Deltastream’s Marten Hills oil drilling gamble gives backers $1.4 billion return

Robert Tuttle September 13, 2022

(Bloomberg) — Deltastream Energy Corp.’s gamble six years ago on drilling for oil in a heavily forested area of northern Alberta with no pipeline links paid off with a C$1.8 billion ($1.4 billion) return for investors, according to its chief executive officer.

The closely held company, 85% owned by Arc Financial Corp., began drilling for heavy oil in the Clearwater shale formation in and around the Marten Hills area north of Edmonton in 2016, investing about C$120 million, CEO Roger Tang said in a phone interview. On Monday, Deltastream agreed to sell itself to Tamarack Valley Energy Ltd. for about C$1.43 billion while selling royalties on current and future production to Topaz Energy Corp. for C$265.3 million. Shareholders also earned about C$148 million in capital returns and share buybacks from the company.

Marten Hills has emerged as the most drilled oil field in the western Canadian province since 2018, according to Alberta Energy Regulator data posted on the Petrinex website. Deltastream finished 107 wells in the area this year, second only to Headwater Exploration Inc.’s 355 wells.

While Marten Hills is on the western edge of the Athabasca oil sands region, companies are able to use conventional drilling gear to extract heavy crude trapped between layers of rock in the so-called Clearwater formation, at a fraction of cost of building steam wells or mines to extract oil sands bitumen closer to the surface. The Clearwater oil can be found for about $14 a barrel, meaning Deltastream was generating a netback of more than $100 a barrel when oil surged after Russia’s invasion of Ukraine, Tang said.

“You don’t need steam, you don’t need fracking, just conventional open hole drilling,” Tang said. “The well payout is so short, you are talking about months or weeks at this oil price.”

The quick returns are drawing investment when companies’ spending to expand traditional oil sands production has shrunk amid a worldwide push to reduce reliance on high-carbon-emitting fossil fuels. Deltastream evaluated more than a dozen proposals from firms interested in buying the company or its assets in the weeks before the Tamarack deal, Tang said.

The Deltastream deal is among several in the area. Topaz Energy bought royalty interests in Marten Hills from Cenovus Energy Inc. for C$102 million last year. Two years ago, Rangeland Energy completed a 50,000-barrel-a-day, 85 kilometer (53-mile) pipeline connecting the area to the broader pipeline network in Alberta. In 2017, the area attracted a flurry of land grabs by companies seeking to get in early.

More than 650 wells have been drilled this year in Marten Hills, more than any other oil field in Alberta, according to AER data. Other companies drilling in the area include Canadian Natural Resources Ltd. and Spur Petroleum Ltd. Tamarack has drilled eight wells there this year, the data show.

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