Written by a bulge bracket oil & gas investment banker
Overview of the Viking Formation
The Viking formation is a popular Lower Cretaceous play located in the eastern portion of the Western Canadian Sedimentary Basin and it spans across eastern and central Alberta and western Saskatchewan. According to the National Energy Board (NEB), companies have reported approximately 9.2 million m3 (58 MMbbls) of proved and probable reserves in the Viking.
The Viking has been a popular target for exploration since as early as the 1950s. In the early days, many analysts and producers turned away from the Viking due to its requirement of ~$50/bbls to be economically viable. However its recent rise in popularity came from the introduction of hydraulic fracturing, which allowed more exploratory plays to become more attractive, changing the drilling and target strategies of many E&P companies. Today, well costs can be as low as $600,000.
Attractiveness of the Viking to Producers
The Viking is often regarded as one of the top-tier light oil plays within North America. It is famous for its light oil, low break evens (some companies able to achieve break-evens below $30/bbls), and superior economics.
Light oil is attractive to producers as it is often easier to refine, sold at a relatively higher premium, and used for refined products like gasoline and jet fuel. As the Viking is a relatively shallow play, it also results in the lower drilling and completion costs. However, this feature also requires producers to extract hydrocarbons from more wells in order to achieve significant volume. These unique characteristics have attracted specific types of players into the region and it has proved to be a profitable play, especially in times of low oil prices.
Major Players in the Viking
Raging River Exploration (RRX)
Raging River, under the TSE ticker RRX, is one of the major players within the Viking formation. They achieved a Q3 average production of ~23,011 boe/d (93% oil), which increased over 24% relative to the 2016 comparable period. Their capital expenditures were ~116.2 million, which $105.9 million was used to drill 124.8 net Viking horizontal wells at a 98% success rate. Raging River achieved a Q3 funds flow from operations of $60.4 million, an increase of 21% from the comparable 2016 period.
Raging River is well known not only for their superior balance sheet, but also their industry-leading netbacks. They achieved a Q3 operating netback of $31.72, with their petroleum and natural gas revenues at $48.65. Realized gain on commodity contracts, royalties, operating expenses, and transportation expenses were $0.04, $4.52, $11.02, and $1.43, respectively. The industry-leading netback has made Raging River one of the best-run Canadian oil companies under this low-oil-price environment.
Teine Energy – Viking
Teine Energy is another major player within the Viking formation with top decile netbacks. They are a leading private Canadian oil and gas producer owned by CPPIB. They are currently the largest Viking light oil producer producing ~24,000 boe/d. Teine currently has ~320-330 horizontal development wells across ~1 million gross acres with water flood potential for ~50 sections (~32,000 acres).
Whitecap Resources – Viking
Whitecap Resources, under the TSE ticker WCP, is another major player within the Viking. Within the Viking, they have achieved a Q3 free funds flow of ~$62 million, allocated ~90.45 million in development capital, and will hold about 125 wells with a drilling inventory of 980 for 2018.
Notable Viking Corporate Finance Activity
According to CanOil’s M&A data, over C$8 billon in corporate and asset deals involve Viking light oil assets in 33 separate transactions since 2014.
January 2017: Tamarack Valley Energy acquires Spur Resources for $407.5 million
July 2016: Raging River Exploration acquires Rock Energy for ~ $111 million with the issuance of 3.896 million Raging River common shares and the assumption of approximately $70 million net debt
June 2016: Teine Energy acquires Penn West oil assets for $975 million cash
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