Frac’ing condensate for Alberta tarsands; Duvernay well results pump Trilogy Energy stock, Investors bid up Calgary company’s shares after glowing report

Duvernay well results pump Trilogy Energy stock, Investors bid up Calgary company’s shares after glowing report by Dan Healing, September 27, 2013, Calgary Herald
SHARES LEAPED AS MUCH AS 15 PER CENT ON FRIDAY MORNING AFTER IT UNVEILED WHAT ONE ANALYST DESCRIBED AS “FANTASTIC” ALBERTA DUVERNAY DRILLING RESULTS. The $3.95 surge in share value to $29.90 came despite a huge miss on estimated third-quarter production due to northwestern Alberta gas processing facility outages. “Quite honestly, the (Duvernay) results are better than we had anticipated,” said Trilogy president and chief operating officer John Williams, who said some experts are comparing the Duvernay to the prolific Eagle Ford shale play in South Texas.

He said hydraulic fracturing technology is evolving to get the most out of the play while driving down costs. “We started out doing 25 or 30 fracks per well two or three years agoand now we’re upwards of 100. I think increasing frack density, pumping less sand, less water, letting the wells soak for a little while, is giving us great recoveries.”

Financial analysts were impressed, with Michael Harvey of RBC Dominion Securities upgrading the stock to outperform in a note to investors on implied returns and improving economics from the Duvernay, while also noting Trilogy’s successful step-out well in its Kaybob Montney oil play. Another analyst, Michael Dembicki of TD Securities pointed out third-quarter production of 31,000 barrels of oil equivalent per day was a disappointing 19 per cent below consensus estimates of about 38,200 boe/d and suggested a “reoccurring theme” of Trilogy misses over the past two years. “That said, we believe that investors have been generally looking past short-term production missteps and have been focusing on the longer term NAV (net asset value) creation that the Duvernay could provide,” he wrote.

Analyst Geoff Ready of Dundee Capital markets said Trilogy’s “fantastic” Duvernay results outweighed its production miss. “Based on these and other public production results, we believe payouts on some wells are under a year, a remarkable feat for a resource play in early stage development,” he wrote. In a news release late Thursday, Trilogy said it will revisit its capital budget for the year in November after electing to participate for a 30 per cent working interest in a four-well pad operated by an unnamed partner (identified by analysts as Shell Canada). It said the pad — drilled and completed for $12 million per well or $48 million — was production tested in August and flowed at an average rate of 1,940 boe/d per well, made up of 3.4 million cubic feet per day of natural gas and 1,366 barrels per day of condensate. Condensate is a petroleum liquid that fetches a premium over light oil in Alberta because it can be used to dilute bitumen to allow it to flow in a pipeline.

The four horizontal legs were each about 2,000 metres in length and were completed in 100 fracture intervals, it said. The pad is expected to be placed on production in late October, Trilogy said. It also plans to participate in a second four-well pad on which drilling is done and completion operations are expected to begin in early October, with first production in December. [Emphasis added]

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