From: Darrell Bishop
Sent: Tuesday, October 11, 2016 11:04 PM
To: Sales - All Branches
Cc: Research ; Corporate Finance - All
Subject: BBI: Another +ve read-through as NuVista announces plans to accelerate significant Montney growth (IUO)
Blackbird Energy (BBI-V, $0.32, Target Price $0.55)
Event: After market today NuVista Energy (NVA) provided an ops update for its Gold Creek and Pipestone Montney properties near Grande Prairie including the announcement of a new gas plant agreement, roll out of a 5 year growth plan to achieve 60,000 boe/d, and a $90 million bought deal equity financing to support the accelerated development.
Impact: Positive – The series of announcements are another strong leading indicator that industry continues to advance the Montney play in close proximity to Blackbird’s land. NuVista’s announcements comes on the heels of bullish commentary from EnCana at the company’s investor day last week touting the significant stacked Montney potential at its Pipestone Montney property.
Highlights
· NuVista plans to accelerate Montney development bode well for Blackbird. NVA announced entering into an agreement to be the anchor tenant in SemCAMS planned 200 mmcf/d natural gas plant south of Grande Praire. The agreement will see NVA subscribe for 120 mmcf/d (~20,000 boe/d) of firm processing (stepped expansion in a series of three 40 mmcf/d trains onstream in 2019, 2020, 2021) and is underpinned by a flexible take-or-pay contract for a commitment period of 15 years. SemCAMS announced the new plant in August 2016. NuVista will source gas from its liquids rich Montney plays at Gold Creek, Pipestone, and Elmworth. As shown in the maps below, NuVista’s properties lie to the West and South of Blackbird lending positive read throughs on multiple fronts.
· NuVista’s significant development capital investment will drive area Montney efficiencies. In order to achieve the guided growth trajectory NuVista’s 5 year plan includes an expanded 2016 program to a range of $200-$215 MM, $260-$300 MM in 2017, ~$300-$350 MM in 2018. Production is expected to average 28,000-31,000 Boe/d for 2017 (exit 2017 32,500-35,000 Boe/d), ~40,000 Boe/d in the latter half of 2018. Production capacity exceeds 60,000 Boe/d within the next 5 years. What good industry resource plays have proven over time, is that great plays (like the Pipestone, Elmworth Montney) continue to get better as the plays evolve. Undoubtedly, NuVista’s transition from delineation to development with a focused capital program will drive economies of scale and lead to efficiencies with respect to refining drilling and completions to drive economics. This intensity will also lead to regional advancements and read-throughs for players such as Blackbird.
· NuVista’s announcements highlight a significant vote of confidence in the Montney around Blackbird, and further validates bullish commentary from EnCana’s investor day last week on the company’s Pipestone Montney play. As shown in the map below, ECA’s Pipestone asset is located directly NW of BBI’s Elmworth acreage where the ECA has recently mapped a ‘super condensate window’ (>100 bbls/mmcf). During the investor day presentation, ECA focused on the stacked potential of its Pipestone asset, suggesting there is up to four Montney intervals capable of development (see table below).
o BBI internally estimates about 40 of its 84 sections reside within this ‘super condensate window’ as defined by EnCana. BBI has noted it believe is has 3 distinctive productive intervals (Upper Montney Doig, Upper Montney, and Middle Montney). With three prospective layers, this estimate would yield an unrisked aggregate location count of more than 1,400 locations within the ‘super condensate’ window. Applying an enterprise value against the NPV of 1,400 locations and it’s easy to see that there is compelling risk-reward to be unlocked.
Bottom-line
· The Montney play continues to be THE play in Western Canada. We believe the Montney around Elmworth (Pipestone, Gold Creek, etc) was propelled onto many radar screens (both E&P and investors) following EnCana’s investor day in May of this year when the Pipestone asset was first highlighted in a big way. Since that time there have been a number of high value Montney transactions in the area that highlight the significant potential seen by acquirers (Birchcliff’s acquisition of EnCana’s Gordondale property for $625 MM, Seven Gens acquisition of additional Nest assets from Paramount for $1.9 Bn, etc). Blackbird’s shares have performed exceptionally well over on the back of these announcements yet we continue to see significant upside. We believe the NuVista announcements add further validation to this significant additional upside given the proximity to Blackbird’s land base and the area development (regional well control, inherent efficiencies to be realized, etc) as well as the build out of regional infrastructure to accommodate development. We see potential now for Blackbird’s own operational activity (recently commenced facility construction and drilling of its 4th Hz well) and the potential for additional near term catalysts (i.e. two Hz wells, first production by year-end, potential for a JV announcement to accelerate delineation, news from Stage Completions operations) to add to the share price momentum into year end.
Regards,
Darrell Bishop, P.Eng, MBA
Head of Energy Research
HAYWOOD SECURITIES INC.
(403) 509-1938 direct
(403) 991-8699 mobile
dbishop@haywood.com
808 First Street SW, Suite 301
Calgary, AB T2P 1M9
www.haywood.com
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