CORE AREA REVIEW

NORTH EAST BRITISH COLUMBIA

Umbach/Nig/Fireweed 121,000 net acres / approximately 23,950 Boe/d*

Horn River Basin 80,000 net acres / Boe/d not material

*Average daily production Q1 2020

Storm’s land position is prospective for liquids-rich natural gas from the Montney formation and totals 121,000 net acres (172 net sections) with 79 horizontal wells (74.4 net) drilled to date.

First quarter field activity was mainly focused on completing the Nig Gas Plant and associated sales gas and NGL pipelines with start-up occurring February 22.  In addition, a three-well pad (3.0 net) was completed and pipeline connected on the west side of Umbach.

During the quarter, two new wells started production leaving an inventory at the end of the quarter of two (2.0 net) drilled Montney horizontal wells that had not started producing which included one (1.0 net) completed well.

At Umbach (100% working interest), produced raw natural gas contains 1.2% H2S with approximately 85% directed to the McMahon Gas Plant and 15% to the Stoddart Gas Plant where firm processing commitments total 80 Mmcf raw gas per day (65 Mmcf per day at McMahon and 15 Mmcf per day at Stoddart).  There remains significant capacity for future growth with field compression capacity totaling 150 Mmcf per day raw gas while throughput in the first quarter averaged 103 Mmcf per day (including 28 Mmcf per day from the Nig area that has been redirected to the new gas plant).  During the second half of 2020, three horizontal wells (3.0 net) will be drilled depending on commodity prices and forecast funds flow.

At Nig (100% working interest), produced raw natural gas contains 0.1% H2S and is directed to the recently constructed 50 Mmcf per day sour gas plant that started up February 22.  Total estimated cost of the Nig Gas Plant project is $84 million ($11 million in 2018, $61 million in 2019, $12 million in 2020) which is a reduction from the previous estimate of $86 million but higher than the initial estimate of $81 million.  The project includes the facility, an eight-kilometre sales gas pipeline and a horizontal well for acid gas injection.  At full capacity, incremental production versus processing at the McMahon Gas Plant is expected to be 1,500 Boe per day (50% propane, 20% butane, 5% condensate, 25% sales gas) as a result of higher NGL recovery and reduced gas shrinkage.  In addition, eliminating third-party processing fees results in an operating cost of less than $2.00 per Boe which reduces the corporate operating cost.  Propane will be sold at the Far East Asia Index price via the Altagas Ridley Island Export Terminal (RIPET).  Since start-up, inlet volumes have gradually ramped up to 40 to 45 Mmcf per day raw and are expected to reach full capacity by the end of the third quarter.  The plant has been ‘warmed up’ since mid-April to decrease NGL recovery (propane and butane) by approximately 8 Bbls per Mmcf sales as a result of current low liquids prices.  Activity for the remainder of 2020 is expected to include drilling and completing four wells (4.0 net) this summer.

At Fireweed (50% working interest), first quarter activity included drilling two horizontal wells (1.0 net), completing one well (0.5 net), and starting site preparation for a 50 Mmcf per day field compression facility (expandable to 100 Mmcf per day).  Further activity in 2020 has been deferred as a result of the rapid decline in oil prices.  There are currently three standing wells (1.5 net) with two wells (1.0 net) having been completed with test results meeting expectations for the area (strong gas rates with higher condensate-gas ratios).  Based on production history from offsetting horizontal wells, first year average field condensate-gas ratios are expected to be 30 to 70 barrels per Mmcf raw which is 100% to 400% higher than at Umbach.  Investment in 2020 is expected to total $6 million net with all of this incurred in the first quarter.

A summary of horizontal well results at Nig and Umbach is provided below.  IP90 and IP180 rates are less reliable indicators of relative longer-term performance since wells are initially rate restricted to manage fluid rates.  Note that the 2019 wells at Nig in the upper/mid Montney were drilled on tighter inter-well spacing versus the 2018 wells (400 metres versus 465 metres) which may reduce longer-term rates and ultimate recovery.

 

Year of Completion

Frac

Stages

Completed

Length

 

IP90 Cal Day

 

IP180 Cal Day

 

IP365 Cal Day

Umbach 2017 – 2018

19 hz’s

34 1895 m 4.6 Mmcf/d(1)

24 Bbls/Mmcf(2)

19 hz’s

4.4 Mmcf/d(1)

20 Bbls/Mmcf(2)

19 hz’s

4.0 Mmcf/d(1)

15 Bbls/Mmcf(2)

19 hz’s

Nig 2018 upper

3 hz’s

37 2180 m 8.1 Mmcf/d(1)

29 Bbls/Mmcf(2)

3 hz’s

8.2 Mmcf/d(1)

25 Bbls/Mmcf(2)

3 hz’s

7.5 Mmcf/d(1)

21 Bbls/Mmcf(2)

3 hz’s

Nig 2019 upper/mid

3 hz’s

42 2240 m 8.1 Mmcf/d(1)

20 Bbls/Mmcf(2)

3 hz’s

Nig 2019 lower

1 hz

42 2280 m 5.5 Mmcf/d(1)

57 Bbls/Mmcf(2)

1 hz

(3)

(1)  Raw gas rate.

(2)  Bbls/Mmcf is the condensate-gas ratio or barrels of field condensate per Mmcf raw.

(3)  Shut in mid-April 2020 after 140 days of production as a result of the low condensate price.

Based on results from the 2017 and 2018 wells, Storm management is using 8 Bcf and 14 Bcf raw gas type curves (internal estimates) to forecast production at Umbach and Nig respectively.  More detail on well performance and management’s type curve is available in the presentation on Storm’s website at www.stormresourcesltd.com.

Through a predecessor company Storm began acquiring undeveloped land in the Horn River Basin of northeast British Columbia in 2008. As at December 2019, Storm had 100% working interest in 108 sections (72,500 net acres) which are prospective for natural gas from the Muskwa, Otter Park and Evie/Klua shales. Storm has one producing horizontal well in this area with cumulative production of 6 Bcf raw which was shut in for the majority of 2019. A core area totaling 30 sections has been proven to be productive through drilling of this well plus two vertical wells that were completed with final test rates of 900 Mcf per day over the final 24 hours of each flow test. Lands within the 30 section area have been continued through drilling and are not subject to expiry. The remaining 78 sections may be subject to expiry over a period of several years beginning in 2020. Storm has no plans for additional activity in the area until there is evidence of a substantial and sustainable increase in natural gas prices.

ALBERTA

The majority of the properties in this area were sold on July 15, 2015 and there remains only one property.  Production in 2019 averaged approximately 43 Boe per day. No capital was invested on this property by Storm in 2017, 2018 or 2019 and no activity is planned for 2020.

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