The Peace River Arch area is located in Northern Alberta adjacent to the British Columbia border. It enjoys an impressive geologic diversity rewarding energy companies with prolific oil and natural gas production. It is one of the most desirable light oil and natural gas liquids drilling areas in North America due to long reserve lives and wells that can produce for up to 15 to 20 years.
The area is highly competitive and is dominated by key players including Birchcliff Energy Ltd., Crescent Point Energy Corp., Canadian Natural Resources Limited and Shell Canada among others. Production is established from various stacked pay zones that are both conventional and unconventional. Conventional plays include Charlie Lake, Leduc, Gething and Bluesky while unconventional shale/tight resource plays include Duvernay, Nordegg, Winterburn, Montney and Cadomin formations.
The Peace River Arch also provides a significant amount of all-season access that allows companies to drill, equip and tie-in wells on an almost continuous basis, excluding the spring breakup period. Wells in the area have the potential to initially produce 500-10,000 mcf/day (83-1,666boe/day) of natural gas or 30-500 boe/day of light oil. Drilling depths on a true vertical depth basis can range from 300 meters for shallower horizons to 2,700 meters for deeper, higher impact targets (Duvernay for example).
Peace River Arch multiple production zones
We are looking for junior producers operating in the Peace River Arch region with the following attributes:
- High production growth
- Top quartile on-Stream costs (the cost to add production per boe)
- Oil focused drilling programs
Aroway Energy Error opening: http://finance.yahoo.com/d/quotes.csv?s=arw.vn&f=sl1c1j1yn
Land base: 77,000 acres
Aroway Energy is a pure player in the Peace River Arch area with access to 121 sections of land at 50% working interest. The company currently produces 650 boe/d (90% oil) and is on track to exit 2012 at 1,200 boe/d, an increase of 100% from 2011’s exit production. The company’s 2012 program is expected to add 768 boe/d (90% oil and NGL) with estimated capital efficiency ranging between $12,000 and $15,000/boed. The company enjoys a healthy balance sheet and is debt free.
Aroway's acreage, notice how land is dominated by large players (click to enlarge)
Shoreline Energy Error opening: http://finance.yahoo.com/d/quotes.csv?s=seq.to&f=sl1c1j1yn
Land base: 128,000 acres
Shoreline Energy is another pure player in the Peace River Arch area enjoying an enviable land position for its size. The company currently produces more than 1,900 boed and is on track to exit 2012 above the 2,100 mark with more than 40% in liquids. The 60% natural gas weighting might be a turn off for investors but the company is working hard on increasing its oil production by focusing all of its upcoming drilling on oil targets. Furthermore, the company has grown production 140% in its first year of operations and as an added bonus pays a quarterly dividend of $0.20 per share. The company’s entire 2012 program has an estimated capital efficiency ranging between $12,000 and $17,000/boed. Because this is a dividend paying stock, make sure you are comfortable with the company’s payout ratio.
Both junior oil companies are currently trading at a substantial discount to Net Asset Value (NAV) and while Shoreline Energy pays a dividend it carries debt whereas Aroway Energy is debt free. Since the play is dominated by the majors, there is a good chance of a buyout sooner or later by any larger companies looking to consolidate its land holdings. The upside for both companies also lies in the large drilling inventory targeting both conventional and unconventional reservoirs. Finally, keep in mind that commodity prices are the biggest risk affecting the value of your investment.
Disclaimer: the information presented above is only for informative purposes; it’s meant to serve as a starting point to carry your own due diligence. It is in no way an encouragement to buy or sell the aforementioned securities. If you find any errors in the data please do not hesitate to contact us.