Meritage to build crude oil, gas gathering and processing assets in Western Canada

Meritage Midstream Services III LP and Canadian International Oil Corp. (CIOC) agreed to jointly build natural gas gathering, compression, and processing assets and also crude oil gathering assets, which will serve CIOC's Montney and Duvernay shale acreage in Alberta.

Terms of the deal were not disclosed. CIOC is a private oil and gas company in Calgary where Meritage III plans to open an office, said its parent, Meritage Midstream Services of Denver. Riverstone Holdings LLC backs Meritage III with $300 million in equity commitments.

CIOC's key financial partners are Riverstone and 1901 Partners (formerly ZBI Ventures).

Regarding the Alberta joint venture, terms call for Meritage III to provide 75 MMcfd of gas gathering and processing capacity, expandable to 225 MMcfd and also up to 10,000 b/d of crude oil gathering capacity. Construction of both systems began in May, Meritage said.

The 42-km high-pressure gas gathering system will deliver rich gas to a new processing plant 60 miles south of Grand Prairie, Alba. The plant is scheduled to come into service in April 2016. It will offer connections for residue gas to the TransCanada Pipeline and other delivery points.

The 37-km crude oil gathering system follows much of the same route as the gas gathering pipeline and will connect to Pembina Pipeline Corp.'s Karr Lateral pipeline, which will serve Pembina's terminal in the Lator area of northwest Alberta.

Meritage III Chief Executive Officer Steven Huckaby said, "The Montney and the Duvernay are poised to become two of the most prolific plays in North America, and CIOC is one of the most prominent and active oil and gas operators in Western Canada." He also is chief executive of the parent company.

Huckaby said the joint venture plans "establish our position in the region and allow us to continue to focus on developing the infrastructure needed to stay ahead of the immediate and long-term needs of our Canadian customers."

Scott Sobie, CIOC president and chief executive office, called Meritage "a well-established midstream service provider."

CIOC reports on wells

CIOC holds roughly 200,000 acres each in the Duvernay and Montney, with 100% working interest in Tier 1 acreage. It's actively developing a liquids-rich Montney fairway in the Gold Creek and Karr areas.

Montney well results have demonstrated repeatability on CIOC acreage, the company said, adding its CIOC followed up its first Gold Creek well (4w6) with seven additional wells drilled in the Gold Creek area. Six of those wells were producing in 2014.

Executives said drilling and completion costs were $6.6 million/well in Gold Creek during 2014 with cost reductions expected to be achieved.

In the Duvernay, CIOC holds acreage within the favorable liquids-rich, over-pressured condensate fairway. In November 2014, executives said CIOC's first horizontal Duvernay well confirmed an extension of the Kaybob fairway to the west.

The 13-01 horizontal pilot well (26w5) encountered an overpressured Duvernay pay zone within a mature oil window. The well was completed with a 3,878-ft lateral.

It had a peak 24-hr rate of 1,446 b/d of 42°-gravity oil and 494 Mcfd of natural gas at a restricted flowing pressure of some 3,900 psi. The well was tied-in and produced at a restricted oil rate for reservoir management, a news release said. The depth of the tested interval was not disclosed.