Private junior Saguaro Resources says that with a new $50 million financing and recently expanded credit facility, it is fully funded and ready to accelerate Montney drilling this year.
However, the company will be proceeding cautiously and watching markets, says CEO Stacy Knull.
“We're feathering the brakes, but hitting the accelerator at the same time and just easing into it this year,” Knull told JWN.
“Our high free condensate yield and low drilling and completion costs provide very attractive economics at current strip prices.”
Saguaro's 2017 capital program will include drilling 28 wells, 24 of which will come onstream in 2017 and the balance will be fracked in 2018. The company, which exited 2016 with 12,000 boe/d from 32 wells, will also invest in an expansion of its processing facility to 100 mmcf/d.
In 2017, the company expects to exit with 15,000 to 16,000 boe/d. By the end of 2018, it wants to bump that up to 24,000 to 25,000 boe/d.
In a play that is largely dominated by public companies such as Encana, Progress Energy, Seven Generations, where wells typically cost $10 million to drill, complete and tie, it can be a bit of a stretch for junior producers.
But, as a private company, Saguaro has flexibility on how to develop its assets and how fast, Knull says. More importantly, its assets are in less costly, shallower part of the Montney.
“Our wells take 11 or 12 days to drill. We are about $2 million dollars to $2.2 million to drill. We're completing them for under $2.5 million. So they end up somewhere in the range of $4.5 million $5 million to drill and complete each well, which is kind of unheard of in the Montney,” Knull says.
Even through the last two years of the downturn, Knull cites “very positive” half cycle economics—over 30 per cent rates of return. In the current commodity price environment, those rates of return have climbed to between 40 and 90 per cent (based on strip prices, without escalation, half cycle).
“It's liquids-rich Montney. Our production is 70 per cert gas and 30 per cent liquids, but the revenue ratio is a lot better. We're actually a balanced company on a revenue basis because 50 per cent comes from liquids and 50 per cent comes from gas,” Knull said.
Saguaro also doesn't have to be obsessed with quarterly results, as some public companies are, he adds. It can focus on building for the long run, continually experimenting with frac design, increasing the tonnes of sand per meter and other technology tweaks.
“Every well that we have fracked out of the 32 that we have on production, we have changed something on the fracking side. We either went to tighter spacing, or more sand, or different mediums—whether that was an energized frac or a full slickwater frac—how fast we pumped... So we're always pulling one lever every time we do something to see if it helps and we'll continue to do that for our 1500-well inventory,” Knull says.
Like Seven Generations, which was a private equity-backed company that quietly went about its business in the Montney before going public at the end of 2014—Saguaro is being built for a potential IPO.
“We're still pretty young and we're not pressured for a liquidity event. We've set the company up with good governance. It's in a good play with lots of economic locations. We're pretty much self-funding with our debt and cash flow for a full development plan, which could take us to 140,000 bbl/d and hold flat for 10 years,” Knull says.
“So I think this company would compete very well for capital in the public markets. But we're not quite there yet. But we're always for sale.”