Canadian Oil & Gas Development
For important risk and disclaimer information, Click Here.
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Tina Vital | Managing Director
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(917) 432-8474
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OVERVIEW
Our client is raising $30 million (to supplement $30 million of sponsor equity) for a follow-on investment to drill / complete eight natural gas and condensate wells in the Montney Formation in West Central Alberta, Canada.
- Sponsor group is an investment firm (AUM of over $16 billion)
- Sponsor has invested $60 million in the project to date (“Phase I”) to prepare for further development
- Phase I included the acquisition of about 65,000 highly contiguous net acres; construction of gathering and processing infrastructure, and the drilling / completion of three wells which are producing about 600 BOE per day
DISCLOSURE
In compliance with the SEC’s Marketing Rule, this information is being provided by Castle Placement, LLC (“Agent”), acting as distributor for its investment manager client (“the Manager”) with respect to an investment vehicle of the Manager (“the Fund”). Agent is not an investor in the Fund or an advisory client of the Manager. Agent has a material financial incentive to introduce Manager and Fund to prospective investors and is compensated based on the amount of assets committed to the Fund, which may result in a material conflict of interest between Agent and potential investors. Agent has a written agreement with the Manager for compensation of certain services including a referral fee and success fees, as applicable. Agent may be reimbursed for certain out-of-pocket expenses as it incurs in connection with referring investors to the Fund. Compensation paid to the Agent are generally paid over a period of years.
SPECIFIC RISKS
- Operational execution risk, risk of capital expenditures over budget: The cost to drill, complete and tie-in a well can materially impact the well economics. Cost overruns can occur due to operator error, technical difficulties, service cost inflation or geological issues. An operator’s ability to manage these variables is paramount to the success of the investment program
- Geological risk: Drilling a well to produce oil and gas includes risk that the targeted reservoir does not contain the expected amount of natural resource
- Production volumes: The quantity, quality and mix of hydrocarbons all impact well economics and thus investment returns. Initial production rates (the highest production rate a well reaches when it first produces hydrocarbons) (“IP rates”) are often used as a leading indicator in determining well performance. However, the rate at which production declines during the life of the well more materially impacts returns. Typically, unconventional wells have hyperbolic decline curves where production falls steeply after an initial peak in the first two years and then flattens out for the remaining life of the well. This low decline “tail” can last as long as 30 years. Additionally, the mix of hydrocarbons is important. Oil, Gas, and NGLs all sell at independent markets. Each well’s economics will vary based on the above factors as well as the price realizations these hydrocarbons receive in the market
- Commodity prices: The cash flows generated by a given level of production during the life of an investment fluctuate according to the commodity price environment. Exit valuations are also dependent on commodity price environment
- Private securities are speculative, illiquid, and carry a high degree of risk – including the loss of the entire investment.