Crew Energy Inc. has entered into a purchase and sale agreement to dispose of its Princess, Alberta asset for total cash consideration of $150 million, before customary closing adjustments, allowing the Company to sharpen its focus on the development of its core Montney assets in Northeast British Columbia.
Crew has entered into an agreement to sell its petroleum and natural gas assets in the Princess area of Southeast Alberta (“Princess”) for total cash consideration of approximately $150 million before customary closing adjustments (the “Princess Disposition”). The Princess Disposition is scheduled to close on or about September 30, 2014 with an effective date of August 1, 2014, subject to satisfaction of customary industry closing conditions. The proceeds from the Princess Disposition will be used to expand Crew’s 2014 Montney capital program by $20 million, and repay bank debt.
The assets to be sold under the Princess Disposition consist of:
• Current production of 3,650 boe per day (78% liquids) based on field estimates;
• Total proved reserves of 12.4 million boe (86% liquids)(1);
• Total proved plus probable reserves of 22.7 million boe (87% liquids) with total future development capital of $70 million (1); and
• 259,234 net acres of petroleum and natural gas rights.
The disposition of the Princess assets will allow Crew to direct its capital investments to projects offering superior economic returns and allow acceleration of its growth plans in the Montney. The Company will expand investment in the Montney play which achieved an attractive recycle ratio of 3.1 times in 2013, compared to Crew’s corporate average of 2.3 times.
With a Montney land base of over 300,000 acres and an estimated drilling inventory in excess of 2,100 locations, Crew is well positioned to replace the production and reserves from the Princess Disposition with continued development of the Montney. To replace production, the approximately $150 million in proceeds from this disposition could fully fund the construction and commissioning of a new 60 mmcf per day gas plant and the drilling of approximately 20 Montney liquids-rich gas wells to fill the new facility. The most recent subset of wells have had 30 day production rates of six to eight mmcf per day, with associated liquids of 30 bbls per mmcf (60% condensate). In addition to production increases, expected ultimate recoveries (“EURs”) have also improved over time, with recoveries in 2011, 2012 and 2013 increasing from 2.8 to 3.2 to 4.3 bcf per well, respectively. Both production and recovery rates are expected to continue improving with the application of new technologies related to drilling and completion practices, combined with an evolving understanding of the Montney reservoir.
Crew remains sharply focused on the execution of its five year plan. This includes continued consolidation of its Montney land position in the portion of the fairway featuring a hydrocarbon charged thickness in excess of 800 feet, as well as the expansion of its processing infrastructure. Consistent with this plan, the Company acquired an additional 40 net Montney sections in the Attachie and Monias areas of British Columbia subsequent to the end of the second quarter 2014 to now own 492 net sections of Montney rights. Crew’s new 60 mmcf per day facility at West Septimus is expected to come onstream in the third quarter of 2015. This first phase incorporates the necessary engineering to accommodate an expansion in late 2015 to 120 mmcf per day of processing capacity.
Based on our current five year plan, the West Septimus expansion is to be followed by the commissioning of a new 60 mmcf per day facility at Groundbirch which is expected to take Crew’s processing capacity in the Montney play to 240 mmcf per day.
Strategically, these plant expansions and new build scenarios all take advantage of pipeline take-away capacity on the three major pipeline systems in the area, which include the:
? Alliance pipeline system;
? Spectra Westcoast system; and
? Trans-Canada Pipeline Nova System.
Crew currently holds existing capacity, or is in advanced commercial agreement negotiations on all of the three major pipeline systems in the region. This allows Crew to benefit from both market and operational diversification and also positions the Company to serve the many proposed North American West Coast LNG pipeline projects.
With its long term drilling potential coupled with significant take-away capacity, Crew is exceptionally well positioned to deliver its growing product stream into various markets, such as the Pacific Northwest, the TCPL AECO market, the upper mid-west Market in the Chicago area, as well as potential LNG demand along the West Coast of Canada and the United States.
Crew successfully completed a full turnaround at the Crew operated Septimus gas plant ahead of schedule and under budget. The plant was budgeted to be down ten days and was back up and running at 60 mmcf per day in seven days. The Company is currently bringing on wells from its newly completed six well pad at Septimus, the production from which is intended to maintain the plant at capacity. After 13 days, the first well is flowing into the plant at nine mmcf per day with 260 bbls per day of free condensate which has backed out approximately 5.6 mmcf per day of legacy production that is expected to be restored once operating pressures have been normalized. Crew has another five wells that are in various stages of testing to maintain the Septimus plant capacity.
At Tower, the first three wells of a planned six wells have been drilled and are expected to be completed late in the third quarter of 2014. Also at Tower, construction of the first phase of a 5,000 bbls of oil per day treating facility is currently underway. Field construction on the new 60 mmcf per day West Septimus gas plant is expected to commence early in the fourth quarter of 2014 with a target completion of early in the third quarter of 2015. The Company currently has two rigs drilling in northeast British Columbia with one drilling the third well of an eight well pad at West Septimus and one rig targeting oil at Tower. One rig is also active drilling for heavy oil in the Lloydminster area.
Expanded Capital Program
After closing the Princess Disposition, Crew plans to expand its 2014 Montney focused development capital program by $20 million, bringing the Company’s total capital expenditure program for the year to $305 million. The second half 2014 program is focused at Tower, drilling for light oil and West Septimus drilling for liquids rich natural gas in preparation for the start-up of the first phase of the Company’s new gas plant in the third quarter of 2015. The first phase incorporates the necessary engineering of the West Septimus gas plant to accommodate an expansion in late 2015 to 120 mmcf per day of processing capacity. The Company intends to continue to evaluate well performance and costs at Septimus and Tower over the next few months in order to direct incremental capital in 2015 to the area with superior economic returns.