A C$100 million ($75 million) oil development is planned over the next two years by a new northeastern Alberta drilling partnership announced Monday between Headwater Exploration Inc. and Cenovus Energy Inc.

headwater

The deal gives Headwater a working ownership from Cenovus of Marten Hills, a 295-square-mile prospect, with C$35 million ($26 million) in cash plus 50 million shares valued at C$65 million ($49 million).

Cenovus would obtain a 26% ownership in Headwater with two seats on the smaller Calgary firm’s board. Cenovus also retained a royalty share of Marten Hills production, currently 2,800 b/d.

The property is a rare corner of Alberta’s 54,054-square-mile oilsands region where crude flows naturally from wells without costly bitumen mining or thermal underground extraction. 

“Headwater has committed to spend C$100 million ($75 million) on the acquired lands by December 31, 2022,” said the management team. Headwater called the Marten Hills transaction “transformational.” 

The partnership with Cenovus is Headwater’s first big venture since Calgary industry veterans created it with a January takeover of Halifax-based Corridor Resources Inc.

As Headwater, the firm has refocused on western resource development while retaining as a future prospect the former Corridor’s Atlantic Canada shale gas assets that remain off limits due to New Brunswick and Nova Scotia bans against hydraulic fracturing, aka fracking.

Cenovus President Alex Pourbaix said the Marten Hills deal stands out as a “unique opportunity” for growth in the midst of his firm’s lean-times oilsands economy drive, debt repayment effort and takeover of Husky Energy Inc. 

“These are high-quality assets that were unlikely to receive near-term funding from Cenovus.”