Conventional Drilling in “Canada’s Delaware” Unlocks New Value

Razor Energy announces Kaybob acquisition

Calgary-based Razor Energy Corp. (ticker: RZE) announced Wednesday that it entered into an agreement to acquire assets in Kaybob, located in west central Alberta, for $9.6 million. The assets compliment Razor’s existing Swan Hill assets and increase the company’s asset base for reactivation and re-entry opportunities in the Montney formation, which has several stacked layers of pay, similar to the Permian’s Delaware Basin.

On a pro forma basis, using February 2017 field estimated production, Razor is expected to have production in excess of 3,700 BOEPD, of which 85% is light oil and natural gas liquids, according to the company’s press release. Acquisition metrics for the deal include $12,652 per flowing BOE, $3.48 per BOE of proved reserves and a run rate cash flow of 2.87x based on the annualized current production and the operating netback for the Kaybob assets.

With 95,679 gross (33,542 net) acres of land, Razor has currently identified over 15 net drilling locations including the potential for future horizontal targets. The development of these properties is expected to be part of the 2018 capital program.

Conventional drilling offers a low-risk way to produce from under-utilized assets

At EnerCom’s Dallas conference, Razor Energy explained that the company acquires legacy light oil assets from large producers, characterized by abundant lower risk operations, and then focuses on reactivation of vertical wells and, in some cases, re-entry and sidetrack drilling to turn vertical wells into horizontal wells.

The company has so far spent approximately $2.5 million to reactivate 19 wells since 2016 bringing total production up to approximately 2,800 BOEPD on the Razor’s previously owned assets. The play, which has a total pay zone roughly the size of the Eiffel Tower (984 feet), continues to show impressive results as Razor produces from older assets.

Razor Energy reserves and production performance

Razor plans to spend $13.0 million in 2017 on a combination of reactivations, re-entries, optimization activities and waterflood management, the company said in its press release. These initiatives will be split between Swan Hills and Kaybob areas at management’s discretion.

A portion of the acquisition of the company’s new Kaybob assets and the 2017 CapEx budget will be funded from a prospectus offering announced in connection with the acquisition. A syndicate of agents has agreed to offer up to 5,000,000 subscription receipts of Razor on the company’s behalf for a price of $3.00 per subscription receipt for gross proceeds of up to $15 million.

Concurrent with the prospectus offering, Razor is proposing to complete a private placement of up to 923,077 common shares issued on a “flow-through” basis pursuant to which subscribers will be entitled to receive renunciation of amounts qualifying as “Canadian development expenses” within the meaning of the Income Tax Act (Canada) at a price of $3.25 per CDE Flow-Through Share for gross proceeds of up to $3,000,000, the company said in its release.

Razor Energy 2017 reactivation targets
Source: Oil & Gas 360

 

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