About
Our focus from the outset has been to build a natural gas asset base that could provide strong economic returns and generate sustainable growth over the longer term. We believed that if we built a company that has high quality assets with repeatable drilling success, it was likely that our shareholders would value it and we would stand out among our peers.
When the current management team acquired and recapitalized Progress in 2001, it was with the specific objective of pursuing resource-scale gas plays in the Deep Basin of Alberta and Foothills of British Columbia. Our strategy was to:
- Assemble large, contiguous blocks of land;
- Own all rights in the stratigraphic column;
- Ensure operatorship through high working-interest positions; and,
- Apply the latest technologies to optimize cost/benefit.
Today, Progress has amassed a resource base with the capacity to more than double production in the next five years. Our large Montney position provides shareholders with exposure to what many industry observers consider to be one of the top unconventional shale/silt natural gas plays in North America. And, many will also recognize that Progress holds a dominant land position with in the multiple stacked producing horizons of the Deep Basin…another premier part of the Western Canadian Sedimentary Basin.
Building a globally competitive asset
Our strategy, as noted above, has delivered solid success and consistent production growth in our first ten years of operation and our breakthrough Montney position is a direct result of following these principles. We own the deep rights below the Montney development. Our land position is very large, contiguous and with a working interest of 100 percent on the majority of our lands. We are now applying the latest horizontal drilling, multi-stage fracturing and modular development technologies to enhance the value and extent of our Montney asset base.
A fortuitous factor in our Montney play is that our North Montney gas is sweet, free of hydrogen sulphide, making it less costly to develop than competitors reserves in the South Montney. In addition, our Montney production yields a natural gas liquids stream that enhances our netback.
Through more than two years of carefully moving our North Montney play forward commercially, verifying the productive extent of our Montney position, we’ve been cautious to avoid undue promotion in any of our public or private statements. We’ve consistently taken the approach that the proof is in the drilling. Now that we’ve demonstrated the compelling extent of our asset base, we owe a duty to current and future shareholders to help the market understand the tremendous potential of Progress.
This starts with the independent evaluation of our reserves, we closed 2008 with net booked reserves of six billion cubic feet (bcf) from two Montney wells and closed 2009 with 100 bcf from 35 wells. We’ve finished 2010 with 600 bcf of reserves from 155 wells, all booked according to the regulated standards of National Instrument 51-101. As development continues, we expect these numbers to continue to rise sharply.
The Montney’s Value
Here, again, facts speak louder than words. Some of Canada’s largest gas producers, including EnCana, Shell and Talisman, are working aggressively to develop their Montney prospects, with great success. Meanwhile, further to the north, independent analysis of our North Montney Town production levels shows that they are equally as robust as those of our competition.
Perhaps the best testament to the asset value of Progress comes from our competition. Shell, which acquired South Montney lands with its $5.9B purchase of Duvernay Oil in 2008, is now drilling on properties offsetting our Town and Kobes developments. Talisman has recently completed two joint-venture transactions with Sasol, valued at over $2 billion, for projects on lands immediately adjacent to our Altares area. EnCana has recently announced a South Montney partnership with Petro China covering approximately 500,000 acres for $5.4 billion, all of which we believe speaks to the value of our 900,000 Montney acres.
Monetizing the Montney
Much larger companies than Progress see the Montney as a game-changing asset. Indeed, the challenge for Progress is that we’re a company with a land position nearly double the size of our nearest competitor. While this implies enormous leverage from continued success in the Montney, it raises the question of how a company with a $3.5-billion enterprise value can capitalize an asset base with a potential value of $40-billion-plus.
We have a two-part strategy for capitalizing our Montney position:
- a proven low-cost and repeatable, modular development plan; and,
- a joint venture program aimed at bringing a major partners capital into the play.
Our development plan employs modules or ‘pods’ of approximately 20-25 horizontal wells, with multi-stage fracing, drilled in a pattern to minimize the footprint and producing an average 50 million cubic feet of gas per day (mmcfd). Approximately six wells will be drilled per year to sustain production at 50 mmcfd for a period of 10 years or more. Central field facilities will service these pods and are modularized for ease of movement, installation and inter-changeability.
The first of our pod developments at Town South reached 50 mmcfd of production early in the second quarter of 2011 and pod developments at Gundy, Town North and Kobes are underway at this time
Although we are in the very early stages of our long-term development plans, analysis shows that Progress lands can support more than 100 of these pods, or 7,500 wells. Today we produce approximately 80 mmcfd from the North Montney and have plans to more than triple this production over the next several years.
Given the extent of our land position, many highly prospective targets could be delayed more than five years waiting for capital. In order to accelerate development of these assets, Progress has offered four parcels of land as joint ventures. Successful joint venture agreements could provide several important benefits to Progress shareholders:
- Immediate cash–purchase payments to apply toward our highest-ranked prospects;
- Accelerated realization of 50 percent of the production value on joint-venture lands;
- Partial funding of joint-venture development by partners.
Progress has been very successful in assembling and delineating its Montney prospects and we plan to demonstrate the same acumen in delivering production and value. We will focus financial resources on top priority targets to generate cash flows. We’ll use repeatable drilling strategies and low-cost, modular production facilities to deliver gas. Finally, we’ll bring substantial additional capital to our asset base by attracting strong joint venture partners allowing us to accelerate our development plans.
We have established Progress as a leader in unconventional natural gas development in the Foothills of northeast British Columbia and the Deep Basin of northwest Alberta. Our large land holdings in areas with well developed infrastructure provide shareholders with exposure to strong and sustainable growth in reserves and production over the longer term. The management team at Progress has two decades of experience operating in northeast British Columbia. We value the long-standing relations that we have built with all stakeholders in our operating areas and look forward to the future as one of our industry’s premier energy companies.