EPAC Honours Excellence In Entrepreneurship Among Canada’s Oil And Gas Producers
The Explorers and Producers Association of Canada (EPAC) held its third annual EPAC awards on Thursday, honouring four companies that are weathering the current downturn and setting themselves up to prosper when markets improve.
The awards were sponsored by ATB Corporate Financial Services. ARC Financial provided analysis of the nominees.
Questerre Energy Corp. won the award for the best Publicly Traded Emerging Producer, which was sponsored by global law firm Dentons.
While most small producers today try to fashion themselves as pure play companies that do one thing exceedingly well with the expectation that their focused assets will eventually make an attractive strategic acquisition target for a bigger company, Questerre swims against the current. Founded in 2000 and led by Michael Binnion, Questerre’s operations include tight oil, oil shale and shale gas plays across the Western Canadian Sedimentary Basin, Quebec and Utah.
Despite this ambitious geographic reach, Questerre’s base production and reserves are in the Antler area of southeastern Saskatchewan, 200 kilometres from Regina. The main target is high-quality Bakken/Torquay tight light oil, a dolomitic siltstone shale sequence at a depth of between 1,050 metres and 1,150 metres.
“Questerre has shown top year-over-year cash flow growth in Q3 2015 out of the five companies nominated for this category,” says Rob Cook, senior vice-president and director of ARC Financial. “It also had the top year-over-year reserve growth in 2014.” (In 2014, Questerre expanded a pilot waterflood at Antler, consisting of four horizontal wells on two sections.)
In Alberta, Questerre is betting on the mighty Montney where, in 2015, it brought on production two wells of liquid-rich tight gas in the Kakwa-Resthaven area south of Grand Prairie. It holds an average 82.5 per cent working interest in 45,920 acres in this area.
In the U.S., Questerre is investing in an equity stake in a technology play that also involves French-based super major Total S.A. The technology targets an oil shale property in Utah.
Its Quebec assets also take the long view. Its leases are in the Utica, which is a shale gas discovery that ranks among the top 10 discoveries in North America. The prospect of its development against the backdrop of mounting public anti-fracking sentiment has engaged Binnion’s considerable campaigning talents.
“Michael Binnion is a strong advocate for the industry on a wide range of issues — anti-fracking regulations in Quebec, LNG in B.C.,” Cook says.
Beyond maintaining an active social media presence in both English and French, Binnion has mounted what is nothing short of a one-man political campaign to influence attitudes in la belle province. Instead of promoting just his own company’s interests in Quebec, he has taken up the wider cause of shale gas development for the industry as a whole.
During his many trips to eastern Canada, he met with hundreds of people while door knocking, visiting business associations, attending conferences, dropping in on local town mayors, politicians, chambers of commerce, giving presentations and conducting media interviews so that people there might better understand not just the risks but also the rewards of oil and gas development.
To appreciate Binnion’s commitment to this cause, it should be noted that he had to learn French in order to have these conversations. This engagement is, however, what he believes it will take to shift cultural norms toward a better balance between environmental protection and industrial development.
Venturion Oil Ltd. won the Private Emerging Producer award, sponsored by ARC Financial.
Founded 2012, Venturion has grown its production to 2,800 boe per day from 130 boe per day at inception. Its largest operation is at Killam in the Lloydminster area, where it holds a 100 per cent working interest on 19.75 sections, with 68 million bbls of oil in place of mainly 24-degree API oil. To date, just 5.7 per cent of that has been recovered.
Venturion also has operations at Boundary Lake North in the Halfway formation, with a 100 per cent working interest in 7.75 sections, producing 500 boe per day of 41-degree API light oil.
“Venturion is a privately held junior E&P led by Kevin Wesa, and it had the top year-over-year production growth in Q3 2015 out of the nine companies nominated for this category,” says Cook.
Venturion’s strategy is to find conventional pools with high original oil in place and then apply the team’s expertise in low-risk development drilling, water flood and optimization. It pays particular attention to legacy oil pools with gas caps. This low-cost approach to growing production takes advantage of the industry’s focus on resource plays at the expense of conventional assets.
Venturion typically acquires oil properties that have already recovered approximately seven per cent of their original oil in place and aims to ramp that recovery up to about 25 per cent. The work starts with a lengthy and detailed examination of the oil property to determine the best and most economic techniques and practices to improve recovery. This can involve installing centralized equipment facilities, water flood programs, drilling additional infill wells, optimizing pump systems, entering existing wellbores and adding new horizontal legs. The work also involves probing the edges of its oil properties and extending the property boundaries.
Through seven transactions, Venturion now holds an asset base of 98 million bbls of original oil in place across three working areas. Without drilling a single well, that led to a production increase to 1,800 boe per day from 1,150 boe per day last year. The company’s asset base is designed to deliver lower-decline production over time while spinning off material free cash flow. The endgame of its strategy is to make itself attractive to a wide range of buyers in the future.
Like most larger producers, Venturion actively helps improve the communities in which it operates. It works with the Doig River First Nation in sponsoring a number of its events, particularly the band’s annual rodeo. Company people also regularly attend Doig River Community Council meetings. It offers a vocational scholarship to the band and facilitates consulting opportunities for Doig River elders.
Venturion also provides annual cash and food donations to various food banks, the Salvation Army and other charities. In total, it spends about 2.5 per cent of its net income on these activities.
The starting block for Venturion’s environmental practices is its strategy of acquiring existing oil properties and optimizing production and recovery, which in itself is more benign than greenfield development because it doesn’t involve much new surface disturbance. Beyond that, each acquired property is thoroughly cleaned of previous environmental impacts and transformed into a modernized and safe work environment.
Raging River Exploration took Junior Producer honours, sponsored by KPMG.
After Crescent Point Energy acquired his predecessor company Wild Stream Exploration, Neil Roszell and his team started Raging River Exploration in 2012 with assets producing about 1,000 boe per day in the same Dodsland area of Saskatchewan. At the time, analysts mostly dismissed the Viking play, saying that companies couldn’t build anything of significance in a play characterized by 50-bbl-per-day wells.
Today, Raging River’s production is in range of 14,000 boe per day and even through 2015, it set production records each quarter with “the top corporate cash margin in Q3 2015 out of the 12 companies nominated for public junior category,” according to Cook.
A common question asked at investor meetings is whether Raging River would consider putting itself up for sale, to which Roszell says: “this company is for sale every day of every month of every year.” But during this downturn, Raging River is more attuned to buying than selling. In December, it closed a $125-million deal to acquire Anegada Energy, a privately held corporation with Viking light oil assets in Alberta and Saskatchewan.
The acquisition was structured as an all-stock offer, meaning that Raging River’s spending power for future opportunities and development is unaffected, other than the $30 million of debt that it assumed in the deal.
Apart from a few opportune acquisitions, Raging River is really about growth through the drill bit. Technology and cost reductions are key to its future. Since 2012, Raging River has wrestled drilling costs in the play down to $750,000 per well from $1.3 million and $1.4 million at the outset.
Infill drilling based on results of theoretical frac modelling and reservoir simulation is part of the technology mix as is pioneering horizontal waterflood work. Raging River’s 10-year vision in this light-oil formation, which is recognized for an in-place resource second only to that of Alberta’s Cardium, includes spending money in developing a horizontal waterflood scheme. Even through the downturn, the company continues to spend toward this future, which is expected to unlock another 50 million to 100 million bbls not currently represented in its reserve reports.
Raging River and its predecessor Wild Stream have also established a well-regarded presence in Saskatchewan through their support of community, school events and local sports teams. Alongside its financial contributions to area infrastructure improvements—ambulance services, volunteer fire halls and transportation for elders and people with disabilities—Raging River spends about $100,000–$125,000 per year on community building. In the Christmas season, half of its employees volunteer their time to various causes.
Taking the long view of oil and gas development prompts Raging River to hire young people and develop the next generation of leaders. It has strong internal and external training programs for its corporate and field staff. And environmental considerations are integrated into its practices. It works closely with Saskatchewan's Ministry of Environment to manage impacts on environmentally sensitive lands.
Advantage Oil & Gas Ltd. took top honours in the Intermediate/Senior Producer category, sponsored by DeGolyer and MacNaughton Canada Ltd.
Advantage is a growth-oriented company focused entirely on its Montney liquids-rich natural gas resource play at Glacier. In 2016, it expects annual average production of 200 mmcf equivalent per day and, in 2017, that figure is expected to climb to 235 mmcfe per day.
“Advantage had the top year-over-year cash flow growth and the top corporate cash margin in Q3 2015 of the 12 companies nominated for the public intermediate category,” Cook says.
Low commodity prices have taken their toll on the pace of growth, but the company isn’t counting on commodity prices to improve much anytime soon. Instead, it focuses on enhancing its financial strength and operational excellence to grow long-term value.
Technology and innovation is particularly key to resource plays, and Advantage is a recognized industry leader in Montney practices. It was one of only four Montney producing companies that were consulted by the Alberta Energy Regulator (AER) when it was considering resource play regulatory changes.
Historically, Advantage was the first to use of Baker’s cemented ports in Canada. It was the first use of Baker’s bi-fuel conversion on pumping equipment in Canada. Today, it continues to push innovation to leverage new efficiencies that could be brought to bear on Advantage’s estimated future inventory of over 1,000 horizontal well locations. Its investment over the life of the project could reach as much as $10 billion.
With growing anti-fracking sentiments in other parts of the country, Advantage understands that its future in the Montney depends on sound environmental stewardship. To this end, it has converted drilling rigs to run on natural gas instead of diesel. Plant runoff water is used for drilling operations. Forty per cent of its completions water is sourced from recycled industry water.
Advantage also runs a greenhouse gas project that injects more than 50,000 tons of CO2 equivalent per year of acid gas instead of flaring it. A fusion invert recovery system reduces the residual invert on drill cuttings. And the company generates its own electricity for plant and field operations using cleaner-burning natural gas as opposed to relying on provincially supplied electricity generated with base load coal.
Advantage Oil’s experienced management is disciplined and strategic, and it’s among a number of select teams that enjoy ready access to capital when needed. In February, the company entered into an agreement with a syndicate of underwriters led by FirstEnergy Capital where underwriters agreed to purchase, on a bought deal basis, 11.75 million common shares of Advantage at a price of $7.45 per common share, for aggregate gross proceeds of $87.5 million. With options for over-allotments, gross proceeds could total $100.7 million.
The money is earmarked initially for temporary reduction of debt, but also to fund the company’s next planned expansion of its 100 per cent owned Glacier gas plant as well as future acquisition opportunities and general corporate spending.
Advantage’s performance in the field is matched by its performance on the human side of the business. In Calgary, it supports causes such as STARS, the Calgary Food Bank, Ronald McDonald House, Canadian Diabetes Association and Calgary Flames Alumni charitable events. At its field operations in Grande Prairie, it works with the Beaver Lodge Hospital, Valhalla School and promotes employment opportunities with the Horse Lake First Nation.
Internally, education and skills development is an ongoing process. Junior staff are aligned with senior staff and exposed to a wide range of duties. Technical training is provided and attendance at technical conferences is encouraged.