Epsilon Energy Ltd. has reported the signing of definitive agreements to form a joint venture in the Garrington and Harmattan areas of Alberta, Canada, in the Western Canadian Sedimentary Basin.
In partnership with a leading Calgary-based private operator, Epsilon will earn a 25% working interest in undeveloped lands, covering approximately 30 000 gross acres (majority held by production) in the Garrington area, targeting horizontal development of the liquids-focused Glauconitic and Ellerslie formations (Mannville), and approximately 130 000 gross acres (majority held by production) in the Harmattan area, targeting horizontal development of the liquids-focused Upper Viking formation.
The Company estimates the joint venture area holds over 25 2 mile locations in the Mannville. Offset wells exhibit attractive economics, driven by mid-teens effective royalty rates and drilling and completion costs per well estimated at CAN$600 – 700 per completed lateral ft. The large contiguous Harmattan acreage is more speculative due to varied historical results but represents a large upside opportunity through multiple targets and potential completion optimisation.
Consideration will be in the form of up to a CAN$12 million development carry, with CAN$10 million to be deployed over a minimum of 4 gross horizontal wells (minimum 1.5 mile laterals), drilled and completed over a 12 month period from 1 December 2024, with the operator's option for 2 additional gross horizontal wells (minimum 1.5 mile laterals), drilled and completed over a 12 month period from 1 December 2025. The operator will maintain a minimum 20% working interest during the carry period.
Additionally, the Company entered a joint venture in the Killam area of Alberta, Canada, in the Western Canadian Sedimentary Basin in April of 2024. In partnership with a different Calgary-based private operator, Epsilon acquired a 50% working interest in undeveloped lands, covering 14 000 gross acres, targeting development of the liquids-focused Mannville formation. Consideration was CAN$1.4 million, and the Company committed to participate in two wells during 2024.
The project is a proof of application of multi-leg open hole horizontal wells which have proven successful in other parts of Alberta. The drilling of the initial two wells in August and September 2024 has yielded one commercial discovery currently on production and a second prospect unable to be properly evaluated due to mechanical issues. Gross drilling and completion costs are approximately CAN$2 million (CAN$1 million net to Epsilon) per well.
Jason Stabell, Epsilon's Chief Executive Officer, commented, "As previously communicated, we have been evaluating potential Canadian projects over the last year. We are excited to announce a new project area in Alberta that fits our strategic focus of drill bit weighted investments with attractive full cycle returns and meaningful follow-on investment runway (inventory). For a small amount of up-front capital, we will establish a third primary area to deploy capital in a proven hydrocarbon system and more than double our company leasehold (after the carry is satisfied), while also increasing our liquids exposure. With the deal signed this week, we are partnered with a well-capitalised leading private player in the basin. Importantly, this acreage is largely held by production, affording the ability to opportunistically develop these resources as market conditions warrant."