Money Flowing Into The Montney (and For Good Reason)

A thirst for liquids is driving capital into the Alberta Montney at a surprising rate these days.

In the last two months, 7 private equity firms have come to Calgary to open up shop, and giants like Encana [ECA.TO] are starting to refocus their efforts into developing their liquid Montney assets.

What’s causing this surge?

It appears there are three drivers that are causing this movement:

LNG is becoming a reality soon, and the market knows it.

Large scale oil sands development should stretch condensate supplies.

a.   Demand for condensate could be up to 800,000 bbls/d by 2018.

b.   Current supplies are between 125-150,000 bbls/d.

c.    Thus condensate prices could be going up dramatically.

We now know that the Upper and Middle Montney are productive (and the Deeper Montney is a write-off).

a.    When combining both the Upper and Middle, we get approximately a tall office building’s worth of charged pay.

b.   The economics of both formations is proving to be incredibly lucrative with recycle ratios above 6.5x.

By the looks of it, there is enough activity going on to warrant more of our attention.

The region includes such players as Encana, Nuvista [NVA.TO], Paramount [POU.TO], Shell [RDS.NYSE]; each with market caps well north of a billion dollars. Also among those big caps is a micro cap called Blackbird Energy [BBI.V], whose 27 sections of multi-zone Montney rights in the corridor put them solidly on the map.

In terms of development of the play, many eyes will be Encana, Nuvista, as well as Blackbird to see what’s done next, especially in the area known as Elmsworth. Already both the Upper Montney and Middle Montney are being proven to be extremely economic, and their development will be a focal point for many to come.

UPPER MONTNEY: ENCANA’S TURNAROUND

 On its most recent investor presentation, Encana lists the Montney at the top of their Five Core Growth Assets. Their focus is to return to previous greatness. Already the company is the long running leader in Canadian gas production, but they need more liquid to thrive into the future. It appears they believe their position in the Elmsworth district of the Montney will get them there.

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