DeeThree Exploration President Martin Cheyne delivered a bold message to the company’s annual meeting entitled “Believe it.”
Backed by an increase in production to 7,000 barrels of oil equivalent per day (75 percent oil) from 400 boe per day three years ago, with several wells now on production, he figured it was time to proclaim the success of what many had once doubted.
And more growth is in store from DeeThree’s two light oil plays — the Exshaw formation, which the company labels the “Southern Alberta Bakken,” near Lethbridge in southern Alberta and the Belly River formation in the Brazeau area of west-central Alberta.
Reporting a threefold rise in its cash flow during the first quarter and a mid-May stock price of C$7.95, compared with a 52-week low of C$2.56 and a high of C$8.36, DeeThree executives entered the annual meeting in high spirits.
Cheyne said he and Exploration Vice President Clayton Thatcher have traveled extensively over the past year trying to convince institutional investors that the company is in possession of two game-changing plays.
“We had a hard time for a long, long time — for two reasons,” he said.
“We basically pioneered the Belly River play, where nobody else was drilling. And the Alberta Bakken play,” where DeeThree was the only one of “six or seven different companies” claiming any success.
Now the company is counting on exiting 2013 at 10,000 boe per day from growth that has been achieved entirely through the drill bit.
Budget committed to Exshaw/Bakken
This year’s capital budget of C$160 million will be entirely committed to the Exshaw/Bakken (where 20 wells are scheduled) and Belly River (with 11 wells), although that could be switched to a 50-50 count, Cheyne said.
DeeThree acquired its Exshaw/Bakken lands from Encana in 2008 when natural gas was fetching about C$11 per thousand cubic feet.
Luckily the company had surface-to-basement rights and was able to pursue oil when gas prices slumped, but, just as quickly, its hopes faded when a succession of producers reported disappointing drilling results in the area.
Cheyne said the market was unhappy when the first well yielded only 180 barrels per day from its initial 30-day production rate, having set its sights on something closer to the 1,000 bpd level in North Dakota.
Early in 2012 DeeThree moved to the northern part of its land, but kept the lid on what it was doing until it struck about 43 feet of pay with a well that tested at 600 boe per day.
Even then, he said, “nobody believed how great this play was,” given that Murphy Oil and Crescent Point Energy had been unable to figure out the formation.
Test rates of 600-950 bpd
By the time DeeThree had drilled 20 wells in the area with test rates of 600-950 bpd of 30-degree API oil, with one well exceeding 1,300 bpd on a flow test, the response from investors started to swing in its favor.
And Cheyne said the boundaries of the play have yet to be established as they keep expanding.
He said some wells are still producing 300 bpd after 300 days on production and are recording netbacks of C$60 a barrel.
The Belly River asset had “probably the biggest oil pool I’ve ever been associated with,” pointing to 600 million-700 million barrels of oil in place, with only 14 million barrels removed to this point, Cheyne said.
Wells initially came on production at 150-200 bpd, but the most recent logged 1,500 bpd and went on production in May at 800-900 bpd.
Cheyne believes lower-end wells will be 200-300 bpd, the average will run at 400-500 bpd and the top end will see four or five wells at upwards of 1,000 bpd, claiming that the Brazeau Belly River pool will be one of Alberta’s blockbuster conventional light oil reservoirs.
DeeThree announced it will soon reinject solution gas from one of its successful light oil resource plays in Alberta as it embarks on an enhanced oil recovery pilot project at the Exshaw/Bakken.
Cheyne said some of the area’s wells will yield up to 350,000 barrels of light oil on primary production, a recovery level that should grow as gas is reinjected. He said the pilot well is at the center of the pool “so it won’t take long to see if it’s going to work.”
