Crescent Point Energy (CSCTF.PK) has announced that it quietly assembled a 19% interest in Arcan Resources (ARNBF.PK). In announcing this, Crescent Point also finally let the world know that it's been assembling a land package in the emerging Beaverhill Lake Light Oil Resource play. Here is what Crescent Point has put together over the past couple of years:
- As already mentioned, a 19% interest in Arcan Resources; Arcan owns 150 net sections of land in the Beaverhill play.
- Another 165 net sections of land in the Beaverhill play that was acquired mainly through a joint venture with a private company called Coral Hill Energy Limited but also through a farm-in agreement with publicly traded Second Wave Petroleum (SCSZF.PK).
When you see a big unconventional player like Crescent Point aggressively tying up land in a play like this, you know it's confident in the geology and that much of the risk has already been removed. But it's also provided us with initial well results so the market can also know a little more about what those inside the industry are seeing. Crescent Point well results:
- CPG has been involved in eight wells to date.
- It has four wells operating in the play, three of which have been put on production and have averaged 1,000 bopd.
- CPG’s internal model, which predicts a 295 bopd first month average, generates a half cycle rate of return of 75% and a payout of under 15 months under current commodity prices.
CPG was looking for a 75% rate of return and 15 month payout assuming an average 295 bopd in the first month. The first three wells have averaged 1,000 bopd. I’d say if you are an oil producer and you haven’t built your position in the Beaverhill play, the price you are going to have to pay to get in now just went up.
Here are the three most obvious options for investors:
- Arcan Resources: CPG now owns 19% and will obviously take it out entirely at some point at a premium to the current price. It might be too late to get in, as Arcan should move up pretty quickly once this news is out.
- Second Wave Petroleum: CPG has its claws in here as well, given the farm-in agreement. I’d say that Second Wave likely gets eaten by CPG as well and likely at a pretty nice premium to the $2.60 it closed at on July 14. It may also jump pretty quickly on the news.
- Midway Energy (MELEF.PK): This is the third publicly traded company that has disclosed a position in the Beaverhill play. Midway has about 23,000 acres which are not factored into the current stock price. It also has a nice position in the Alberta Cardium.
And there is a possible fourth option in Petrobakken (PBKEF.PK), which recently announced that it had over the past two years put together a land package of over 120,000 acres in four emerging light oil resource plays. It's told us that Beaverhill is one of those plays; we just don’t know how much of the 120,000 acres it is.
I think this announcement by Crescent Point is the first of what will be many transactions consolidating several emerging Canadian resource plays. My portfolio is stuffed with these companies after the sell-off of the past several months. I think I’m in the right companies at the right time just before these emerging plays gain more public attention, like the Bakken did a few years ago. Check my past Seeking Alpha articles if you are interested in looking at a few more of these opportunities.