Trilogy Energy Corp. (TET), the company backed by billionaire Clayton Riddell, is considering partnerships on land worth as much as C$2 billion ($1.94 billion) after drilling results beat estimates.
Trilogy’s land in Alberta’s Duvernay formation is worth as much as 20 times more than in 2011 as different drilling methods allow companies to almost double the amount of oil and natural gas that can be produced, John Williams, president and chief operating officer of the Calgary-based company, said in a phone interview on Sept. 27.
“With what we’re seeing today, we’re thinking the play is becoming more valuable,” Williams said. “Joint ventures could potentially accelerate that value capture.”
Trilogy reported some of the best results to date on Sept. 27 in the Duvernay formation on four wells with an unidentified partner, according to Todd Kepler at Cormark Securities Inc. in Calgary. Exxon Mobil Corp. the world’s largest energy company by market value, PetroChina Co. and Chevron Corp. bought Duvernay stakes in the last year.
The recent Duvernay wells in which Trilogy owns a share tested high in condensate, a light hydrocarbon that’s selling for more than $100 a barrel, Kepler said in a Sept. 27 phone interview. The company is a potential takeover target since it’s the only producer other than Athabasca Oil Corp. (ATH) with enough Duvernay land to be attractive, he said.
Beating Eagle Ford
Athabasca said in July it’s seeking a partner on its Duvernay lands. Talisman Energy Inc. said in March it’s trying to sell or find a partner for a portion of its Duvernay land.
Trilogy doesn’t need any partners in the Duvernay, Geoff Ready, an analyst at Dundee Securities Corp. in Calgary, said in a Sept. 27 phone interview. “They have the ability to fund future development on their own at their own pace,” Ready said.
Four wells drilled by a partner of Trilogy in the Duvernay tested an average of 400 barrels of condensate per million cubic feet of gas, Trilogy said in a statement after the close of North American markets on Sept. 26. The company’s partner doesn’t want its name disclosed, Williams said.
“That is blowing out of the water anything we’re seeing in the Eagle Ford right now,” Kepler said, referring to the Texas shale development. He is among 10 analysts who recommend investors buy Trilogy. The stock also has five hold and one sell recommendations.
Trilogy’s well results add to preliminary information investors have been seeking about how much oil and natural gas liquids can be economically produced in the Duvernay, where producers rushed to secure land in 2010 and 2011, Kepler said.
The Duvernay is a shale formation in central Alberta that holds an estimated 443 trillion cubic feet of gas and 61.7 billion barrels of oil, according to a report last year by the Alberta Energy Regulator predecessor, the Energy Resources Conservation Board.
Trilogy isn’t trying to sell itself and hasn’t received any offers, though it would entertain bids at the right price, Williams said. “For anybody that wants an entry point, I’m sure they’re licking their chops,” he said. The company has a market value of C$3.43 billion, according to data compiled by Bloomberg.
Exxon Mobil and its Canadian unit Imperial Oil Ltd. agreed to pay C$2.86 billion last year for Celtic Exploration Ltd. of Calgary to access leases in the Duvernay and Montney formations. Chevron agreed to buy Alta Energy Luxembourg S.a.r.l. in August for its 67,900 acres in the Duvernay and didn’t disclose a price.
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