BTW Primary is a major holder of Alberta Bakken acreage in the USA. This note to shareholders is in response to information released by Rosetta (another USA Alberta Bakken player) of disappointing flow rates from two horizontal wells. The is only relevant to the extent that the Rosetta results have driven down BWD's SP. Probably material but I am in at +$.50 (I know what a fool) and it doesn't speak to that.
What it is, is an excellent example of proactive communications by a company on behalf and for their shareholders. This is certainly not what we get from BWD management who see fit make amateurish moves such as using the ambigouos and frankly meaningless term "in a few days". in their news release. The best update we have on the second well (Kipp) is from Legacy's Trent Yanko who said in a presentation (December 5) that the Kipp well would be put on production in about 10 days. hopefully the information below will be of some help to someone.
PRIMARY PETROLEUM (PIE:TSX.V and PETEF: OTCQX) is pleased to provide you with the following update on the Southern Alberta Basin.
In case you have not seen theupdate from Rosetta Resources (ROSE) on December 12th, here is theirupdate from their SAB Bakken prospect in NW Montana.
"Regardingour plans in the Southern Alberta Basin, ROSE's exploration program is acomplex play with limited service infrastructure that will take timefor the industry to completely understand and develop. We will completeour current horizontal drilling program and adjust our exploratoryefforts and spending to reflect those results and hold our position forfuture optionality."
"The 2012 budget allocates approximately five percent of funds (approx.$32 million) for evaluation of the Southern Alberta Basin. ROSEcontinues to implement the previously announced seven-well horizontaldrilling program to test the economic potential in the Banff, Bakken,and Three Forks reservoirs across its approximately 300,000 net acreposition in northwestern Montana. To date, the Company has successfullydrilled four of the seven horizontal wells with the remaining threescheduled to be drilled in early 2012. Two of the four wells drilled todate have been completed in the Middle Bakken and have tested atstabilized rates of 154 barrels of oil equivalent per day ("BOE/d") and104 BOE/d. Completion operations continue on the third well. Theremaining four horizontal completions will be tested during the firsthalf of 2012."
Clearlythe market did not find this update by ROSE as positive for Primary asour share price is down approx. 38% over the past two trading days.Primary has always attempted to provide updates to its subscribers onwhat is going on in the Southern Alberta Basin Bakken Fairway,especially on the Montana side of the border. In saying this I want tore-iterate and clarify our current position in this exploration programand our opinion on what ROSE disseminated.
- On Nov. 7th, ROSE announced on their 3rd Qtr release that its first horizontal well is production testing and once stabilized would release results, as well ROSE expected to release production results from all horizontal wells by year end if completed.
- On Dec. 12th, ROSE announced stabilized test production rates of 154 boe/d and 104 boe/d on two horizontal wells (Tribal Riverbend and Fee Simonson).
- On their 2nd Qtr conference call and in their presentations they identified then and continue to identify a six billion barrel resource, "advanced well science work needed to crack code to complex play"
- Targeted Assumptions for well commerciality - IP rate of 250 Boe/d; EUR 185MBOE, 160-acre spacing, $4 million well costs - 21% ROR at $85/bbl WTI
- We need to remember there are five more wells that we will be getting production results from in the 1st half of 2012.
Theunknown and discrepancy in this information provided by ROSE is thatthey state well commerciality with an IP rate of 250 boe/d but then theyannounce two wells at "tested at stabilized rates of 154 boe/d &104 boe/d. The unknown is the IP rate suggested, is it a 24 hr; 3 day;or 7 day IP rate. The tested stabilized rates was for how long? 1 day; 7days; or 30 days? Once this is clarified, we all can accuratelycalculate the commerciality of these wells.
Ithink if you asked most petroleum engineers for their definition on"stabilized test production rates" they will probably tell you that itrefers to ability for the column of oil in the vertical well bore toremain at a constant height while producing oil at the identified rateand that the initial decline of production from the well has transpired.So if ROSE states that one of their wells had a stabilized testproduction rate of 154 boe/d, I think its safe to assume that the "IPRate" of the well was higher; how much higher that depends on how longthe stabilized test production rate has been at 154 boe/d.
Ifone of the wells was been production tested from their Nov. 7th, PressRelease, and then announced a "stabilized production test rates" of 154boe/d & 104 boe/d, then one could assume at lease one well has beenproducing for over 30 days. If this assumption is accurate then the IPrates of this well would have met or exceeded their "targetedassumptions for well commerciality IP rate of 250 boe/d.
Timewill tell as we get more information on the existing production rateson these two wells and on their next five wells. As well, they continueto identify the testing the economic potential in the Banff; Bakken andThree Forks and so far they have only identified the Bakken.
PRIMARY PETROLEUM
Todayour share price closed at a 12 month low of 39 cents and our enterprisevalue is approx. $40 million. We have a world class Major J.V Partnerthat provided us with $48.5 million dollars for a 32.5% W.I. in our291,00 acres in the SAB in NW Montana, adjacent to the south of ROSE;NFX; FXEN and Anschutz acreage position on the Blackfeet IndianReservation.
Wereceived $7.5 million in cash and currently have over $20 million inthe bank with no debt and our G&A is approx. $100k/mth. The JVPartner paid $41 million that is in escrow to fund 100% of the costs on125 sq. miles. of 3D seismic; 6 vertical and 6 horizontal wells no ifs,ands or buts… and will be spent by the end of 2012.
Ourcurrent vertical drilling program is underway, and Primary is veryfortunate to have not only the expertise of Jim Ehrets, Director andU.S. Operations Advisor and Bill Paddock, Drilling and Completionsconsultant who have drilled over several hundred Bakken/Three Forks typewells, and also a J.V. Partner that is ver experienced working in thistype of play.
Thereare similarities, geologically speaking to the Williston Basin Bakken,but lets be clear here, the SAB is not the Williston Basin. This meansthat we will not see the large IP rates (plus 1000 boe/d) or well EUR's(500 to 750MBO's) also the well depth will be about half of theWilliston Basin, which means that wells in the SAB will not cost $9 -$13 million either (estimated at $4 million on a program basis).
Hereare the targeted assumptions for well commerciality that Primary willhope to achieve and remember that Primary will be seeking commercial oilproduction from the Sunburst, Madison, Lodgepole, Bakken, Three Forks,Big Valley and Nisku formations.
IP Rates - 250 to 375 boe/d
Well EUR's - 250 MBO based on 320 acre spacing
Well cost - $4 million (on a program basis)
75% IRR at $75/bbl WTI
Thenext data points that we all can look forward to in the near future arethe production rate from the 3rd ROSE horizontal well and theproduction rate from the 1st horizontal well that FX Energy has statedis scheduled to be fracked this month.
FromPrimary, we hope to provide a drilling update after the 3rd verticalwell which represents the half way mark on the vertical program; anoverview once the vertical program has been completed and then ashorizontal program gets underway. Please note that all informationdisseminated by Primary on our SAB project is subject to approval by ourJV Partner prior to release.
I hope the above information provides some clarity during these uncertain and nervous times in the financial markets.
All of us at Primary Petroleum would like to thank you for your interest and confidence in our Company as well as wish you all,
"The Very Best This Holiday Season and a Prosperous 2012"
Regards
PRIMARY PETROLEUM CORPORATION
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