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Dear Subscriber                                                                                      9 August 2020                                                                                     
The Beat Goes On
Cartoon courtesy of Malcolm Mayes, Edmonton Herald
What a big year it has been in the oil patch!  And to think the end of last year looked so promising!  With AECO gas prices testing new highs as new pipeline capacity opened up the Montney to the market it seemed like the plan was coming. However the COVID pestilence spread over the globe causing an economic down turn of biblical proportions all while OPEC+ had a price war delivering a double whammy for the energy sector. 

So what of our plans in this new world order. Well, we haven’t been hiding in our basement from COVID, we have been busy.  We acquired the existing pipeline infrastructure (replacement value $85 million and 3 years of permitting saved) that links us to the Canadian and North American markets via the North River Midstream sales gas pipeline and have delivered an updated reserve report (https://bit.ly/33EoQxR) that even after adjustments to account for lower prices and acreage relinquishments our resource situation remains impressive.

If only our acreage was in Queensland our valuation would be reflective of value, however with the building of LNG Canada’s export facility (operated by SHELL) gas prices are expected to increase, as ~50% of the basins current production will be needed to fill LNG Canada’s facility.  LNG Canada is expected to be on stream in 2024.

We continue to have all eyes on overheads and are diligent on expenses.  We have $3 million plus in cash, our monthly burn rate is down below A$150,000 and our current working capital position supports the Company into 2022.

As oil wells across the US are shut-in production of associated gas has also gone down, creating an increase in demand for Montney gas.   This along with the significant increases in the western Canadian pipeline infrastructure, over 6.6 BCF/day of Gas transport capacity has been constructed or under constructing, creating improved pricing across AECO, Station 2 and other Canadian gas price points.
AECO is presently trading at C$2.21/GJ and GLG Forecasts AECO to be above C$2.50/GJ into 2021 and beyond (https://www.gljpc.com/price-charts).

 
A good example of how LNG is likely to change gas markets for the positive in Canada one should look at the booming Propane market in Western Canada. When the Cochin pipeline was shut-in in 2014, volumes of propane backed-up in Western Canada, unable to access higher-priced markets in the east, Midwest and Gulf Coast. 

In 2015 new facilities came on stream, alleviating price pressure, however in May 2019 after AltaGas brought online its 40,000 b/d Ridley Island propane export terminal (Ripet) in British Columbia— the first propane export facility in Canada — propane exports began to gradually shift from US markets to seaborne exports, leading to a strong recovery in price, showing how market prices strengthen when new supply routes open.
 
Calima Energy Resource Audit Effective 31 March 2020
The pipeline acquisition allowed our reserve auditors to upgrade 12.4 million barrels of oil and 248.9 billion cubic feet of gas from the Development on Hold category to Development Pending.  The change in category might not seem all that significant but what it actually means that, subject only to securing funding these are the volumes that would immediately be elevated into the 2P Reserves category.  It should be remembered that all of our Contingent Resources are now secured within 10-year leases giving us security of tenure.  

Corporate Activity In The Montney – Its growing
In Q1, Tourmaline announced its C$82 million acquisition of Polar Star, Chinook and Painted Pony’s Montney acreage immediately to the south east of the Calima Lands (see map).  Tourmaline's low capital and cash cost EP model applied to these assets will ultimately yield a new, highly profitable, liquids-rich Montney gas complex for the Company”.
In July 2020, ConocoPhillips acquired 140,000 acres of Montney rights from Kelt Exploration in a C$550 million deal which appears to value the undeveloped acreage at around $1,400-2,000 per acre. Calima holds over 61,000 acres in the Montney.

We are encouraged to see Tourmaline, one of the Montney’s best performing Operators, moving into our neighbourhood and regard this as an encouraging sign for ongoing Montney consolidation in northeast British Colombia. 

These are difficult times but, as ever, the beat goes on and the Calima team continues to work towards realising value from its significant resource position. 

Calima Newsbites:

 The Montney Formation: Is Calima Energy Sitting in the Catbird Seat? https://kalkinemedia.com/au/stocks/oil-gas/the-montney-formation-is-calima-energy-sitting-in-the-catbird-seat
 
Calima Energy gets closer to development at Montney as the region sees consolidation of acreages? https://www.proactiveinvestors.com.au/ASX:CE1/Calima-Energy-Ltd/
 
Industry Newsbites:

Better Western Canada LNG Policies Said Needed to Realize Economic Benefits: Liquefied natural gas (LNG) exports could generate prosperity and waves of investment, employment and revenue for British Columbia (BC), but only with government help, according to a report commissioned by the fledgling Canadian industry. https://www.naturalgasintel.com/better-western-canada-lng-policies-said-needed-to-realize-economic-benefits/

Chevron acquires Noble Energy in cash-free $13B deal:  A moribund M&A market came to life on July 20, with Chevron announcing a definitive agreement to acquire Houston-based Noble Energy for an enterprise value of $13 billion, consisting of $5 billion worth of the supermajor’s shares and $8 billion in assumed debt. Chevron is offering 0.1191 shares for each Noble share, with the implied price of $10.38/share representing a 12% premium to Noble’s 10-day average closing price on July 17. Noble’s shares jumped 13.7% over two days to settle at $10.97 July 21 and have held around that price since then. Chevron took a slight dip July 20 but over the two-day period saw a 4.8% increase, although that slightly lagged S&P’s index for the upstream oil and gas sector. The acquisition will enhance Chevron’s US onshore position with bolt-on Delaware Basin acreage and a new unconventional position in the DJ Basin. Internationally, it will add producing gas fields and discoveries in the Eastern Mediterranean. The asset base is strikingly similar to the one Chevron sought over a year ago with its $50 billion offer for Anadarko Petroleum, on a smaller scale but more developed.

Delphi Energy Corp. announces proposed plan of compromise and arrangement and $22.9 million capital investment by Kiwetinohk Resources Corp: CALGARY, AB – Delphi Energy Corp. (“Delphi” or the “Company“) announces a recapitalization and financing transaction (the “Restructuring Transaction“), to be implemented as a plan of compromise and arrangement (the “Plan“) under the Companies’ Creditors Arrangement Act (“CCAA“) and the Canada Business Corporations Act, that will allow the Company to substantially reduce its debt and associated interest costs, while improving available liquidity and injecting new capital to fund future operations. https://boereport.com/2020/07/06/delphi-energy-corp-announces-proposed-plan-of-compromise-and-arrangement-and-22-9-million-capital-investment-by-kiwetinohk-resources-corp/

Natural Gas’ Historic Reversal of Fortune: Oversupply to Drastically Short in Months?: The world as we know it has flipped on its head over the past 30 days.  The US went from full employment to 17 million Americans filing for unemployment. The White House has discussed how the US might participate in joint action with OPEC+. Oil producers who were searching for every way to cut G&A by $0.25 per barrel are now inquiring about the ability to dispose of oil down disposal wells when crude storage fills.  But what hasn’t received enough attention is the impact of this new world on natural gas markets. The stage is being set for what could be a historic swing in fortune in natural gas markets over the coming months. https://btuanalytics.com/natural-gas-pricing/natural-gas-historic-reversal-of-fortune-oversupply-to-drastically-short-in-months/

LNG: Canada’s Global Market Opportunity – special report released: Natural gas is enjoying a renaissance around the world. Consumption and production of natural gas was up over five per cent in 2018, one of the strongest rates of growth for both demand and output for over 30 years. And the outlook for natural gas uses remains promising. While natural gas demand in the past was driven by power generation — displacing more carbon-intensive energy sources such as coal and oil — in the future the demand will come from industrial applications and petrochemicals.  Their expectation is that tight gas output will reach 12.1 bcf/d in 2040, a 131% increase from 5.3 bcf/d in 2017. http://www2.jwnenergy.com/LNG_CDN_Report_1
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Micheal Dobovich Glenn Whiddon Mark Freeman
President Canada Chairman CFO/Company Sec
E: mdobovich@calimaenergy.com E: glenn@lagral.com E: mfreeman@calimaenergy.com

 
   
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