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QIS Update #8 2012 - February 29th 2012



Included in this update:

  • Blackbird Energy announces pooling agreement with Trilogy Energy & TAQA North on its Montney lands, third Montney horizontal well spud at Bigstone
  • Blackbird Energy announces pending pooling of its Montney lands and private placement
  • Vantage Communications: Blackbird Energy Makes Bigstone Splash with Trilogy Pooling Agreement

 


Please feel free to email us anytime at info@qiscapital.com or call us at (250) 377-1182. We look forward to your comments, questions, and feedback.


 

This QIS Update is dedicated to provide a full update of Blackbird Energy and its current developments and prospects. The company has announced a significant pooling agreement with the biggest players in the area and is moving forward with the third high-impact well which will include land from this pooled agreement. The full press releases in this regard are included below.

 

Last week Blackbird Energy announced a flow-through and non-flow through financing at a discounted price of $0.16 per unit. If anyone would like more information or would like to participate in the financing we have had some units become available. Please contact Doren Quinton at 250-377-1182.

 

Finally, Vantage Communications recently published an article on Blackbird Energy and this pooling agreement which is included at the end of this QIS Update.

 


 

Blackbird Energy Inc. (BBI:TSX-V)
Website: www.blackbirdenergyinc.com
Current Price: $0.18 (coverage commenced Aug 19/11 - $0.18)

 

BLACKBIRD ENERGY INC.: ANNOUNCES POOLING AGREEMENT WITH TRILOGY ENERGY & TAQA NORTH ON ITS MONTNEY LANDS AND THIRD MONTNEY HORIZONTAL WELL SPUD AT BIGSTONE

 

Blackbird Energy Inc., further to its press release of February 22, 2012, has announced that the negotiations have been completed and the "Cross-Conveyed Pooling and Participation Agreement" has been signed to pool the P&NG rights in the Triassic Montney formation held by Blackbird and partners in section 28-060-22W5 with those held jointly by Trilogy Energy and TAQA North in the adjacent section 33-060-22W5 for the purpose of drilling an extended reach horizontal, Joint Well on the Pooled Lands. Blackbird will hold an undivided 12.5% pooled interest in the Pooled Lands and will participate as to a 12.5% working interest in the development of the Pooled Lands, which may potentially include drilling up to four extended reach Joint Wells on the Pooled Lands. After pooling, Blackbird will hold interests in a total of 8 sections (5,120 acres) or 1.75 net sections (1,120 acres) of land at Bigstone. Pre-pooling, Blackbird held a 25% interest in 7 sections (4,480 acres) or 1.75 net sections (1,120 acres) at Bigstone.

 

The initial Joint Well on the Pooled Lands is to be drilled from its surface location within LSD 4 of section 28-060-22W5M to the Triassic Montney formation underlying the Pooled Lands within LSD 5 of section 28-060-22W5M and then drilled horizontally approximately 2,568 meters through the Triassic Montney formation to a bottom hole location on the Pooled Lands within LSD 13 of section 33-060-22W5M. Donnybrook Energy Inc., operator of drilling operations, has secured a drilling rig and expects to commence drilling March 2, 2012.

 

Garth Braun, CEO states, Trilogy has been very active and successful in utilizing horizontal drilling and multi stage fracturing techniques to develop resource plays including the Montney, and we look forward to the positive results this relationship should achieve. Recent well licenses issued in December and January for extended reach Montney horizontals at locations in close proximity to our Bigstone acreage by industry competitors provides us with further evidence of the reserves potential of the Montney. The pooling of a portion of our lands has resulted in expanding our gross acreage position, a feat (gaining land position) of which is becoming more and more difficult with the heightened focus the Bigstone area appears to be attracting.


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February 22, 2012: BLACKBIRD ENERGY INC.: ANNOUNCES PENDING POOLING OF ITS MONTNEY LANDS AND PRIVATE PLACEMENT

Blackbird Energy Inc. has announced that negotiations are underway to pool the P&NG, Triassic Montney formation rights held by certain adjacent interested parties in section 33-060-22W5 and the lands held by Blackbird and its partners in section 28-060-22W5, for the purposes of drilling up to four extended reach joint wells on the pooled lands. The proposed initial Joint Well will be an extended reach Montney formation horizontal well, drilled from a surface location in Lsd 14-28-060-22W5 to a bottom hole location in Lsd 14-33-060-22W5, and Blackbird's participation in the Joint Well will be 12.5%. Additional information regarding the Joint Well will be provided when the negotiations are completed and any pooling agreement has been signed by all interest parties.

 

Garth Braun, President of Blackbird, stated, We are very pleased to be proceeding with a potentially high impact extended reach well of 2,700 meters of lateral length. The potential pooling of Section 28 with Section 33 ensures that a more cost effective development of our lands will be achieved, as well as accessing additional reserves within the formation. Further the additional wells will optimize the utilization of our service facilities and pipeline currently under construction with an expected completion of the end of March.


The company is also pleased to announce that it intends to carry out, subject to approval from the TSX Venture Exchange, a brokered private placement, on a commercially reasonable "best efforts" agency basis, for gross proceeds of up to $2,000,000. The private placement will consist of 6,250,000 units of the company, at a price of $0.16 per unit, and 6,250,000 flow-through units, at a price of $0.16 per flow-through unit. Each unit shall consist of one common share in the capital of the company and one common share purchase warrant. Each warrant shall entitle the holder to purchase one common share in the capital of the company at a price of $0.24 per warrant share for a period of 24 months following the closing date. Each flow-through unit shall consist of one flow-through common share in the capital of the company and one-half of one warrant. Each whole warrant shall entitle the holder to purchase one warrant share at a price of $0.24 per warrant share for a period of 24 months following the closing date. All of the securities issued pursuant to the private placement will be subject to a four-month hold period from the date of issue. The private placement is being led by PI Financial Corp. (lead agent).

 

The company will grant the lead agent an option to solicit additional units, flow-through units or any combination thereof to raise additional gross proceeds of up to $500,000, exercisable 48 hours prior to closing. In addition, the company will conduct a non-brokered private placement of up to $500,000 in a combination of units and flow-through units under the same terms as above. The funds raised from the issuance of the FT Shares shall be used for general exploration and/or development expenditures which will qualify as expenses under paragraph 66(12.66)(b) of the Income Tax Act (Canada) on the company's the Bigstone Project located NW of Edmonton, Alberta in accordance with the provisions of the company's earn-in agreement with Donnybrook Energy Inc. Funds raised from the issuance of units will be for general working capital.

 

The net proceeds from the private placement will be applied to the company's project with Donnybrook Energy Inc. for the lease construction and drilling of the next Montney well at Bigstone. The proceeds from the flow-through share offering will be used by Blackbird to incur eligible Canadian exploration expenses. The well is estimated to spud prior to year end. Closing of this offering is expected to occur on or about March 15, 2012.

 

If any insiders of the company participate in the private placement, any such subscription (the insider participation) will be considered to be a related party transaction within the meaning of Exchange Policy 5.9 and Multilateral Instrument 61-101 (MI 61-101). Blackbird intends to rely on the exemptions from the valuation and minority shareholder approval requirements of MI 61-101 contained in Sections 5.5(a) and 5.7(1)(a) of MI 61-101 in respect of any insider participation

 

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A recent article on Blackbird Energy from Vantage Communications:

 

BLACKBIRD ENERGY MAKES BIGSTONE SPLASH WITH TRILOGY POOLING AGREEMENT

 

Indications of high amounts of liquids-rich production have brought much attention back to the Montney formation, particularly within the area known as the Bigstone. For Bigstone-based junior Blackbird Energy (TSX-V: BBI) it seems that they have found a pooling partner with a valuable reputation within the region, capable of helping BBI achieve the next level of production.

 

In a press release put out on Feb. 23, 2012, Blackbird announced that negotiations are underway to pool the P&NG, Triassic Montney formation rights held by certain adjacent interested parties in section 33-060-22W5 with the lands held by Blackbird and its partners in section 28-060-22W5M.

 

Though the release did not name the company who the potential pooling partner(s) is, the Bottom Line Report has tracked down the rights holder for the aforementioned section 33. Utilizing public data, and a search through AccuMap (provided by a source to the Bottom Line Report) has turned up Trilogy Energy (TSX: TET) and the Abu Dhabi National Energy Company's Canadian division TAQA North.

The implication of a potential partnership with Trilogy could be massive for Blackbird and its partners, as Trilogy is highly respected in the region for its ability to work the Montney. The running joke among the industry is that when God wants to drill into the Montney, he calls upon the Holy "Trilogy." Given the degree of difficulty to drill the Montney properly, it's quite beneficial to work with one of the best drillers in the area.

 

Blackbird and its partners have already announced that they're drilling a third well in the region, and with the specs that they've given that include section 33, they'd either have to be 100% confident that they've got a pooling agreement in place, or they're morons. It's a pretty good bet to believe they're the former, not the latter.

 

REGIONAL BACKGROUND

 

Prior to the recent attention that's swelled around the Montney formation's liquids-rich Bigstone area, Blackbird Energy formed a strategic partnership, instantly defining them as a pure-play Bigstone company. Doing so, placed Blackbird into not only the most liquid-rich zone of the Montney, but also the most focused area of Alberta with solid economics and payback possible in under a year.

 

Joined by some bigger players such as Celtic Energy (TSX: CLT), Delphi Energy (TSX: DEE) and of course, Trilogy, Blackbird and its partner Donnybrook Energy (TSX: DEI) are well positioned with 7 sections of land and 28 potential drill locations. With the addition of accessing Trilogy's section 33, Blackbird would now have 8 sections to cross, which as an even number works better than 7.

 

The reasoning behind this logic is that drilling across 1 section of land requires 1200m of lateral length in a horizontal drill operation, whereas 2 sections requires 2400m. Strangely enough, the results of previous drill campaigns in the region have resulted in 2400m wells resulting in 3-4x the amount of production, despite being only double the length. This phenomenon hasn't been fully explained yet, but this is what we're seeing.

 

From a land standpoint, gaining extra sections is pricey in this region. While there are some bigger players already involved in the area, Blackbird entered the Bigstone play far ahead of the curve paying a price for the land that could be perceived at this stage as downright thievery in a region that's seen land sale prices skyrocket.

 

BIGSTONE = BIG POTENTIAL

 

Estimated to host 50 trillion cubic feet of liquids rich gas, the Montney has understandably drawn a lot of attention, but it's the Bigstone portion in particular is gaining traction with its condensate returns. So far, over 16 wells have been drilled and are very economic despite low natural gas prices. Each successful well has averaged 50-70 barrels of liquid per million cubic feet of gas produced. As well, the targets are quite accessible, requiring relatively shallow drills to close to 2,500 metres in depth.

 

Blackbird and its neighbours properly identified the Bigstone as the Montney's liquids-rich sweetspot prior to the land rush. This presupposition was confirmed with the advent of Trilogy's 16-1 well (20 miles to the north of Blackbird's property) that yielded 1,600 barrels per day ("bbls/d") of crude oil.

 

In January, Delphi Energy released the results of its first Bigstone well at 1-15, that returned initial test flows at an average rate of 12.5 million cubic feet of gas per day (mmcf/d) and 770 barrels of condensate per day (bbls/d) through a 20 stage oil-based frac program reaching over 2,760 of horizontal distance. Delphi is currently in the process of drilling and completing a second well parallel to the 1-15 well that could also increase the value of region in the eyes of the market, and positively impact the reserve analysis on Blackbird's land.

At roughly half the lateral length of Delphi's horizontal well, Blackbird and its partners' first well received promising results to the tune of 1,011 barrels of oil equivalent per day ("boe/d"). Though the second well ran into some completion difficulties, it is set to join the first well in being tied-in, bringing Blackbird into production in March, and cash flow in April.

 

While the second well at 15-32-60-22W5M didn't provide the results that Blackbird and its partners had hoped, it did provide some lessons learned for the upcoming third well. Which brings us back to the potential pooling agreement, we believe comes with Trilogy Energy.

Should Trilogy become the operator, many of the completion issues seen with the second well are less likely to occur with a more seasoned group behind it. Because the production infrastructure will be ready in time, Trilogy could potentially utilize the Blackbird partnership's facilities to make the partnership a little more balanced. If Blackbird is to gain production as soon as they've announced, then the surface facilities and pipeline will already be in place, allowing Trilogy an opportunity to buy into Blackbird and its partners' setup.

 

PREMIUM LAND POSITION

 

Blackbird secured its position in the region by entering a partnership deal with Donnybrook that gives BBI a 25% W.I. on 7 sections of land with 28 drill locations already identified. At a low cost of $66,000, Blackbird successfully avoided the exorbitant prices currently being seen at the bi-monthly Alberta land sale auctions in the hottest townships in the province.

 

During Alberta's first land sale of the year, the region saw an average of $5700 per hectare, ranging from $10.75 to $11,801.56. Now let's put Blackbird's entry cost into perspective. Each quarter section of land contains approximately 64.78 hectares, and since the company carries a 25% W.I. over 7 sections, we can multiply 64.78 hectares by 7 to get BBI's net land position. Using this calculation, Blackbird netted the equivalent of 453.46 hectares at an average of $145.55 (a discount of nearly 97.5% on the average price).

 

MANAGEMENT'S ORIGINAL DECISION-MAKING

 

Originally built as a team set to target the Bakken in North Dakota, Blackbird had already bid on packages that would utilize the latest developments in horizontal drilling and well completion.

 

Instead of being a latecomer to the Bakken, Blackbird saw the opportunity in the Bigstone that would allow them to gain good land position, with the upside presented by horizontal and frac. At the time, this mitigated the need to raise large amounts of capital on a land position not knowing if the well would be productive.

 

Management decided that the Bigstone was at an early enough stage and made a deal to get ahead of the curve. The decision was in fact initially made on the following five factors:

 

  • Shallow drilling depth,
  • Horizontal drilling and multi-stage frac could be applied
  • Proper infrastructure in the area to handle the capacity
  • The buy-in price was right,
  • Finding a capable operator with a good track record.
  •  

    CEO Garth Braun has admitted that he must've looked at over 40 deals prior to settling on the Bigstone, and this was the one that stood out above the crowd. Instead of spending too heavily on land, the money the company had raised could primarily be put into the ground.

     

    THE BOTTOM LINE

     

    Blackbird and its partners frugally nestled themselves into in a busy region, bustling with horizontal drill campaigns and plenty of liquid-rich well potential. If all goes according to the schedule, Blackbird should be into production by the end of March, giving cash flow by April. If our research turns up accurate, a pooling agreement with Trilogy could also help Blackbird's cause when it comes to completions and maximizing production from future wells.

     

    G. Joel Chury

    The Bottom Line Report

     

    Legal Disclaimer/Disclosure: A fee has been paid for the production and distribution of this Report. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. No information in this Report should be construed as individualized investment advice. A licensed financial advisor should be consulted prior to making any investment decision. The Bottom Line Report makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the Bottom Line Report only and are subject to change without notice. The Bottom Line Report assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.

     

    Disclaimer: Vantage Communications Ltd. was paid to distribute this bulletin. Vantage Communications may or may not own securities in this particular company. THIS IS NOT A RECOMMENDATION TO BUY BBI OR SELL ANY SECURITY! Past performance of Companies mentioned does not guarantee future performance.

    ___________________________________

     

    QIS Capital Comments:

     

    This pooling agreement with Trilogy and TAQA North is a significant accomplishment for Blackbird and its partners. Not only are these the big hitters in the area, but Blackbird will benefit from the completion team and techniques utilized by Trilogy/TAQA. In additional Blackbird gains access to another highly prospective section of land where up to 4 extended reach high-impact wells can be drilled with its pooled partners, and any successful wells from the pooled area will likely be tied-into Blackbird’s gathering and production facilities, thus providing additional product and facility revenues. Blackbird's third Bigstone well is scheduled to spud on March 2, 2012, and the facilities and pipeline are scheduled to commence production in early April 2012.

     

    If any investors wish to get more information or participate in the latest Blackbird Energy financing please call us at 250-377-1182 or respond to this email. Both the flow-through and regular units are priced at $0.16 with the flow-through units receiving a half warrant and regular units receiving a full warrant. Each full warrant can be exercised for 2 years at $0.24. All of the securities issued pursuant to the private placement will be subject to a four-month hold period from the date of issue. If you would like to participate, please contact us as soon as possible, as allocations are limited.

     


     

    Disclaimer: This article is for informational purposes only. The information contained within this article should not be construed as offering investment advice. Those seeking direct investment advice should consult a qualified, registered, investment professional. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The company profiled assumes no liability for the information presented. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock. The author(s) owns directly or indirectly 99,500 shares and 450,000 options of Blackbird Energy Inc. QIS Capital may have a financial relationship with these companies and may trade in the stocks mentioned. No stock exchange has approved or disapproved of the information contained herein. Copyright © 2003 - 2012 QIS Capital Corporation.

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