Velvet’s Asset Portfolio includes the largest land position in the Montney light oil stretching from Karr, Alberta to Flatrock, British Columbia and highly economic liquids-rich gas in the Deep Basin of Alberta.
MONTNEY LIGHT OIL
The light oil window of the Triassic Middle Montney is a large scale resource in the Western Canadian Sedimentary Basin. With original oil in place ranging from 15 – 30 MMbbl/section Velvet recognized the potential for the recovery of black oil despite common industry perceptions that the oil couldn’t be economically recovered.
By applying cutting edge drilling and completion technology, Velvet was able to prove that oil production was commercially viable from the normally pressured window of the reservoir. Beginning in 2013, through Crown land sales, and several asset acquisitions, Velvet amassed a 152,000 acre land position in Gold Creek AB.
As successful drilling programs in the Gold Creek area started to prove commercial viability of the Montney oil window, Velvet continued amassing land positions up and down the trend stretching from Karr, AB to Flatrock, B.C.
Velvet has amassed 315,000 acres of land with an inventory in excess of 1600 horizontal Montney locations with a Company estimated Original Oil In Place of 15 billion barrels. To date, 215 of those 1600 locations have been booked via Velvet’s independent reserve evaluator as at YE2019 representing a booking of 13% of potential locations. Since inception, Velvet has differentiated itself by organically growing its production base to 30,000 boe/d. Our Montney inventory supports continued organic growth over the next several years.
Velvet’s most advanced Montney light oil project is at Gold Creek where its core position of 145,000 acres is scalable and repeatable within interbedded dolomitic siltstones and shales. This oil charged reservoir is 150-200 meters thick at preferred operational depths between 2,100-2,300 vertical metres. Velvet brought its first Montney light oil production onstream at Gold Creek in June 2017, which at the time, increased corporate production to over 20,000 Boe/d. To-date Velvet has drilled over 50 horizontal Montney wells at Gold Creek increasing area production to over 20,000 Boe/d. Velvet is able to Drill, Complete, and Tie-In (DCET) a development Montney well for under $6.5 million dollars for an advanced high intensity completion; Velvet strongly believes in completion design being a differentiator in its well productivity. Area production is processed under an area dedication through a gathering system operated by SemCAMS Midstream at a competitive cost structure for Velvet.
In August 2018, the Alberta government approved Velvet’s Emerging Resource Program (ERP) application for Gold Creek, significantly enhancing the return on this light oil asset. Velvet has a 7-year window to drill the eligible wells and a total of twelve years to accumulate the benefit. During that time, Velvet will receive a flat 5% royalty rate on production from the eligible wells. As a result of Velvet’s DCET, operating and transportation costs and royalty initiatives, the Company’s Gold Creek asset rivals world class light oil basin netbacks and returns.
Velvet assembled 73 sections in the Karr and Simonette areas as the Company was acquiring acreage up and down the Montney oil window. Velvet drilled its first well in Karr in 2018 as an extension of our the drill bit success at Gold Creek. The Karr land block is situated in an undersaturated black oil reservoir characterized by low decline, low GOR and low water cut production profiles.
POUCE COUPE & FLATROCK
Velvet’s geotechnical team further identified a Montney light oil analog further northwest in Alberta at Pouce Coupe and a second opportunity in northeast BC at Flatrock, began consolidating acreage here in 2017. With a land position totaling 62,000 net acres, and four horizontal wells at Pouce. Our first well came onstream in the fall of 2018 with the second brought inline in the fall of 2019. Velvet has established its third development area in the Montney light oil window with a second development pad drilled and completed in Q1 2020 with both wells producing over 1,000 bbl/d of light oil when initially brought inline. At Flatrock our position encompasses 54,000 acres situated amongst offsetting well control and existing Montney drilling. Velvet continues to advance its technical work at Flatrock to be drill-ready after completing a 3D Seismic Shoot in Q1 2020.
DEEP BASIN LIQUIDS RICH GAS
Velvet entered into the Edson area through the acquisition of Vero’s Deep Basin gas assets in early 2012. Velvet has since amassed over 260,000 net acres in the Edson corridor through Crown land sales and several tuck-in acquisitions.
Over the past seven years, Velvet has drilled 126 gross (95 net) horizontal Ellerslie wells, including the drilling of 5 gross (4.7 net) extended reach horizontal (ERH) wells in 2020. In 2018, Velvet shifted its strategy in Edson to optimize production through company-owned facilities and to generate free cash flow, resulting in Edson production level loading at approximately 9,500 boe/d. Today, over 95% of our production has been added via the drill bit.
We have made consistent progress in reducing costs and optimizing recoveries to generate high rates of return in Edson, including ERH wells, and today, several third-party research studies have defined our liquids-rich Edson Ellerslie as the low cost play in the Deep Basin of Alberta.
DEEP BASIN INFRASTRUCTURE
Liquids recoveries drive oil economics of the Ellerslie, with a typical well yielding 80 barrels of liquids per million cubic feet of natural gas. Approximately 70% of our liquids recoveries consist of condensate and light oil, which yield premium pricing relative to benchmark light oil in western Canada. Through our development and delineation program, Velvet has built its deep basin inventory to over 600 net locations, including 350 net locations in the Ellerslie.
Velvet has established a dominant infrastructure position in the Deep Basin fairway, ensuring industry leading operational cost efficiencies for our wells and establishing important third party revenue streams from owned and operated pipeline and gas plant capacity.
DEEP BASIN STACK
The Deep Basin at Edson offers tremendous opportunities beyond Velvet’s primary Ellerslie target.
The stack potential at Edson allows for four or more targets to be simultaneously exploited across Velvet’s land base increasing the long term value of Velvet’s in place infrastructure and allowing the asset to pivot to take advantage of changing commodity price environments.