Having secured a series of oil and gas assets in eastern Canada, Contact Exploration Inc. demonstrates how economic comebacks are not impossible
in a shaky marketplace.
The vast majority of the company’s assets are within Canada, the lion’s share of which is focused in New Brunswick.
“I would say that more than 98 per cent of the company’s value is tied up in New Brunswick,” says Contact Exploration President and CEO Steve Harding. “We do have carried interests or royalty interests in parts of Nova Scotia, including land, but those are really quite small compared to the rest of the operational interest in New Brunswick.”
The company has the only oil field in New Brunswick, which is Canada’s second oldest oil field.
“We came into the company with the concept to introduce new technology into that field, using it to ramp up oil production and improve cash flow into the company, building up the company from there,” explains Harding.
In 2010, Contact Exploration drilled two new multi-stage horizontal wells in the field, leading to a large increase in production.
This year the plan is to increase production at the site further by simply drilling more holes.
Along with its interests in New Brunswick’s oil sector, Contact Exploration also has interests in other resource sectors within the province.
“The other large piece of business we have is in the shale gas side in New Brunswick,” reveals Harding. “Corridor Resources Inc., the other primary operator in terms of production in the province, has a gas field as well, but a couple of years ago they had quite a significant shale gas discovery.
Contact Exploration has similar gas assets in the sense that we have the same reservoir on our land, as well as an additional shale gas zone above the reservoir in which Corridor made its discovery.
So we have two different shale gas zones that would be considered prospective reservoirs,” he asserts.
From scraping to filling the barrel
The economic performance of Contact Exploration has improved significantly since a new board was installed at the company some 15 months ago.
“We were asked to take a look at the company a year or so before that time and take a look at why it was in such a negative financially position,” reveals Harding. “There was an engineering report that suggested as a company Contact Exploration was worth about $50 million and that they were trading closer to $8 million.
“I looked at it and at the assets, and thought that there were opportunities there and that perhaps the company needed more of a technical approach.
“And at the time the existing management team agreed that if I was to come on board they would resign, which is what effectively happened in 2010.
“Unfortunately the old company had some operational and financial challenges, and when we took the company over they were basically heading into the red,” he remarks.
Stuck for cash and lacking in confidence, the new board were basically forced to start from scratch, says Harding.
“We raised $10 million in 2010, which we put into drilling new wells and restarting the company, and we had a good year in the sense that we had good success and a good share price increase,” he notes. “We made it onto the TMX 50 list due to the way value was added to the company, so I think we were recognized for restarting and reshaping the company.”
The new board set about identifying proven, probable and possible reserves at Contact Exploration’s sites and were encouraged when proven reserves increased substantially last year, along with increases in the other two categories.
“Proven reserves witnessed the largest increase because we were able to demonstrate the very good continuity at our reservoir as well as its quality,” says Harding.
The new team in charge of Contact Exploration also brought a wide range of skills, which fuelled growth, he notes.
“We are a very technical group,” Harding remarks. “All the guys involved in the company, as well as being senior oil and gas people, are very strong technically, and therefore we regard ourselves as being a highly technical company.”
“We weren’t afraid to take some chances and we also went into an oil field that people have struggled to make work for 100 years now—we’re comfortable with those challenges because we’re technical we have an edge,” he adds.
A great place to do business
According to Harding, Contact Exploration is set to continue its growth in three different stages. The first, he notes, is to continue developing its flagship oil field in New Brunswick.
The second part is to look beyond its current boundaries.
“There are other oil opportunities immediately around us and we are considering an oil exploration well in the next couple of months,” says Harding.
The third part of the company’s growth plan lies in shale gas. With its potential to provide 11 GCF, Contact Exploration’s gas field could present the company with a very lucrative future.
“There is a huge volume of gas that is worth a lot of money, and that potentially becomes billions of dollars,” Harding points out. “That’s essentially a large part of our growth portfolio, and as a result we’re looking to bring in a senior oil and gas company to work with us and help us develop that asset.
“We are also looking at many opportunities right now which are, both inside and outside of Atlantic Canada, to complement our growth,” he adds. “But we’ve got to make sure we find the right opportunities before we do that.”
Having first become involved in the oil and gas business in Atlantic Canada 30 years ago, Harding believes that the region covered by the majority of Contact Exploration’s asset base is home to plenty of potential.
“It’s a great part of Canada and there really are a lot of opportunities here, and I believe that more people should learn more about it,” Harding states. “This region is still learning the industry and there remain many facilities and equipment challenges—it’s an area where you have to work effectively with your partners and it’s important that the government work with us.
“It’s important we all work as a group and it is an area that needs to be more collaborative,” he notes. “The future depends on how well those groups work together.”
With success quickly following Harding and his team’s entry at management level, it seems that a once struggling company has regained its strength, confidence and focus.
Harding knows his industry well, and with government support and effective partnerships in place, Contact Exploration could be about to lead a transformation in New Brunswick’s industrial landscape.