Resource World Magazine

www.resourceworld.com 57 A P R I L / M A Y 2 0 1 4 CAMB008-Canvest-ResourceWorldMag-8.625x11 - LEFT PAGE TOP PERFORMING RESOURCE TECHNOLOGY & DIVERSIFIED INVESTMENT OPPORTUNITIES JUNE 1-2 Vancouver Convention Centre West - Vancouver, BC Pre-registration is FREE or $20 at the door. REGISTER TODAY AT CAMBRIDGEHOUSE.COM OR CALL 1-877-363-3356 Cambridge CambridgeHouseConferences CANADIAN INVESTOR CONFERENCE THE OIL PATCH REPORT J o e l C h u r y L andlocked natural gas in Canada is closer than ever to being set free upon the world into markets with higher prices. Progress towards a northwestern British Columbia liquid natural gas (LNG) export project is ramping up, including fevered interest from major Asian players such as China's Sino- pec, and Malaysia's Petronas. Whether it'll be Prince Rupert or Kitimat that gets the nod as a port for Canadian ships to embark from is irrelevant. What's important is the impact it's going to make on producers operating inside Canada, both big and small. An energy hungry market awaits in southeast Asia, which uses LNG conversion for power supplies in many heavily popu- lated markets. It's a business model that built Petronas into the most profitable company in Asia. When it comes to LNG, following Petronas' lead is a no-brain- er. So from a Canadian investment perspective, seeing Petronas ramp up its actions within Canada's borders is promising. At last count, Petronas currently has nearly 30 rigs drilling in the northern Montney fairway of northeast BC. It's a gassy region, where along with partner SASOL has constructed a gas plant with a 300 million cubic feet of gas a day capacity. Currently that plant is running at half of its capacity, but the drilling activity is indicative of more production to come. Directly adjacent to the Petronas/SASOL property in the re- gion is another partnership, albeit much smaller from a market cap perspective. Next door neighbors Canadian Spirit Resources [SPI-TSXV] and its private partner Canbriam Energy also own a Montney Project, called Farrell Creek, that stand to gain as well once the LNG trade route is opened. "We've got roughly 40 net sections, and have had various re- source reports done by both Sproule and GLJ," says Phil Gei- ger, President and COO of Canadian Spirit. "The findings have shown that we've got a lot of gas. Net to our company, we've got more than 5 Tcf. Together with Canbriam, we've got enough wells to know the value of what we're sitting on." Between the two of them, Canadian Spirit and Canbriam have north of 10 trillion cubic feet of gas to develop. Back in 2004-2006, the domestic prices would've seen this type of play snapped up by a major within a fiscal quarter. However, today's softer price point has allowed junior Canadian Spirit to proceed in getting the house in order for the day that LNG becomes the game changer many speculate it will be for the natural gas sector. In the meantime, the junior joint venture has amassed a cur- rent production of 3.2 MMcf/d and constructed its own gas plant currently capable of handling 10 million cubic feet of gas per day. Foreseeing a future need for expansion, the team de- signed the gas plant to easily grow to a 50 million cubic feet per day capability by just adding more compression. What sets the junior JV and the major JV next door apart from the rest of the natural gas producers in Canada is their geo- graphical proximity to the coast. A simple glance at the map (See www.resourceworld.com) of the region, and it shows how Far- rell Creek natural gas production is the closest supply point of natural gas to the upcoming LNG projects at either Kitimat or Prince Rupert. In terms of infrastructure, the location is also a dream. Canadi- an Spirit's lands straddle a main line owned by Spectra Energy [SE-NYSE]. The location is reachable mostly by paved highway, coming about an hour away from Fort St. John, BC, which is stocked with plenty of skilled labour. According to GLJ's report on the Farrell Creek property, the junior JV has over 1,000 gross well locations left to drill out into the foreseeable future. In order to prepare for such drilling activity, the team has also foreseen a hurdle that they've overcome: water. "All of these wells are fracked with large quantities of water (some as much as 10,000 cubic metres). So you need a source of water in place if you're going to ramp up your drilling activity," says Geiger. "Doing one-offs is workable without added water preparation. But if you're doing hundreds of wells a year, that wouldn't work." To stamp out the water issue before it arises, Canadian Spirit and Canbriam built a water source line from Williston Lake to their gas plant. The JV has a license through the government to draw up to 10,000 cubic metres per day from the lake until the end of 2031. That leaves plenty of time to put some holes in the ground. Ultimately, the junior JV has done everything right in setting the table for a future takeover. The resource and drilling loca- tions have been identified, and the water has been secured. Once the LNG ports are opened, companies with bigger pockets to drill out the resource (Petronas included) would likely see Cana- dian Spirit as having set up their operation neatly and cleanly enough to warrant a takeover that's profitable to today's Cana- dian Spirit investors. n Canadian Spirit/Canbriam active in northeast BC LNG play

• Cover