, the recipient should seek advice based on its particular circumstances from an independent tax advisor.

Disclaimer

All values in this document are in C$ unless otherwise specified

BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Harris Bank N.A. (member

FDIC), Bank of Montreal Ireland p.l.c., and Bank of Montreal (China) Co. Ltd and the institutional broker dealer businesses of BMO Capital Markets Corp. (Member

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The Outliers - Ad Library€¦ · The Play is Mature Enough to Start Identifying Outliers Source:...

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