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Junior Explorer Terra Energy Looks to Asia, Considers Montney Sale

Terra Energy Corp. said it is targeting international companies -- particularly Asian firms -- for a possible joint venture (JV) -- and it is considering the sale of its natural gas-rich Montney Shale portfolio in British Columbia (BC) as it shifts toward more oil and natural gas liquids (NGL) production.

The Calgary-based management team said its advisers -- Macquarie Capital Markets Canada Ltd. and Scotia Waterous Capital Inc. -- spent the first three months of this year developing a comprehensive technical and marketing package "specifically targeted at strategic international players with an added focus on Asia." The Calgary-based junior explorer said "preliminary indications are that there is considerable appetite for the Montney resource play, with several large international players already expressing interest."

Besides marketing the Montney assets, Terra is "considering various strategies to shift [our] oil/gas ratio toward increased oil and liquids production, including the possible disposition of other assets to accommodate an improvement in [our] balance sheet and to develop positive working capital to facilitate future oil/liquids opportunities," it said. In the final three months of 2011 the company said it sold some noncore pipeline infrastructure in BC for C$8 million, which helped reduce its debt to C$94 million.

"Terra has proven to be a disciplined operator in the face of this challenging environment...[with] low natural gas prices prevailing throughout 2011," CEO Cas Morel said.

On Monday Terra reported that 2011 total proved and probable reserves increased year/year by 9%, from 31.0 million boe to 33.9 million boe. The reserves were 81% weighted to natural gas, 11% to natural gas liquids (NGL) and 8% to crude oil. Average daily production for 2011 was 6,200 boe/d. Proved reserves fell 8% from 2010 and included 1.59 billion bbl of oil, 84 Bcf of natural gas and 1.78 billion bbl of NGLs. Probable reserves increased 37% from 2010, comprising 1.08 billion bbl of oil, 81.5 Bcf of natural gas and 1.9 billion bbl of NGLs.

Terra said it held a total 739,148 gross acres (608,079 net) at the end of 2011, which it said collectively is valued at C$96.3 million. By province, the company held 404,566 gross acres (370,764 net) valued at C$25.6 million in Alberta, and 334,338 gross acres (237,314 net) valued at C$70.7 million in BC. In the Montney Shale, Terra has about 140,000 net acres. Terra also owns 244 gross acres valued at C$414 million in Saskatchewan.

Terra isn't the only Canadian-based producer looking for partners or working to shift from gas production to more liquids output. In February Japan's Mitsubishi Corp. agreed to invest US$2.9 billion to acquire a 40% stake in Encana Corp.'s Cutbank Ridge leasehold in BC, including about 409,000 net acres in the Montney (see Shale Daily, Feb. 21). Meanwhile, Encana and Talisman Energy Inc. announced a shift to liquids earlier this year (see Shale Daily, Jan. 12; Jan. 11).

Other major leaseholders in the Montney include Progress Energy Resources (820,000 net acres), Canadian Natural Resources (766,000 net acres), Celtic Exploration (538,322 net acres), Guide Exploration (288,000 net acres) and ARC Resources Ltd. (277,760 net acres).

In a report issued last year the Conference Board of Canada said shale gas prospects in British Columbia, including the Montney, appeared to be the sole "bright spot" on a darkening natural gas landscape (see Shale Daily, Oct. 4, 2011). Other areas of Canada also have reserves of unconventional gas, but the report characterized them as being at the "testing stage or mired in public debate," and as a result they are not expected to emerge appreciably in the next five years.

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