As at Dec. 31, 2012, Candax held cash and cash equivalents of $5.7-million. - As at Dec. 31, 2012, Candax had loans and borrowings of $29.5-million, and current portion of loans and borrowings of $3.4-million.
"Two thousand twelve marked a year where Candax established the building blocks for a long-term sustainable organization that possesses a complementary mix between producing assets and the exploration prospects they fund," said Benoit Debray, chairman and chief executive officer of Candax. "These building blocks were evident not only on the ground with a fresh approach to production at El Bibane and Ezzaouia, but also from a talent acquisition standpoint, as we have assembled a world-class geosciences team suited specifically to optimizing our portfolio of assets."
Review of key operations
During 2012, Candax consolidated its working interests for its main producing assets. As a result of these transactions, Candax now has 100-per-cent ownership of El Bibane, 100-per-cent ownership of Robbana and 45-per-cent ownership of Ezzaouia, on which Candax has partnered with ETAP, the Tunisian state oil and gas company. The streamlining of the company's ownership interests allows Candax to develop its fields according to its own vision of their potential. El Bibane and Robbana are operated from Tunis by Ecumed, a 100-per-cent subsidiary of Candax. Ezzaouia is operated from Tunis by Maretap, a 50/50 joint venture between ETAP and Ecumed.
During the past year, Candax has taken the initiative to set up a geosciences committee and reinforced its geosciences capabilities in Tunis. A full geological and geophysical (G&G) action plan has been designed by Candax's geosciences committee and is currently being implemented by the geosciences team in Tunis. All data available to Candax have been inventoried and archived in the company database. Additionally, all of the related seismic and well data have been uploaded into a workstation in the Tunis office and a regional reinterpretation of southern Gulf of Gabes area has commenced. The regional reinterpretation of these data initially focused on the Deep Triassic.
Producing assets
El Bibane
The El Bibane field is located 16 kilometres offshore from the port of Zarzis in the Gulf of Gabes in approximately 20 metres of water. The field was discovered by Marathon Oil Corp. in 1982, but was not developed until 1998. Initially, the field produced at a rate of 4,000 bopd. The reservoir is located in the Cenomanian Zebbag fractured dolomite formation at approximately 2,150 metres below surface. High water cut and associated gas production led to a field redevelopment plan achieved in 2008, with two horizontal wells (EBB-3 and EBB-4) and a vertical well (EBB-5) drilled on the top of the anticline structure.
In 2011, Candax contracted Beicip-Franlab, a leading petroleum consulting firm, to conduct a full-field compositional simulation study. Results indicated that the oil-water contact had moved up significantly due to past production of the gas cap. This explained the very high water cut observed on the two horizontal wells, EBB-3 and EBB-4, and the relative failure of the 2008 redevelopment plan.
In April, 2012, a new production scheme was proposed by the company to the Tunisian authorities (Direction General de l'Energie (DGE)). It was decided to initiate a gas-cycling pilot program designed to increase condensate recovery as well as the potential for oil recovery from the El Bibane reservoir by producing wet gas from EBB-5 and reinjecting dry gas in EBB-4. The gas injection process started in May, 2012, with stabilized condensate production of over 200 bopd at the onshore plant. Anticipating an increasing flow rate, Candax performed a successful well intervention in EBB-4 in October, 2012, using a work barge positioned alongside the platform in order to configure the well for long-term gas injection.
Ezzaouia
The Ezzaouia field is located on the Zarzis peninsula in the southern Gulf of Gabes. Marathon Oil discovered the field in 1986 and brought it on stream in 1990. Candax is the sole partner of ETAP with a 45-per-cent equity interest. The field is operated by Maretap, a 50/50 (Ecumed/ETAP) joint-venture company. Maretap does not own any assets and operates on a cash-call basis. Two reservoirs are present in Ezzaouia field: the late cretaceous Zebbag fractured dolomite and the late Jurassic M'Rabtine sandstone. The Jurassic M'Rabtine reservoir now contributes most of the production from the field.
A reprocessing of the 3-D seismic data in 2011, followed by a structural reinterpretation and an update of the reservoir model in 2012, indicated that a significant volume of remaining reserves could still be produced, mainly from the Jurassic reservoir. This provided a strong incentive for the partners to reconsider the Ezzaouia field strategy in order to rejuvenate field production.
A coiled tubing jet blasting campaign to remove scale induced by the power fluid used for the jet pumps was performed in March, 2012, on three wells (EZZ-17, EZZ-9 and EZZ-1). A scale inhibitor treatment program was initiated in the summer of 2012 with good results. Remedial workovers have been subsequently conducted on EZZ-18 and EZZ-2. An artificial lift optimization study, also conducted in 2012, showed that jet pumping was not the appropriate activation system for the Ezzaouia Jurassic reservoir, considering that jet pumps are operating near their cavitation limit. In addition, scale deposits induced by the presence of produced water in the power fluid restricted flow rates. As a consequence, EZZ-1 was converted at the end of 2012 from a jet pump configuration to a sucker rod pump configuration. This first operation is regarded by the partners as a pilot operation that has the potential to lead to an optimized full field production system.
Robbana
The Robbana field, located on the island of Djerba in the southern Gulf of Gabes, was discovered in 1988. Robbana-1 encountered two hydrocarbon-bearing clastic reservoirs in the Cretaceous Upper Meloussi formation. The field came on production in 1993 from this discovery well and stopped producing in 2009. A peak monthly average production rate of 410 bopd of 43-degree API waxy oil with a low GOR was recorded in May, 1994. Cumulatively, the well produced 435,000 barrels before it was shut in in 2009 after severely decreased production.
Candax initiated a light workover in April, 2011, to check the reservoir static pressure on Robbana-1. Measurement showed a significant increase in reservoir pressure which indicated potential aquifer support. In July, 2011, Candax reopened the well, which then stabilized at approximately 50 bopd.
A full workover was conducted in 2012 in order to reperforate the two hydrocarbon-bearing horizons and to optimize the beam-pumping system. Unfortunately, the reperforation of the lower zone did not result in oil production from that zone. When the well was reopened, production returned to approximately 30 bopd, a level below what the well was producing before the workover. While Candax is working to reinvigorate production of Robbana-1 to the maximum possible level, the company will also initiate a G&G study in 2013 to better understand the Meloussi structure and reservoir.
Non-producing assets
Belli
The Belli field is situated in the Grombalia exploitation permit, which is located not far from the city of Tunis. Three Belli wells were drilled in the early 90s and produced a total of 8.6 million barrels of oil from the carbonates of the Bou Dabbous Eocene formation. The principal oil producer, BEL-1, began production in 1992 with a flow rate of 10,000 bopd of natural flow. A few months later, water production started to gradually increase until, in 1996, the well was shut in with an oil rate of 50 bopd and a 97-per-cent water cut while being produced with a jet pump. As the Bou Dabbous carbonates are assumed to be oil wet, it is expected that spontaneous imbibition has partially recharged the fracture and vugular porosity systems in the 17 years that the field has been closed in.
After a 2012 review of Belli's historical performance conducted by Maretap (operator), ETAP and Ecumed, a workover was agreed upon for the BEL-1 well in order to reopen and test the Bou Dabbous formation. The well is currently accessing the water-bearing Abiod formation. A workover is scheduled to take place in 2013. Assuming positive results, a three-month extended production test will be performed prior to additional geoscience studies.
Exploration assets
Deep Triassic
Two prospects were identified by the former studies of the Middle Triassic (Ras Hamia sandstones) in the Ezzaouia and El Bibane concessions. The unrisked prospective gas resources have been evaluated by Ryder Scott in 2007 at 1,806 billion cubic feet and 1,417 billion cubic feet, respectively (medium case).
In 2012, Candax launched a study to revisit the mapping and potential of the Triassic Ras Hamia reservoir. Candax has come to the conclusion that this play, given the range of uncertainties embedded in currently available data, lacks sufficient evidence to warrant drilling a test well. Further work will be completed in 2013 in order to obtain and integrate additional available geological data, especially regarding source rock and reservoir facies evolution.
Madagascar
Block 1101 is an onshore exploration permit located in northwest Madagascar, covering 14,900 square kilometres.
On July 25, 2011, Candax entered into a binding agreement with its partner on the permit, East African Exploration (EAX), a wholly owned subsidiary of Afren PLC, whereby EAX would subsequently assume ownership of 90 per cent of the permit, with Candax retaining a 10-per-cent interest (down from 60 per cent). EAX agreed to pay $500,000 to Candax in consideration of the transferred interests. EAX has also assumed operatorship of the permit. Both the transfer of working interest and operatorship have been approved by the government of Madagascar.
Candax is also entitled to receive a 14-per-cent share of all net EAX production proceeds, up to a cumulative total of $3.55-million (U.S.) as well as a 0.33-per-cent share of all net EAX production proceeds up to a cumulative total of $15-million (U.S.).
From mid-September to mid-December, 2012, EAX acquired 251 kilometres of 2-D seismic (accelerated weight drop) on block 1101. Data processing is currently continuing.
The drilling of an exploration well in 2013 has been confirmed by the operator.
Outlook
Candax is a rebirth story with an approach focused on the reactivation of mature fields. The skill set of the Candax executive team is derived from an oil services background and mentality. The team is supported by a board of directors with significant industry experience and by active principal shareholders (Geofinance, IFC and Actis). With the data gathered on El Bibane and Ezzaouia during 2012, Candax believes it has self-sustaining producing assets that will move the company forward.
El Bibane
The encouraging results of the gas-cycling pilot program enabled the design and planning of the next phase, which will be executed in two steps. The first step will be to increase the gas recompression facilities at the El Bibane onshore central processing facilities (CPF) in order to facilitate the near doubling of condensate production from the field. The company expects a production rate for the second half of 2013 above 400 barrels of condensate per day. Current production during 2013 is already above 250 bopd. The second step will be to investigate, with Candax's Tunisian partners, the possibility of selling five million to 10 million standard cubic feet per day of natural gas to local buyers. The company anticipates that continuing gas sales will contribute to optimum overall resource recovery by partially liberating dissolved gas present in the remains of the oil rim.
Ezzaouia
After significant effort in 2012, the Ezzaouia field oil production rate doubled from approximately 400 bopd to 800 bopd. Maretap expects to bolster its work force and expertise over the near term in order to consistently maintain field production within the range of 700 bopd and 1,000 bopd. Additionally, Maretap will continue to perform G&G studies within the field, which have already confirmed significant potential for recoverable reserves. Candax views its involvement in Maretap as a strategic benefit intended to leverage the partnership with ETAP, so as to gain access to high-quality resources and expertise in Tunisia.
Year-end reserves
Candax also announced an update to its net reserves as at Dec. 31, 2012. Total proven plus probable reserves (2P) of oil declined by 15.5 per cent from the previous year to 2.95 million barrels.
It should be noted that the reserve levels of the company's Ezzaouia asset increased and therefore the entire decline in 2P reserves can be attributed to a reassessment of El Bibane.
The net present value (NPV) of the future cash flows (escalated price forecast, after tax and discounted at 10 per cent) attributable to the 2P reserves is valued at $82.9-million (compared with $119.5-million in 2011). This 30.6-per-cent decrease is due entirely to the above-mentioned reassessment of El Bibane.
The company's independent engineering report was prepared by Ryder Scott Company Petroleum Consultants and encompasses all of Candax's producing properties in Tunisia. The report was prepared in accordance with National Instrument 51-101 guidelines, and additional disclosure on the reserves and valuations is included in Candax's annual information form. The company's contingent resources have not been updated from those reported in the company's annual information form filed on SEDAR on April 8, 2008.