Calgary-based DeeThree Exploration is about to embark on the next chapter of an eight-year existence by dividing itself into two standalone operations built around its core holdings.
The company plans to consign its quirky name to the archives, and take on some heft, labeling its new oil-weighted entities Granite Oil and Boulder Energy.
Granite is being shaped as a dividend-and-growth company based on its Alberta Bakken play near the Montana border, while Boulder will focus on development of properties in the Pembina-Brazeau area of west-central Alberta.
“The reorganization will create two independent, pure-play oil companies which will pursue different business strategies which better reflect the unique nature of the two different asset bases within DeeThree,” the company said in a news release.
“The board believes that the reorganization will, over time, result in a better combined market value for Granite and Boulder as standalone entities than within a single entity and business plan, thereby maximizing shareholder value.”
What drove the split?
The corporate leaders were not available to discuss the thinking behind their decision in more detail, leaving others such as Chad Ellison, an analyst with Dundee Capital markets, to speculate.
Admitting he was caught off guard, he cautioned that a depressed commodity market is not necessarily a welcoming atmosphere for junior dividend players.
But he told the Calgary Herald the market will now be forced to “independently value two high-quality but different natured assets.”
After its foundation in 2007, DeeThree went public two years later, drilled its first upper Bakken horizontal well in 2011, acquired Brazeau assets the same year and paid the price for being a natural gas-weighted junior, taking a full body blow when investors became disaffected with less-than-promising results from the Alberta Bakken. Share values took a sharp dive four years ago after acquiring a stake in that play.
But management clawed its way back by diversifying operations and directing two-thirds of drilling to the Belly River formation in central Alberta to boost production.
Output projections
It its April 7 release, DeeThree projected Granite will exit 2015 with production of 4,100 barrels of oil equivalent per day and total proved plus probable reserves of 17 million boe, while Boulder is forecast to have an exit rate of 9,000 boe per day from 34.7 million 2P (proved plus probable) reserves. Granite has an estimated horizontal well inventory of 162, while Boulder has more than 400 prospects.
Directors, officers and certain shareholders of DeeThree, holding 17 percent of the company’s common shares, have unanimously recommended approval of the deal.
Alberta Bakken development
The reorganization coincides with DeeThree announcing promising results from the Alberta Bakken that is being developed with a natural gas injection enhanced oil recovery operation.
The technology has been used to slow declines in production from existing wells (see slide), with the first horizontal well flowing at 1,000 bpd of 30 degree API oil and 500,000 cubic feet per day of natural gas at a wellhead pressure of 300 pounds per square inch over a five-day test.
“The real key is that it demonstrates in our view that the EOR is working,” said Jonathan Fleming, Granite’s vice president of capital markets.
Dundee Capital’s Ellison said the EOR scheme could yield recovery factors that are better than 4 percent booked to date and unlock additional drilling locations with tighter well spacing.
He said in a note that decline rates have begun to moderate on the overall pool “which we view as a materially positive development given the company’s historical 40 percent plus decline rate.”
“We expect to see improving capital efficiencies providing stronger sustainability metrics in addition to a clean balance sheet.” DeeThree started work on the upper Bakken siltstone at Ferguson near the Montana border four years ago after discovering it by checking logs from an original vertical well. The upper Bakken siltstone overlies the Alberta Bakken's two shale source rock intervals.
The company noted that the middle Bakken siltstone in Alberta was popular with several producers a few years ago, but was largely determined to be uneconomic.
- Gary Park
