The acquisition:
Through the Acquisition, Legacy is acquiring high quality, high netback, long life, light oil and liquids rich natural gas assets focused in southwest Alberta for total consideration of $241 million in cash (subject to adjustment in certain circumstances) and 20.5 million Legacy common shares. CanEra’s primary asset is the dominant, operated working interest in the giant 1.3 billion barrel original oil in‐place (“OOIP”) and 1.6 Tcf original gas in‐place (“OGIP”) (both figures from published ERCB estimates) Turner Valley field and associated gathering, treating and compression facilities. Legacy maintains its significant oil and NGL weighting at over 80 percent of proforma production and over 80 percent of proforma proved plus probable reserves. The Acquisition also adds substantial long tenure lands prospective for high impact natural gas drilling opportunities. Furthermore, the Acquisition provides access nto 750 contiguous sections of relatively unexplored land in the Strathmore area, east of Calgary, prospective for multi‐zone oil and natural gas.
Price:
Production: $116,800 per Boe/d
Proved plus Probable Reserves (1): $10.35 per Boe
Proved plus Probable Recycle Ratio (2): 3.0 times
Upside potential:
Legacy has identified 110 gross (86.0 net) development locations predominately targeting light oil and numerous re‐completion, stimulation, optimization and compression opportunities. Legacy believes that multi‐stage fracture stimulation technology could appreciably improve initial production rates leading to a step‐change increase in value of the undeveloped locations. No horizontal wells have been fracture stimulated to‐date. Legacy expects that implementation of the recently announced changes to the Alberta Royalty Framework should positively impact the value of future horizontal well production and reserves, as horizontal wells now drilled in Turner Valley would be eligible for a five percent royalty rate on up to 70,000 Boe, for a maximum of 30 months.
Legacy's CAPP presentation mentions that there might be Cardium potential on some of the acquired land.
Some thoughts: My initial reaction was "Huh?". This isn't a new resource play or an emerging resource play. This is suppose to be an underutilized resource that will now be fully exploited by Legacy. I assume that CEO Yanko's & the board's plan is to grow the company to a certain point and sell it. So what exactly is Turner Valley's part in that plan? As a resource its limits have been defined and the easily exploitable portions have been drilled and produced ages ago. No other company has shown interest towards it, at least not publicly.
However current production from the field is declining very slowly and the current recovery of the OOIP is relatively low, which makes me think that Turner Valley will be Legacy's cashflow engine that powers the advancement of other emerging resource plays.
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