Corridor Resources: Striking Down The Moratorium

Corridor Resources has seen a major improvement in the fundamentals of its business, namely the election of a Progressive Conservatives government. Bruce Northrup, MLA for Sussex-Fundy-St. Martins, said it wants a fracking bill by Christmas.

The community there has always supported shale gas development. Corridor operated in the area for 15 years before the enactment of the moratorium in 2014. Residents even called the previous Liberal government for the end of fracking in 2016.

Reserves dropped substantially after the government imposed a indefinite moratorium on all hydraulic fracturing in 2014.

Corridor engaged GLJ to assess the impact of the Government’s decision on Corridor’s reserves and to update its reserves report in respect of the McCully Field to take into account the continuation of the moratorium, which reduced the estimate of proved natural gas reserves by 23.1 bscf to 18.8 bscf and the estimate of proved plus probable natural gas reserves by 38.8 bscf to 22.9 bscf. As a result, Corridor recognized impairment losses of $28.4 million in Q2 2016.

Annual Information Form, March 30, 2017, Page 9

The reserves of the company are detailed below.

CDH Yearly Reserves November 2018

Source: Chart by the author using Corridor Annual Information Forms

The hit to the reserves of the company was, of course, massive. Reserves could be brought back on the books should the moratorium be lifted. The NVP10 of the reserves of the company were estimated as follow:

CDH Yearly NPV10 November 2018

Source: Chart by the author using Corridor Annual Information Forms

The return of those reserves on the books would bring huge value for Corridor shareholders.

Corridor can harness revenues from its natural gas assets in the McCully field until the moratorium is lifted, if ever. These operations still generate free cash flow, despite having minimal development for the last 4 years.

Here is how I see the next steps for the company:

  • Work on lifting the moratorium;
  • Secure a joint venture partner to develop the Frederick Brook Shale;
  • Continue maximizing cash flows from the McCully assets;
  • Make use of the huge working capital and move West.

Disclosure: I am long CDH. Not for republication on Seeking Alpha.

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