Calgary, Virden, Man. – For several years, Corex Resources Ltd. has been the number 2 oil producer in Manitoba. The company is now on a steady growth trend, having resumed drilling this year.
Monty Bowers, CEO and president of Corex, spoke to Pipeline News via phone from Calgary on July 17. He noted the company is privately held, with five major shareholders who have around 95 per cent of the company, and about 100-plus shareholders who hold the remainder. The major shareholders include one firm from Calgary, one from Quebec, and three from the United States.
“We’ve got a bunch of production coming on right now, but we’re probably in the order of 4,500 barrels a day right now,” Bowers said. “We expect to be, at the end of the year, around 6,000 barrels per day-plus.”
Part of the initial 4,500 bpd is from an acquisition earlier this year, but further growth is expected to all come through the drill bit. The company currently employs two drilling rigs working in southwest Manitoba. As of July 21, one was working northeast of Virden, and the second was just south of Cromer.
Nearly all their production is in Manitoba. They have a small fraction of production that came from the origins of the company. The Corex name has been around since 2012. For one year prior to that it was known as Amarone Oil & Gas Limited. Amarone was split into gas-weighted Successor Resources and oil-weighted Corex.
Corex was recapitalized, and through a series of Manitoba acquisitions and drilling, the company’s production peaked at around 5,000 bpd in the first quarter of 2015. The downturn of the commodity price cycle meant restrained spending. “We pulled in the reins for the last three years or so. We’ve picked up our drilling activity here just recently,” Bowers said.
Leading up to the downturn, Corex usually had two drilling rigs going, and on occasion one or two more. Now they are back to a two-rig program.
“We picked it up in Q1 of 2017 drilling 16 gross wells, 12 net wells.. Subject to commodity price, as obviously the activity picks up or slows down due to our revenue stream, our intentions are to drill 58 net wells in total in 2017.”
Corex did something that is rather remarkable in that they bought out their major partner in the Daly-Virden area in Q2 of 2017. That partner was Crescent Point. Generally speaking, Crescent Point Energy Corp. rarely sells assets.
“It took a long time to get them there,” he said, when asked about the acquisition. “Effectively, we bought their unit production in the Daly-Virden area.”
Business plan
“Basically, our business plan is to ultimately continue to grow production in the area through the end of 2019, 2020 or thereabouts, then evaluate what we’re going to do corporately at that point in time,” Bowers said. “By then, we’ll probably be in the 8,500 to 10,000 barrel per day range, or thereabouts.
“Our original strategy was three to five years from 2012, but effectively we lost about 2.5 to three years through the downturn in the commodity price cycle. So that’s been extended by that 2.5 to three years.”
“The challenge right now is the historical buyers, in the low commodity price, are not buyers. Most of their share prices are well under what they last issued equity at. So, if you go out today, most of the traditional buyers of assets are not in the position to be buyers of assets. In the short term, there’s probably not a large suite of buyers that are out there. That’s why we will grow production and look at the universe around us to decide what we need to do.”
He noted they could continue on, and become the acquirer. They could turn it into a dividend paying model. They could sell. They could follow a growth model. Bowers pointed out their assets are very good assets for a dividend-paying model because overall they’re a low-decline asset.
“If you asked anyone in 2012 what was going to happen in 2014, most people would say they didn’t see that coming. If you ask me what’s going to happen in 2019, 2020, all we can do is we can build the best company possible in the short term, make sure we have the lowest cost structure possible. If there is a universe of buyers that we are appealing to we may sell, or we may consider other business strategies at that point in time,” he said.
Bowers was born in Estevan, grew up Saskatoon, and attended the University of Saskatchewan where he graduated with his geological engineering degree in 1978. Asked about the geological formations Corex targets, he said, “The majority of the production we have comes from the Lodgepole. We have a minor amount of production from the Bakken.”
Community impact
Bowers said, “We take pride in being involved in the community. When you run two rigs, you’ve got an awful lot of folks out there when you consider the rigs themselves, the pipelines, the frac crews and the whole bit. We believe we have a significant impact in the community in terms of the folks we employ there, and we take pride in being part of the community.
“We directly employ 42 full-time people, 19 are in the field. That’s full-time staff, that doesn’t consider contract folks that we have.”
With contract people, the number is greater than 50 on any given day.
They have a field office just north of Virden.
As so many people have left the oilpatch, Pipeline News is hearing increasingly about a shortage of labour in the region. Asked about this, Bowers said, “The one area that we got impacted in, significantly, was on the fracking side. During the downturn, with the consolidation of the various fracking companies, we ended up with not getting to nine wells before spring breakup. But seven of the nine have been fracked on the other side of spring breakup.
“So, for us, it’s not impacting us on the ability to have operators, it’s more the service companies that it’s a significant issue, and mainly on the fracking side.”
Vendor rates
Oilfield services saw multiple rounds of cuts in rates during the downturn Asked when oilfield services can expect to see some movement of their rates, and how the oil companies can help keep service companies alive, Bowers said, “We look to make longer-term commitments with them. Right now, as a junior operating in that area from 2012 to the end of 2016, we were sort of the tail on the dog. The Crescent Points and others who had continuous programs going were able to set price, if you will. Whatever it was that we needed, we didn’t have a continuous drilling program going, so we were continually having to wait on services.
“We, as a company today, are in much better shape. We know we’re going to be running two rigs continuously. There’s an appetite, by the service companies. We become the base, as opposed to the incremental. That’s happened with us on fracking, that’s happened on drilling rigs.
“What we’re looking to is not always the lowest price. We’re looking at the quality folks can deliver at the price that’s reasonable, but not outrageous.
“The one thing I will say is that in 2014, the cost structure got stupid. At US$100 oil, it was dumb. I think the downturn was probably necessary for the whole industry to recalibrate, not just service companies. What’s the expression? ‘Turkeys will fly in high wind.’ There was a lot of turkeys in E&P companies.”
Bowers recognizes it will be hard for service companies to attract people to come back to the oilpatch for short-term work, so they are setting themselves up to drill continuously. “Keep it steady, and keep growing it,” he said.
Noting how Calgary now has very high vacancy rates in its downtown office, home of most oil companies in Canada, he pointed out it’s been rough. There were stages where banks were dictating assets sales and the like. “Now, for the first time this spring, it felt like we were getting people to stick their noses up, out of the gopher hole, for lack of a better term, and look around and say, ‘Oh, the sun’s shining. Maybe we can start to do stuff.’”
He added that oil was rising up to US$50, but then dropped to US$42. “You go back in the other direction pretty quickly,” Bowers said. “Unfortunately, if the price takes off, and the cost structure takes off, and the economics go south again, you’ll see people pulling back.”
“The folks who take it on the chin initially are the service companies. If we stop drilling, we still have cash flow coming in, because we still have production. But the service companies, when you stop drilling, don’t, because they’re getting paid for every job they do, as opposed to having a production side. They tend to be the ones that get whipsawed the most. So, as price goes up and takes off, they’re the ones that jump on the bandwagon.”
