The two main zones at Bigstone are the Montney and the Cretaceous. Both zones are economic today, with large undeveloped land positions for future growth.
The Montney formation is now recognized as one of the world’s greatest deposits of hydrocarbons. It covers vast distances and many areas are now exploited with horizontal drilling combined with hydraulic fracturing. As the database of Montney production expands, a divergence between higher and lower economic value areas becomes apparent. To be a top tier producer, you have to operate in areas with top tier values. Delphi’s Bigstone Montney has the combination of high deliverability, high liquid ratios and easy access to markets that make it a high value area.
Delphi continued to concentrate on Bigstone Montney throughout 2015. At East Bigstone, over 110 two mile long horizontal potential drilling opportunities provide a significant inventory for future growth. Exploration into West Bigstone and other adjacent areas should continue to increase Delphi’s Montney potential. In the fourth quarter of 2015, Montney production averaged 6,922 boe/d, or 79 percent of corporate production. The Montney production comes with a high liquids yield. In 2015, Delphi averaged a liquid yield (propane, butane, pentanes and condensate) of 97 barrels per million cubic feet (“bbls/mmcf”). Of this, the valuable field and plant condensate was 65 bbls/mmcf, or 67 percent. Condensate pricing closely tracks light oil pricing, increasing the netbacks on Bigstone Montney production significantly.
Delphi’s 2015 drilling program was very mindful of the low price environment. Emphasis was placed on drilling lower cost infills from existing pads. Additionally, Delphi has consistently striven to improve its drilling and completion technology. In 2015, Delphi continued to drill long reach horizontal wells. All of Delphi’s six (5.3 net) drills had over 2,600 metres of horizontal length. After initial testing of the new liners, the Company has now increased the maximum number of hydraulically fractured stages to 40, up from the previous maximum of 30. Changes in sand concentrations, water volumes and fluid rates have also allowed Delphi to continually improve results and simultaneously reduce costs. Six horizontal wells were drilled in 2015.
Production from the Montney is produced through the Company’s 100 percent owned 7-11-60-23 W5M (the “7-11 Facility”) compression and dehydration facility. Recently a new fuel gas pipeline accessing higher quality fuel gas has been installed and the 7-11 Facility has been expanded with an owned compressor replacing two existing rental compressors resulting in reduced maintenance and rental costs as well as increased throughput capacity. These and other upgrades to the facility now allow for a capacity of over 55 mmcf/d of raw natural gas, allowing for significant future growth.
Delphi continues to reduce Bigstone operating costs by improving efficiencies, service costs and processing costs. A major development in 2015 was the commissioning of Delphi’s 100 percent owned water disposal facility. It now handles approximately 1,200 bbls/d of mostly frac water from the Montney production, resulting in an expected reduction to operating costs of $0.70/boe. The disposal well is currently capable of 2,000 bbls/d of disposal capacity. Delphi is evaluating the potential of accepting water from other producers, turning the Company’s water disposal facility into a profit center from a cost center.
Delphi’s Montney gas is processed at the SemCAMS K3 facility. Delphi improved transport efficiencies for Bigstone by entering into an agreement with Alliance Pipeline for full path firm service into the Chicago market. This eliminates exposure to production curtailments and Alberta natural gas price weakness.
With an attractive mix of lower operating costs and a high value product stream, concentrating on Bigstone Montney was a natural decision for Delphi. The Montney reserves, as evaluated by the Company’s independent reserves evaluators, GLJ Petroleum Consultants Ltd., are now 95 percent of the Company’s total proved and total proved plus probable reserves. Finding and development costs (F&D), including changes in future development costs, were $10.12/boe for proved producing Montney reserves.
The Bigstone property is located 150 kilometres southeast of the city of Grande Prairie. The sweet natural gas production from the shallower Cretaceous zones at Bigstone are now the Company’s second largest producing asset, contributing an average in 2015 of 1,100 boe/d, with 16 percent as oil and natural gas liquids. Important infrastructure ownership in the area for this production includes Delphi’s 26 percent working interest in the Bigstone West gas plant, with a gross capacity of 85 mmcf/d. The Company has an average working interest of 74 percent in 82 sections of land.
A major expansion of the Company’s Bigstone Cretaceous assets occurred with the purchase of the Negus property in 2014. Delphi acquired over 40 kilometres of field gathering infrastructure as well as a 100 percent working interest in a 15 mmcf/d sweet shallow cut natural gas processing plant. In addition 26 gross sections (19 net) of Cretaceous rights were added to the Company’s portfolio. Going forward, Delphi will intensify Cretaceous development at Bigstone. An initial target will be the Gething channel system. These stacked channels can recover over 12 billion cubic feet of natural gas from vertical wells in the area, but many vertical wells underperform due to the low permeability reservoir and reservoir compartmentalization. By utilizing modern methods of horizontal drilling and hydraulic fracturing, Delphi can access the lower permeability reservoir and connect these compartments, giving the Company’s wells higher recovery volumes and higher deliverability.