Tourmaline to buy western Canada shale acreage from Shell for $1 billion

Tourmaline Oil Corp., Calgary, has agreed to acquire 206,000 net acres and associated infrastructure in western Canada from Royal Dutch Shell PLC affiliate Shell Canada Energy for $1.037 billion, or $1.369 billion (Can.).

The payment comprises $758 million in cash and Tourmaline shares valued at $279 million. The deal is effective Nov. 1 and expected to close in the fourth quarter.

The deal includes 145,000 net acres in the Deep basin area of west-central Alberta, and 61,000 net acres in the Gundy area of northeast British Columbia, part of the Montney shale region, with a combined evaluated future drilling inventory of 2,147 locations. The assets are a combination of developed and undeveloped lands, along with related infrastructure, producing 24,850 boe/d of dry gas and liquids with estimated current 2P reserves of 473.5 million boe.

After the deal's closing, Shell in Canada will have 430,000 net acres in the Duvernay and 218,000 net acres in the Montney.

“Shell retains a significant shale position in Canada and we are actively working to mature our attractive core asset base in the Montney and Duvernay,” said Andy Brown, Shell upstream director. “At the same time we are strengthening our shales business and creating shareholder value by selling assets that do not fit our near-term development plans.”

The deal is part of Shell’s $30-billion divestment program. Earlier this year the Anglo-Dutch multinational firm and its LNG Canada joint venture elected to delay final investment decision on the project to be built near Kitimat, BC, citing “global industry challenges, including capital constraints” (OGJ Online, July 12, 2016).

Tourmaline operational impact

The Deep basin assets consist of 382 gross sections, 154 of which are joint working interest with Tourmaline, and current low-decline production of 18,650 boe/d. Tourmaline will also acquire Shell Canada’s infrastructure comprising three 100%-operated gas plants with estimated processing capacity of 200-225 MMcfd and 719 km of pipelines, providing the Calgary firm with total operated processing capacity of more than 1 bcfd in the Alberta Deep.

Tourmaline plans to add 100 MMcfd of new production in 2017 from the Deep basin assets through the drilling of 31 horizontal wells and fill the acquired infrastructure capacity.

The Montney assets in BC consist of a large, contiguous 100%-working-interest, 101-section land block in an area with 300 m of Montney gross pay and four separate lobes to develop. Current production is 6,200 boe/d from 25 existing horizontal wells that have delineated the land block. Estimated 2P reserves are 371 million boe with 375 locations out of an internally estimated 1,647 locations.

Tourmaline plans to drill 13 horizontal wells on the Montney assets in 2017 and 54 in 2018 with company infrastructure construction.  

Including the impact of the acquired assets and associated development, Tourmaline expects 2017 production of 250,000-260,000 boe/d and 2018 production of 310,000-320,000 boe/d. The firm now expects to operate a 14-rig program in 2017, up from 12 units previously, and still execute a cash flow budget for the year.

The firm is currently operating 13 drilling rigs, with 8 in the Alberta Deep, 2 in northeast BC, and 3 on the Peace River High. Between September and December, Tourmaline plans to bring on stream 100 wells, with 31 already on production since mid-September.

Contact Matt Zborowski at matthewz@ogjonline.com.

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