Compton Petroleum Corporation is a Calgary-based public company actively engaged in the exploration, development, and production of natural gas, natural gas liquids, and crude oil in the Western Canada Sedimentary Basin. Over the past three years, we have concentrated on those areas that provide the highest economic return and areas that will help identify additional future development opportunities for the Corporation. Compton's shares are listed on the Toronto Stock Exchange under the symbol CMT.
Our goal is to be recognized as a strong Canadian exploration and production operator that creates value by providing appropriate investment returns through the effective development and optimization of our assets, improving capital efficiencies. Through implementation of a focused strategy that emphasizes realizing the underlying value within the existing asset base, a prudent approach to capital investment decisions and the development of committed and innovative people, we are dedicated to maximizing and creating sustainable value for our shareholders.
Compton began operations in 1993 with $1 million of share capital, a small dedicated technical team, and a large seismic data base. The objective was to build a company from the grassroots through internal full-cycle exploration, complemented by strategic acquisitions. Our vision was to create a company capable of long-term sustained growth with future development and exploration opportunities. As at December 31, 2010, the Corporation had average production of 17,402 boe/d, proved plus probable reserves of 84 million boe, and 1.3 (1.1 net) million acres of land. Net asset value was $1.62 per share as at December 31, 2010 including the value of proved plus probable reserves and undeveloped land, less outstanding debt.
Compton's Oil and Gas Strategy
Our vision and strategy has remained constant since inception. Our focus has always been development of our natural gas resource plays through the drill bit. Since 1996 when we first went public, Compton has advanced from a high risk pure exploration company to a strong intermediate exploration and production corporation with outstanding assets. Today, Compton has 271 million boe of long life reserves, valued in excess of $3.4 billion dollars (8% DCF).
Significant value remains to be added from a low risk, large scale drilling program across Compton's undeveloped lands. Our strategy of developing Compton through the drill bit with a low risk, repeatable drilling program promises significant potential upside for our shareholders.
Unlocking the value inherent in our resource base is our first priority. Components of our operating strategy include:
Concentrate on Core Areas
Compton has gained technical expertise and achieved success in exploring for unconventional natural gas.
We are focused on three core areas that provide a balanced portfolio of exploration, development, and exploitation prospects. These areas are the geographic focus of the Company's seismic database rights, and are areas in which Management and staff have significant technical expertise and operational experience. Compton intends to generate exploration opportunities and to increase the Company's undeveloped land base within the WCSB.
Focus on Unconventional Natural Gas in Large Resource Plays
As of December 31, 2007, 84% of proved reserves were natural gas. We have gained considerable technical expertise and achieved significant success in exploring for unconventional natural gas accumulations in the WCSB. We plan to continue to focus on finding and developing these types of natural gas opportunities because of their generally lower decline curves and higher economic return over the life of the reserves compared to conventional natural gas opportunities. The large scale nature of our resource plays also offers multiple low-risk drilling locations resulting in lower costs and decreased exploration risk.
Compton engages in the exploration, development, and production of natural gas, natural gas liquids, and crude oil in the Western Canada Sedimentary Basin. Our operations are located in the deep basin portion of the Basin, which extends from Northwest Alberta and British Columbia to the United States border. In this large geographical region, we pursue four deep basin natural gas plays: the Rock Creek sands at http://www.comptonpetroleum.com/operations/central.html" rel="nofollow">http://www.comptonpetroleum.com/operations/central.html"> title="blocked::Niton" rel="nofollow" target="_blank">http://www.comptonpetroleum.com/operations/central.html">Niton in central Alberta, the Basal Quartz sands at http://www.comptonpetroleum.com/operations/highriver.html" rel="nofollow">http://www.comptonpetroleum.com/operations/highriver.html"> title="blocked::High" rel="nofollow" target="_blank">" rel="nofollow" target="_blank">http://www.comptonpetroleum.com/operations/highriver.html">High River in southern Alberta, the shallower http://www.comptonpetroleum.com/operations/plains.html" rel="nofollow">http://www.comptonpetroleum.com/operations/plains.html"> title="blocked::Southern" rel="nofollow" target="_blank">" rel="nofollow" target="_blank">http://www.comptonpetroleum.com/operations/plains.html">Southern Plains sand play in southern Alberta, and an exploratory play at Callum/Cowley in the Foothills area of southern Alberta. Being in the Deep Basin, all areas have multi-zone potential, providing future development and exploration opportunity. We are also focusing on developing our emerging oil potential in the Southern Plains area and in the Montana lands. In total, we control over 1.0 million gross (0.9 million net) acres of land underlying these areas. Natural gas represents approximately 84% of reserves and production.
Our strategy is focused on creating value for shareholders by providing appropriate investment returns through the effective development and optimization of assets. The evaluation and technical property analysis that was completed in late 2009 and early 2010 resulted in strong returns, emphasizing the underlying value of Compton's asset base. Operational activities in 2010 included longer horizontal sections (20% increase), higher initial production rates (25% increase), improved base production volumes (5%), reduced drilling costs (15% to 20% decrease) and lower operational costs (21% decrease) than experienced in 2009. Despite lower than anticipated commodity prices, improved efficiencies enabled Compton to execute its drilling plans and further develop the potential of its asset base.
Horizontal well and multiple stage fracture stimulation technology was applied at several of our key properties in 2010, expanding our opportunity base by drilling into new zones. We tested formations above and below the Rock Creek Formation in Niton, refractured two wells in High River with strong results, and drilled one oil well targeting the Ellerslie Formation in the Southern Plains. We believe that this technology is particularly applicable to our deep basin assets and has the potential to increase ultimate recovery and improve development economics.
Throughout 2011, operational activities will be concentrated on those areas that provide the highest economic return or that will help identify additional future development opportunities for the Corporation. Compton will focus primarily on liquids-rich, high return natural gas in Niton, and on developing its emerging oil prospects. At Niton, Compton will focus on drilling several Rock Creek wells as well as testing other zones including the Ellerslie, Cardium (oil), Notikewan and Spirit River Formations. Success in these formations would provide additional potential for growth. In the Southern Plains, the Corporation expects to drill additional Ellerslie Formation oil wells as well as a test well targeting the Alberta Bakken Formation to evaluate the potential of this zone. Should a recovery in natural gas prices occur, additional activities may be considered with increases in available capital.
The Niton area is a multi-zone liquids rich, tight gas play with production primarily coming from Jurassic Rock Creek and Mannville Ellerslie sands at depths ranging from 1,950 to 2,700 metres. Proprietary exploration, development, and operational knowledge gained by the Corporation in southern Alberta has resulted in accelerated growth of this core area over the past few years. Compton is an active driller at Niton, with over 205 wells drilled to date on its 245 sections of controlled land in this area at a 73% working interest. Compton experienced significant drilling success over the past three years as a main area of focus. Improved drilling methods resulted in approximately 25% higher average initial production rates and 15% to 20% lower drilling costs in 2010 over the previous year. This area is highly accretive to the Corporation, providing strong economics in a low gas price environment.
In 2011, Compton will focus on the development of the liquids-rich, high return Rock Creek formation at Niton, where the Corporation can generate strong rates-of-return. This area has multi-zone potential, providing the opportunity to expand our development base by moving into other geological horizons. The majority of these formations occur above the Rock Creek zone and are being exploited by other operators either vertically or horizontally. Compton intends to continue technical work to better understand these other uphole zones above the Rock Creek using horizontal drilling with multi-stage fracturing.
During 2010, the Corporation began testing some of these uphole zones to further evaluate the area's potential. A Spirit River Formation vertical well was drilled in late 2010 and brought on production at 1 MMcf/d. The results from this well support further development in the Spirit River Formation, reinforcing Niton's multi-zone potential. This evaluation and testing may lead to new drilling programs in the future, supplementing the growth potential from the Rock Creek formation.
Rock Creek Formation
The Rock Creek play's variable permeability and water-free nature lends itself well to horizontal drilling and multistage fracturing. Compton is the leading Niton operator developing this play with 36 successful horizontal wells producing from this zone at the end of 2010. The typical horizontal Rock Creek well has an average initial rate of 3 MMcf/d in the first month of production, which results in attractive economics..
The strong drilling and economic results achieved in 2009 continued into 2010, resulting in volume performance that exceeded expectations. In addition, the Corporation's focus on internal cost reduction and improved drilling techniques resulted in higher initial production rates than previously experienced and well costs that were 15% to 20% lower than previous horizontal multi-stage fractured wells drilled in the area. Overall, Compton drilled six Rock Creek wells during 2010 with strong results. The most recent Rock Creek well drilled during the fourth quarter had an initial test rate of 5.5 MMcf/d with 30 bbl/MMcf of liquids. The well is currently on production at approximately 3.3 MMcf/d and 35 bbl/MMcf of liquids. The well was on production in late February 2011 at approximately 3.3 MMcf/d and 35 bbl/MMcf of liquids.
Spirit River Formation
The Spirit River formation is a new formation that Compton began developing in 2010. It is in early stage of development with 12 producing vertical wells. The geology of the formation is similar to the Spirit River/Wilrich play being developed west and northwest of Compton's lands. In late 2010, a Spirit River Formation vertical well was drilled and brought on production at 1 MMcf/d. The results from this well support further development in the Spirit River Formation, reinforcing Niton's multi-zone potential.
The Ellerslie formation is an under-pressured, essentially water-free, tight channel sand complex that is similar to our Hooker play, ranging in depth from 1,950 to 2,300 metres. Historically, these sands have only been developed through vertical drilling. Compton drilled two horizontal wells in 2008 targeting lower permeability sands in this zone. Both wells are on production with an average production rate of 670 Mcf/d as a first month initial rate. Older offset vertical wells, adjacent to Compton's horizontals, had limited productive capability.
The Montana Bakken plays stretches from Alberta to Montana.
In 2010, the Alberta Bakken Fairway, which runs through Alberta and Montana, attracted more industry attention. Compton holds 79,000 net acres of land on the Blood Indian Reserve in Montana through the previous acquisition of WIN Energy. The Corporation's acreage has a long tenure (expires in 2017) and has one well previously drilled on it. Further exploration and evaluation of this area would be necessary to determine the potential of this property. In 2011, we intend to initiate a preliminary evaluation of the area in order to determine potential next steps.
Compton's common shares trade on the TSX under the symbol CMT. Total shares outstanding are 26,358,528 as of September 30, 2011.
- on any day after August 23, 2011, the volume-weighted average trading price of the common shares on the Toronto Stock Exchange for the preceding 20 trading days is equal to or exceeds the applicable Warrant Trigger Price; or
- immediately before the completion of any transaction that would constitute a change of control of Compton (including by way of merger, plan of arrangement or similar transaction) at a price per common share, as determined by a nationally recognized investment dealer selected by Compton if all or any portion of the consideration under that transaction is other than cash, of at least equal to the applicable Warrant Trigger Price
- Year 1: $11.92 (August 24, 2011 to August 23, 2012)
- Year 2: $12.52 (August 24, 2012 to August 23, 2013)
- Year 3: $13.14 (August 24, 2013 to August 23, 2014)