🕐24.02.12 - 00:27 Uhr

BLACKBIRD ENERGY MAKES BIGSTONE SPLASH WITH TRILOGY POOLING AGREEMENT



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Blackbird Energy Makes Bigstone Splash with Trilogy Pooling Agreement

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Indications of high amounts of liquids-rich production have brought much attention back to the Montney formation, particularly within the area known as the Bigstone. For Bigstone-based junior Blackbird Energy (TSX-V: BBI) it seems that they have found a pooling partner with a valuable reputation within the region, capable of helping BBI achieve the next level of production.

In a press release put out on Feb. 23, 2012, Blackbird announced that negotiations are underway to pool the P&NG, Triassic Montney formation rights held by certain adjacent interested parties in section 33-060-22W5 with the lands held by Blackbird and its partners in section 28-060-22W5M.

Though the release did not name the company who the potential pooling partner(s) is, the Bottom Line Report has tracked down the rights holder for the aforementioned section 33. Utilizing public data, and a search through AccuMap (provided by a source to the Bottom Line Report) has turned up Trilogy Energy (TSX: TET) and the Abu Dhabi National Energy Companys Canadian division TAQA North.

The implication of a potential partnership with Trilogy could be massive for Blackbird and its partners, as Trilogy is highly respected in the region for its ability to work the Montney. The running joke among the industry is that when God wants to drill into the Montney, he calls upon the Holy "Trilogy." Given the degree of difficulty to drill the Montney properly, its quite beneficial to work with one of the best drillers in the area.

Blackbird and its partners have already announced that theyre drilling a third well in the region, and with the specs that theyve given that include section 33, theyd either have to be 100% confident that theyve got a pooling agreement in place, or theyre morons. Its a pretty good bet to believe theyre the former, not the latter.

REGIONAL BACKGROUND

Prior to the recent attention thats swelled around the Montney formations liquids-rich Bigstone area, Blackbird Energy formed a strategic partnership, instantly defining them as a pure-play Bigstone company. Doing so, placed Blackbird into not only the most liquid-rich zone of the Montney, but also the most focused area of Alberta with solid economics and payback possible in under a year.

Joined by some bigger players such as Celtic Energy (TSX: CLT), Delphi Energy (TSX: DEE) and of course, Trilogy, Blackbird and its partner Donnybrook Energy (TSX: DEI) are well positioned with 7 sections of land and 28 potential drill locations. With the addition of accessing Trilogys section 33, Blackbird would now have 8 sections to cross, which as an even number works better than 7.

The reasoning behind this logic is that drilling across 1 section of land requires 1200m of lateral length in a horizontal drill operation, whereas 2 sections requires 2400m. Strangely enough, the results of previous drill campaigns in the region have resulted in 2400m wells resulting in 3-4x the amount of production, despite being only double the length. This phenomenon hasnt been fully explained yet, but this is what were seeing.

From a land standpoint, gaining extra sections is pricey in this region. While there are some bigger players already involved in the area, Blackbird entered the Bigstone play far ahead of the curve paying a price for the land that could be perceived at this stage as downright thievery in a region thats seen land sale prices skyrocket.

BIGSTONE = BIG POTENTIAL

Estimated to host 50 trillion cubic feet of liquids rich gas, the Montney has understandably drawn a lot of attention, but its the Bigstone portion in particular is gaining traction with its condensate returns. So far, over 16 wells have been drilled and are very economic despite low natural gas prices. Each successful well has averaged 50-70 barrels of liquid per million cubic feet of gas produced. As well, the targets are quite accessible, requiring relatively shallow drills to close to 2,500 metres in depth.

Blackbird and its neighbours properly identified the Bigstone as the Montneys liquids-rich sweetspot prior to the land rush. This presupposition was confirmed with the advent of Trilogys 16-1 well (20 miles to the north of Blackbirds property) that yielded 1,600 barrels per day ("bbls/d") of crude oil.

In January, Delphi Energy released the results of its first Bigstone well at 1-15, that returned initial test flows at an average rate of 12.5 million cubic feet of gas per day (mmcf/d) and 770 barrels of condensate per day (bbls/d) through a 20 stage oil-based frac program reaching over 2,760 of horizontal distance. Delphi is currently in the process of drilling and completing a second well parallel to the 1-15 well that could also increase the value of region in the eyes of the market, and positively impact the reserve analysis on Blackbirds land.

At roughly half the lateral length of Delphis horizontal well, Blackbird and its partners first well received promising results to the tune of 1,011 barrels of oil equivalent per day ("boe/d"). Though the second well ran into some completion difficulties, it is set to join the first well in being tied-in, bringing Blackbird into production in March, and cash flow in April.

While the second well at 15-32-60-22W5M didnt provide the results that Blackbird and its partners had hoped, it did provide some lessons learned for the upcoming third well. Which brings us back to the potential pooling agreement, we believe comes with Trilogy Energy.

Should Trilogy become the operator, many of the completion issues seen with the second well are less likely to occur with a more seasoned group behind it. Because the production infrastructure will be ready in time, Trilogy could potentially utilize the Blackbird partnerships facilities to make the partnership a little more balanced. If Blackbird is to gain production as soon as theyve announced, then the surface facilities and pipeline will already be in place, allowing Trilogy an opportunity to buy into Blackbird and its partners setup.

PREMIUM LAND POSITION

Blackbird secured its position in the region by entering a partnership deal with Donnybrook that gives BBI a 25% W.I. on 7 sections of land with 28 drill locations already identified. At a low cost of $66,000, Blackbird successfully avoided the exorbitant prices currently being seen at the bi-monthly Alberta land sale auctions in the hottest townships in the province.

During Albertas first land sale of the year, the region saw an average of $5700 per hectare, ranging from $10.75 to $11,801.56. Now lets put Blackbirds entry cost into perspective. Each quarter section of land contains approximately 64.78 hectares, and since the company carries a 25% W.I. over 7 sections, we can multiply 64.78 hectares by 7 to get BBIs net land position. Using this calculation, Blackbird netted the equivalent of 453.46 hectares at an average of $145.55 (a discount of nearly 97.5% on the average price).

MANAGEMENTS ORIGINAL DECISION-MAKING

Originally built as a team set to target the Bakken in North Dakota, Blackbird had already bid on packages that would utilize the latest developments in horizontal drilling and well completion.

Instead of being a latecomer to the Bakken, Blackbird saw the opportunity in the Bigstone that would allow them to gain good land position, with the upside presented by horizontal and frac. At the time, this mitigated the need to raise large amounts of capital on a land position not knowing if the well would be productive.

Management decided that the Bigstone was at an early enough stage and made a deal to get ahead of the curve. The decision was in fact initially made on the following five factors:

Shallow drilling depth, Horizontal drilling and multi-stage frac could be applied Proper infrastructure in the area to handle the capacity The buy-in price was right, Finding a capable operator with a good track record.

CEO Garth Braun has admitted that he mustve looked at over 40 deals prior to settling on the Bigstone, and this was the one that stood out above the crowd. Instead of spending too heavily on land, the money the company had raised could primarily be put into the ground.

THE BOTTOM LINE

Blackbird and its partners frugally nestled themselves into in a busy region, bustling with horizontal drill campaigns and plenty of liquid-rich well potential. If all goes according to the schedule, Blackbird should be into production by the end of March, giving cash flow by April. If our research turns up accurate, a pooling agreement with Trilogy could also help Blackbirds cause when it comes to completions and maximizing production from future wells.

G. Joel Chury
The Bottom Line Report

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