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Canadian juniors eyeing the big time Duvernay Oil, Galleon Energy focus on Western Canada Sedimentary basin, northwestern Alberta, northeastern British Columbia By Gary Park For Petroleum News
Duvernay Oil is one of an endangered species — a company that debunks claims that the Western Canada Sedimentary basin has no future for junior explorers, who should confine their ambitions to staying small and selling fast.
Backed by a solid bloodline, Duvernay has grown in only five years to a serious threshold, hoping to achieve production of 20,000 barrels of oil equivalent per day in September and perhaps 25,000 boe by year’s end.
Its origins trace to a 2001 blockbuster sale of Berkley Petroleum to Anadarko for C$1.3 billion and the rebirth of Berkley executives under the Duvernay banner, although the company has been trading publicly for only 18 months.
The handsome returns from the Anadarko deal helped clear the path for Duvernay, under Chief Executive Officer Mike Rose, to raise the cash needed for the new venture to start out at 650 boe per day and grow to 1,750 boe per day by the end of 2002, establishing a platform to drill in the Peace River area of northwestern Alberta and northeastern British Columbia. Duvernay now producing 15,554 boe per day In the latest quarter, production was 15,554 boe per day and generated profits of C$21.68 million, 122 percent higher than a year earlier, while first-half earnings were roughly double 2005 at C$33.82 million.
The only hiccup involved unplanned shut-ins of about 1,350 boe per day — lowering guidance for the full year to an average 18,200-18,300 boe per day from an original 19,600 boe per day — although those volumes are expected to resume in the current quarter.
The second quarter also saw Duvernay notch new pool discoveries in the Sundance, Marsh-Pedley and Pine Creek areas of the Peace River and a potentially significant new strike at Groundbirch in British Columbia, which Rose estimated could contain more than 500 billion cubic feet of gas matching a similar discovery in 2003.
Independent engineering estimates that the Groundbirch pool offers more than 250 drilling locations.
The company’s original 2006 capital budget of C$400 million is unchanged and is currently ahead of schedule.
However, gas prices will be closely monitored and could see the capital program adjusted, depending on the second-half cash flow. Operating costs in the first half were C$5.52 per boe and Duvernay is aiming to pull that performance below C$5 in the second half, primarily through the impact of higher production spread over a “relatively fixed cost base.”
A like-minded company is Galleon Energy, which also has a strong focus on Peace River and British Columbia.
Less than three years after making its trading debut, Galleon raised production for the second quarter to 8,560 boe per day, up 52 percent over the same period of 2005 and raised its earning to C$8 million, up 1,058 percent.
Among its successes this year is a regional natural gas project at Dawson, British Columbia, where 39 wells have been drilled over the last year at a 95 percent success rate. Once all tie-ins are completed production will be about 16 million cubic feet per day and an existing gas plant is scheduled for expansion to 30 million cubic feet per day before the end of 2006.
Galleon says the project has “delivered repeatable drilling success and superior economic returns given current gas prices.”
For the current quarter, overall output is expected to average 10,000-12,000 boe per day and the closing of an C$80 million equity financing sets the stage for continued drilling.
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