Mr. Steven VanSickle reports
FAIRBORNE INCREASES PROVED RESERVES BY 25% WITH A RECYCLE RATIO OF 1.8 FOR BOTH PROVED AND PROVED PLUS PROBABLE RESERVES AND PROVIDES OPERATIONAL UPDATE
Fairborne Energy Ltd. has provided its 2010 year-end reserves and an operational update.
Two thousand ten reserve highlights:
- Proved developed producing reserves increased 24 per cent to 30 million barrels of oil equivalent;
- Total proved reserves increased 25 per cent to 50 million boe;
- Proved plus probable reserves increased 15 per cent to 73 million boe;
- Finding and development costs were $12.34 per boe for proved and $14.90 per boe for proved plus probable reserves, excluding change in future capital ($17.17 per boe for proved and $17.59 per boe for proved plus probable reserves, including change in future capital);
- Finding, development and acquisition costs were $15.25 per boe for proved and $15.37 per boe for proved plus probable reserves, excluding change in future capital ($19.40 per boe for proved and $18.58 per boe for proved plus probable reserves, including change in future capital);
- Recycle ratio of 1.8 for both proved and proved plus probable reserves (excluding change in future capital);
- Production replacement ratio of 2.8 times for both proved and proved plus probable reserves;
- Proved developed producing reserves represent 60 per cent of proved reserves;
- Proved reserve life index increased 18 per cent to 9.0 years; proved plus probable reserve life index increased 10 per cent to 13.2 years;
- Dec. 31, 2010, net present value (NPV) of future net revenues (discounted at 10 per cent) remained flat compared with the prior year at $1.05-billion;
- Net asset value (NPV 10) of $7.71 per share;
- Two thousand ten operating netback of $27.42 per boe.
Summary of reserves
The company's independent engineering evaluation, effective Dec. 31, 2010, was prepared by the independent engineering firm of GLJ Petroleum Consultants in accordance with the definitions set out under National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (NI 51-101) based on forecast prices and costs.
SUMMARY OF OIL AND GAS RESERVES -- GROSS AND NET RESERVES (forecast prices) Light/medium crude oil Heavy oil Natural gas liquids Gross Net Gross Net Gross Net (Mbbl) (Mbbl) (Mbbl) (Mbbl) (Mbbl) (Mbbl)Proved Developed producing 4,017 3,457 6 7 3,624 2,399Developed non-producing 369 288 110 97 324 215Undeveloped 1,363 1,196 119 122 2,779 2,091Total proved 5,749 4,940 236 227 6,728 4,705Probable 3,573 2,994 197 179 3,603 2,495Total proved plus probable 9,321 7,934 433 406 10,331 7,200
Conventional natural gas Coal bed methane Total Gross Net Gross Net Gross Net (Bcf) (Bcf) (Bcf) (Bcf) (Mboe) (Mboe)Proved Developed producing 110.1 95.6 23.1 20.9 29,856 25,288Developed non-producing 5.9 5.0 1.9 1.7 2,108 1,716Undeveloped 72.9 67.2 9.8 8.4 18,052 16,020Total proved 189.0 167.9 34.9 31.1 50,016 43,024Probable 83.2 73.2 10.3 9.1 22,953 19,375Total proved plus probable 272.1 241.0 45.2 40.1 72,969 62,400Note: May not add due to rounding.
RECONCILIATION OF GROSS RESERVES (forecast prices) Total Total proved plus(MBoe) proved probableOpening, Dec. 31, 2009 $40,157 $63,234Technical revisions 3,194 (1,314)Exploration discoveries 2,948 3,394Drilling extensions and infill drilling 6,590 8,463Acquisitions 2,805 4,928Dispositions (145) (203)Production, excluding sulphur (5,533) (5,533)Closing, Dec. 31, 2010 50,016 72,969Note: May not add due to rounding.
NET PRESENT VALUE OF RESERVES, BEFORE INCOME TAXES AT DEC. 31, 2010 Discounted at: ($ thousands) Undiscounted 5% 10% 15% 20%Proved Developed producing 898,635 690,394 562,324 476,156 414,437Developed non-producing 60,971 42,863 32,099 25,063 20,161Undeveloped 403,737 257,355 169,228 112,759 74,807Total proved 1,363,343 990,612 763,650 613,979 509,405Probable 789,008 452,270 289,331 198,458 142,701Total proved plus probable 2,152,351 1,442,882 1,052,982 812,437 652,106Note: May not add due to rounding.
NET ASSET VALUE Forecast prices -- Dec. 31, 2010 Discounted at: (thousands except as noted) 8% 10% 12% Net present value of future net revenue, discounted, before tax $1,184,975 $1,052,982 $943,938 Undeveloped land 66,131 66,131 66,131 Convertible debentures (100,000) (100,000) (100,000)Long-term debt, net of working capital (222,874) (222,874) (222,874)Net asset value 928,232 796,239 687,195 Diluted common shares outstanding 103,275 103,275 103,275 Net asset value per share $8.99 $7.71 $6.65
CAPITAL EFFICIENCY HIGHLIGHTS -- 2010 Total proved Proved plus probableCapital costs ($ thousands, unaudited) Exploration and development 157,090 157,090Acquisitions, net of dispositions 77,572 77,572Change in future development costs Exploration and development 61,484 28,328Acquisitions, net of dispositions 2,444 20,674Reserve additions (Mboe) Exploration and development 12,732 10,543Acquisitions, net of dispositions 2,660 4,725Finding and development costs, excluding change in future capital ($ per boe) 12.34 14.90Finding and development costs, including change in future capital ($ per boe) 17.17 17.59Finding, development and acquisitions costs, excluding change in future capital ($ per boe) 15.25 15.37Finding, development and acquisition costs, including change in future capital ($ per boe) 19.40 18.58Operating netback ($ per boe) 27.42 27.42Finding, development and acquisitions costs, excluding change in future capital ($ per boe) 15.25 15.37Recycle ratio 1.8 1.8Reserve additions, including acquisitions and revisions (MBoe) 15,392 15,268Total 2010 production (MBoe), excluding sulphur 5,533 5,533Production replacement ratio 2.8 2.8Gross reserves (MBoe) 50,016 72,969Fourth quarter 2010 production (boe per day), excluding sulphur 15,948 15,948Average 2010 production (boe per day), excluding sulphur 15,160 15,160Reserve life index, using annualized Q4 production (years) 8.6 12.5Reserve life index, using 2010 production (years) 9.0 13.2
Operations
Fairborne is currently operating three drilling rigs in the Alberta Deep basin and one at Sinclair, Man. The company expects to maintain this level of activity through to spring breakup.
Marlboro/Pine Creek Wilrich -- 11 successful Wilrich wells
Fairborne's success continues at Marlboro with the latest well being successfully drilled and completed with 12 hydraulic fracture stages. This well was inline tested in excess of seven million cubic feet per day.
This latest well brings the total horizontal wells drilled and completed at the company's Marlboro property to 11. Production performance to date continues to meet or exceed expectations as summarized in the table, "Production performance."
Number of producing wells Gas rate per well30-day average 10 4.2 million cubic feet per day60-day average 10 3.9 million cubic feet per day90-day average 10 3.6 million cubic feet per day
On Nov. 4, 2010, Fairborne's board of directors approved the construction of the Fairborne Marlboro gas plant with capacity of 40 million to 50 million cubic feet per day. Construction is continuing and on track for a late April start-up with costs coming in as budgeted. The plant design includes significant expansion capabilities and liquids recovery for Wilrich gas of 15 barrels per million cubic feet.
On Dec. 31, 2010, the third party pipeline operator to which Fairborne currently delivers its Marlboro gas for transportation to and processing at the K3 gas plant (same third party operator) informed the company that it was restricting Fairborne's flow rate from the Marlboro property.
Fairborne has had and continues to have approximately eight million cubic feet per day (1,350 barrels of oil equivalent per day) of net production shut in due to this restriction. Initial indications were that the restriction was a short-term situation, however the company now anticipates the restriction will be in place until the Fairborne Marlboro gas plant is commissioned and running in April of this year.
With three additional wells (2.2 net) planned to be drilled and completed by spring breakup and assuming the wells achieve the average initial production rate of 4.2 million cubic feet per day, the company anticipates having a net additional 1,500 boe per day behind pipe awaiting start-up of the gas plant.
Sinclair -- increasing initial production rates
At current oil prices, the Sinclair light oil property represents a significant value upside for Fairborne as the company receives exceptional netbacks of approximately $80 per barrel at current prices.
The winter drilling program includes nine (8.1 net) horizontal wells that will follow up the initial success obtained on the three most recent wells drilled where the number of fracture stimulations was increased from the previous standard of 10 to 12 per well to a range of 14 to 28 per well. This increase in fracture number is designed to investigate the level of increased production performance with increased stimulation. Four wells in the winter program have already been drilled and completion operations are currently under way.
The first well using the increased fracture stimulation has now been on production for three months. This well was fracture stimulated over 14 intervals and had an initial production rate of 75 barrels per day (a 25-per-cent increase over the type well) and is currently producing 60 barrels per day (a 39-per-cent increase over the type well).
The second and third wells drilled in the 2010 program were fractured 24 and 28 times respectively and although stabilized production has not yet been reached as a result of increasing oil production rates, initial results are encouraging.
Harlech -- developing liquids-rich cardium play
Three (2.2 net) vertical, multizone wells are planned for the winter program at Harlech, with the first well having spud in early January. These wells are targeting Viking, Notikewin, Falher and Gething sands in the Deep basin and are following up on successful development drilling from the fourth quarter of 2010.
The company previously announced plans to recomplete an existing vertical well for the cardium sand on the western side of the Harlech property during the first quarter. Fairborne has 92 net sections of prospective cardium rights in the Harlech area and, with condensate and natural gas liquid yields of 50 barrels per million cubic feet in nearby wells, the successful recompletion could lead to a large development area of low-risk liquids-rich gas development.
During the first quarter Fairborne has evaluated the cardium in three (2.1 net) vertical wells over an area of two townships on the west side of the Harlech property. These wells were completed with average fracture stimulations of approximately 40 tonnes and have stabilized test rates of between 250,000 cubic feet per day to one million cubic feet per day. These wells also averaged approximately 30 barrels per million cubic feet of free condensate at the wellhead and in addition are expected to yield significant amounts of natural gas liquids.
Based on the encouraging flow rates and liquids yield from the above-mentioned vertical tests, Fairborne is planning to drill a horizontal cardium well at Harlech during the second half of 2011.