Contact Exploration Inc. (CEX-TSXV)
August 20, 2012 Issue
The Most Powerful Name In Corporate News and Information
With an Experienced Team that has Demonstrated Success, Oil and Gas Company Contact Exploration Inc. is Well Positioned for Growth Focusing on their Hydrocarbon Projects in Eastern Canada and Montney Formation in the Deep Basin of Alberta
Mr. Harding is President and CEO of Contact Exploration Corp. With 30 years experience, Steve Harding has occupied various senior positions within EnCana Corporation, its predecessor Alberta Energy and Husky Oil and Gas Ltd. (now Husky Energy). His experience includes Vice President Northern Canada and Vice President Alaska/MacKenzie Delta at EnCana and Chief Geoscientist at Husky Energy. Mr. Harding has extensive experience with oil and gas exploration and development within numerous geological basins, both within and outside of North America. Included in his accomplishments is developing the geological model which lead to the discovery of the giant White Rose field, offshore Newfoundland. While at EnCana, Mr. Harding negotiated and secured the largest exploration position in the US and Canadian Arctic, leading to the discovery of the Umiak field and receiving an MMS corporate citizen award for outstanding cultural and environmental efforts in Alaska.
Calgary AB Canada T2P 0T8
Interview conducted by: Lynn Fosse, Senior Editor, CEOCFO Magazine, Published – August 20, 2012
Mr. Harding: Contact is an oil and gas company that historically has been focused on both the exploration and development of hydrocarbon in eastern Canada. Just in the last year, we added a new core area to the company in western Canada in the Montney Formation in the deep basin of Alberta.
Mr. Harding: Yes it was. We had established a very good core asset in New Brunswick, and we were looking for what would be a second core area for us. We evaluated numerous projects in different areas and isolated a specific region where we felt the Montney Formation was most liquids rich. We conducted a fair amount of technical work and we were able to secure a position joint venturing with a company that today is one of our partners. We subsequently picked up some additional land by Alberta Land Sales securing a relatively large acreage position.
Mr. Harding: We were looking for an area that had relatively large upside that could add value in a market that had been relatively hard on gas. We wanted to make sure we had something that was liquids rich and we wanted a project that we felt we would be able to grow with success.
Mr. Harding: We have the second oldest oil field in Canada in New Brunswick that we took over many years ago and have brought back onto production. We are quite pleased that we drilled two new wells into that old field about two years ago and we were able to establish what was the greatest one year production in that field in its one hundred and two year history in 2011. We are continuing to produce from that field and we are quite happy with the results there and looking to drill future wells in that field. We confirmed a new oil pool last year approximately 6 miles from Stoney Creek, which we plan testing on later this year.
In the Kakwa Montney project in Alberta we are moving forward with a second well following significant success in the first (more than 2500 BOE/d, including 1150bbls/d free condensate). The first well is being tied-in with expected first production in the early fall. We are the operator of that project and we are at 25% interest owner although we receive 37.5% of the revenue prior to pound.
Mr. Harding: There is actually not much activity and it has not historically been a very active oil and gas jurisdiction, but there has been renewed interest in the last few years. As a Company, we have been there for some time but established greater activity just a couple years ago.
Mr. Harding: Yes, we are trucking our oil. The largest oil refinery in Canada is literally just about an hour down the road so it is quite easy to get our product to market and we receive Brent oil pricing, so a premium to most of North America.
Mr. Harding: As noted before, In that same general area, approximately six miles away from the Stony Creek field we have a new oil project. We drilled the equivalent of an exploratory well there almost a year ago in September of 2011 had very good success with that well. We are looking to go back and continue work on the well this year, testing and ultimately producing oil from that first well. As discussed, we are soon to spud our second well in the Kakwa Montney area, which should be completed by mid-fall.
Mr. Harding: I would say that historically, we have been largely an oil player/liquids player and I think that is going to continue in the near term. We are fortunate however, to also have a very large gas resource project in New Brunswick. There is a very well known petroleum consulting company in Calgary called GLJ and they have given us a resource estimate of 11 TCF of gas in that project in New Brunswick. We have those lands held for the next five years, so if gas prices continue to firm up, we should have the opportunity to develop that large gas resource. We are focusing on oil today therefore, but we have the assets in place to move into gas should the market be favorable.
I think that gas will be a huge part of the future of energy especially in
the United States. Natural gas will remove much of the dependency on other
jurisdictions for energy as well as provide a relatively inexpensive and
environmentally friendly domestic source of energy. I think it is going to
take that much more legislation to encourage the development of gas, meaning
that with support from the various governments to convert engines from coal
or oil to natural gas, I think that will further encourage the development
of a resource that is on homeland soil so to speak. I think therefore, that
the future of natural gas is very strong. Oil is not going away; there is a
great deal of infrastructure that is oil dependent. As long as the world is
growing and the turmoil in the Middle East continues, there will be
relatively solid oil prices into the future. I believe that over time,
natural gas will become a more important commodity but certainly for the
next couple of decades, oil is going to continue to be an important if not
dominant resource for the North American economy.
CEOCFO: What is the financial picture for Contact Exploration and are you are funded for the upcoming activities?
Mr. Harding: We are currently quite well funded. At this time we have enough funding to carry us through this year and likely into the next and because the projects we are involved with have been relatively successful and we will continue to have good cash flow from them. We imagine that soon our projects will each be self- funding in the sense we will not need to do much in the way of financings. With the Montney project, which is the project I spoke of that tested 2500 BOE a day, 1150 of which is condensate,, once we get the second well into it, that project will generate significant cash flow that should allow future Montney wells to be drilled. Because of our location in New Brunswick and because we are producing oil there, we actually sell our oil about $20 a barrel higher than WTI, therefore the profit that you have per barrel is quite high for the oil we produce there so it makes that project relatively more lucrative.
Mr. Harding: We always have to be sensitive to commodity prices. Fluctuation in commodity prices can be a huge deterrent to activity. We are not overly bearish on that right now and I think that we are feeling that commodity prices are going to be reasonably stable but we still need to be aware of this issue. On the regulatory side, there is continuing challenges in terms of actually getting activities permitted in a timely fashion. Today because of the availability of information to people and sometimes not the most reliable information, there are many people that want to weigh in on various activities. One of the biggest challenges we face as an industry is dealing with internet misinformation. Non-technical individuals often produce opinions that introduce fears of operational activity that are inaccurate, but still influential. Human nature commonly leans toward the conspiracy theory or the hearsay and not necessarily delves into the science or the facts. This has become one of the biggest challenges in getting projects permitted and operations conducted.
Mr. Harding: The people that are working with Contact today have been involved with the company for just a little over two years ago. Prior to the management and board change, the company was fading into almost certain bankruptcy. The new team came in and took over board and management. We turned the company around very quickly. We turned it from a company that was in a desperate situation to one that was cash flow positive and thriving. We not only transformed the company on the east coast but we made a significant discovery now in another area and we are poised to grow quickly from that. We have a management team and a board that has demonstrated superior performance in an incredibly difficult market, particularly over the last fourteen months. The fact that we have been able to transform the company under those conditions is something of which to take note.
Mr. Harding: In general, they have. One of the biggest challenges I have, is getting the market familiar with who we are. Initially operating only in New Brunswick kept us off the radar with the investment community.. One of my biggest challenges has been telling our story, which is a daunting task because there are a lot of companies out there that also want their space. I must continue to talk to as many groups and institutions. That is a key part of what we need to do ongoing.
We are a small company with an opportunity to become much larger, poised to
do so because we have people that know the business very well and have
consistently demonstrated success.
We are a small company with an opportunity to become much larger, poised to do so because we have people that know the business very well and have consistently demonstrated success. - Steven Craig Harding
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