Petrobank produces 10,200 boe/d, plans Bakken drilling
Petrobank Energy & Resources Ltd (C:PBG) Shares Issued 76,961,623 Last Close 1/14/2008 $53.91 Tuesday January 15 2008 - News Release
Mr. John Wright reports
PETROBANK ANNOUNCES OPERATIONAL UPDATE
Petrobank Energy and Resources Ltd. has operational updates for the company's Canadian, Latin American and heavy oil business units.
Canadian business unit
2007 activity and production
Throughout 2007, Petrobank continued to expand its drilling and facility plans, as its inventory of development locations and production volumes grew. By December, 2007, the company was producing in excess of 10,200 barrels of oil equivalent per day and its production has continued to rise into early 2008 with current production exceeding 11,000 barrels of oil equivalent per day.
In 2007, Petrobank drilled 72 (70.5 net) operated wells and participated in a further 28 (10 net) wells in the Bakken light oil play. Of these operated wells, eight (eight net) wells were waiting to be fracture-stimulated at the beginning of this year and that activity recommenced on Jan. 6. The company has a further inventory of eight (one net) non-operated wells also awaiting fracture stimulation. Finally, the completion of its gas plant in the Innes area during the fourth quarter allows the company to begin to capture the natural gas and natural gas liquids production from the Bakken wells in the Innes and Midale areas.
2008 activity plan
The company's 2008 plan for the Canadian business unit includes drilling 135 (100-per-cent working interest) Bakken locations, making Petrobank the most active player in southeast Saskatchewan's Bakken trend. In addition to these wells, the company expects to participate in a further 38 (17 net) Bakken wells with partners in 2008. As noted above, the company constructed its first Bakken central processing facility at Innes in 2007, which is tied into the Enbridge oil pipeline system and the Transgas gathering system. In 2008, the company plans to supplement this facility with two additional satellite locations that will allow the company to continue to capture the liquids-rich natural gas associated with its high-value Bakken light oil production. The first satellite facility, located north of its current Innes facility in the Creelman area, is expected to be operational in late May. This facility is designed to remove any associated water production and then transfer all remaining oil and natural gas via pipeline to its Innes facility; which has ample capacity to manage these volumes. The second satellite facility, which is expected to be operational by late August, will be an integrated oil battery and gas plant, designed to manage new volumes being produced further to the east.
Although the Bakken formation will be the Canadian business unit's primary focus in 2008, the company also plans to drill at least 19 new exploration wells focused on building new core areas for light oil or natural gas. A deep exploration well in the Economy Creek area of northwest Alberta will spud within the month, and the company also anticipates drilling its light oil play in the Torquay formation in southeast Saskatchewan during the first quarter. Our proposed Peerless acquisition also brings certain new exploration and development drilling opportunities. In addition, the company has an extensive inventory of shallow gas locations that, with improvement in natural gas prices, can be quickly developed.
Peerless acquisition
On Nov. 22, 2007, Petrobank and Peerless Energy Inc. announced that the company had entered into an arrangement agreement whereby Petrobank will acquire all of the issued and outstanding shares of Peerless. The acquisition will be accomplished through a plan of arrangement wherein each Class A share of Peerless will be exchanged for 90 cents cash and 0.08 of one Petrobank common share and each Class B share of Peerless will be exchanged for $10 cash.
With the Peerless acquisition, Petrobank's current conventional Canadian production would be approximately 16,600 barrels of oil equivalent per day inclusive of Peerless' recently announced 2007 exit rate of 5,600 barrels of oil equivalent per day. This acquisition contributes 18 net sections of undeveloped land and approximately 3,350 barrels of oil equivalent per day from the Bakken play, which complements Petrobank's strong Bakken position with current production of 8,800 barrels of oil equivalent per day and an undeveloped land base of 170 net sections in the area. The combined Bakken production of approximately 12,150 barrels of oil equivalent per day and the extensive inventory of future drilling locations will improve its ability to conserve the liquids-rich natural gas associated with the oil through efficiencies in common facilities and infrastructure. Although this transaction is still subject to final Peerless shareholder approval, expected in January, 2008, the company has included its development plans for the combined entity on a go-forward basis. In the event that the Peerless transaction is not completed as anticipated, the company will redeploy its capital resources to further accelerate the development of Petrobank's existing Bakken lands.
The majority of its Bakken land base is expected to yield four horizontal wells per section. Including the land base being acquired with Peerless, the company will have 120,000 net acres of Bakken undeveloped land and estimate its drilling inventory at over 600 (540 net) locations. This light oil resource play is expected to be the Canadian business unit's primary focus area for years to come. Our highly effective drilling and stimulation program, along with the expansion of its significant land base, has strategically positioned Petrobank to be a key long-term Bakken light oil player.
Latin American business unit
Petrobank's Latin American business unit is operated through its 76.5-per-cent owned subsidiary, Petrominerales Ltd.
Corcel-3
The Corcel-3 well spudded on Nov. 21, 2007, and was drilled directionally to a total depth 13,037 feet. Logs indicate that the Mirador and Guadalupe sands that are producing in Corcel-1 and Corcel-2 are present in Corcel-3 at depths approximately 95 feet lower when compared to the Corcel-1 well. An additional 600 feet of geological section was drilled in Corcel-3 that was previously thought to be economic basement. During the drilling of the additional section the company encountered sands with oil and gas shows in this lower interval before drilling was terminated and the decision to case the well was made. Due to the deviated nature of the well the company was unable to drill the well to basement and were unable to obtain open hole logs over this lower interval. The company plans to drill its next vertical Corcel well deeper to fully evaluate the potential of these lower intervals. Both the upper sands and the newly encountered lower intervals in this well will be evaluated with cased-hole logs and through production testing. The company expects that a similar additional section of potential reservoir rock exists below both the existing Corcel-1 and 2 wells, and the company is assessing its options to deepen an existing well or drill a new well to evaluate this deeper portion of the field.
After drilling Corcel-3, the company plans to move the drilling rig to drill two of its other Llanos Basin exploration wells, which can only be accessed during the dry season, and the company then intends to resume its Corcel drilling program, starting with the Corcel-C exploration well.
Casimena
Drilling and logging operations have been completed on its Mapuro-1 sidetrack exploration well on the Casimena Block in the Llanos Basin. Logs indicated that the sand in the Cretaceous Ubaque formation contained a non-commercial hydrocarbon accumulation and, as a result, the well was plugged and abandoned.
Exploration drilling program
During the 2008 dry season at least six further exploration wells are planned for the Llanos Basin. This will include two wells on the Mapache block, and one exploration well on each of the Joropo, Castor, Casanare Este and Corcel blocks.
Las Aguilas
The company is continuing to test the Conga-1 well on the Las Aguilas block with fluctuating flow rates through the jet pump completion. Once stabilized production data is obtained from this test the company also plans to evaluate the potential of the prospective up-hole intervals of this well. The company will also be shooting a 48 square kilometre 3D seismic program over the Orito and Las Aguilas blocks during 2008 and plan to drill its next exploration well on the Las Aguilas block in the second half of 2008.
Seismic acquisition
An additional 100 square kilometres of 3-D seismic will be acquired over the Corcel block to further delineate and explore the trends on which the Corcel discovery was made. The Guatiquia block to the south and west of Corcel will also have approximately 35 square kilometres of 3-D seismic shot on it during 2008. In the Joropo area, the company plans to acquire 66 square kilometres of 3-D seismic over the three contiguous blocks of Joropo, Jabali and Jaguar.
Heavy oil blocks
The company is acquiring seismic over its three heavy oil blocks, Chiguiro Oeste, Chiguiro Este and Rio Ariari. The company completed the acquisition of 160 kilometres of 2-D seismic over Chiguiro Oeste in December, 2007, and the company is now acquiring 416 kilometres of 2-D seismic over Rio Ariari. In addition, on the Chiguiro Este block, the company plans to shoot 62 square kilometres of 3-D seismic to follow up on channel anomalies identified off reprocessed 2-D seismic. The company will also be acquiring 48 kilometres of reconnaissance 2-D seismic over Chiguiro Este.
Production update
Petrominerales's working interest production averaged 11,590 barrels of oil per day in December, 2007 and is currently in excess of 9,400 barrels of oil per day.
Corcel
Our Corcel pool is exhibiting typical Llanos Basin production characteristics, with increasing watercuts over time. This active water drive is responsible for high ultimate recoveries of original oil in place. The production methodology required to optimize both oil production rates and ultimate recovery is the incorporation of high volume electric submersible pumps and large water handling facilities. Our Corcel 1 and 2 wells are both operating at significantly restricted rates with the combined production capacity of these two wells being in excess of 40,000 barrels of total fluid per day. Currently, total fluid production is limited to pump intake and facilities capacities. Accordingly, Petrominerales plans to perform a workover to isolate the interval responsible for the majority of the water production in the Corcel-2 well in the next two weeks. The company then expect to add production from its Corcel-3 well in February. In April, the company plans to take delivery and install ESPs capable of producing 15,000 barrels of total fluid per day in each of its Corcel wells.
Our production is currently being handled through temporary production facilities. The company has approval to expand these facilities to 68,000 barrels of fluid per day. This expansion is currently underway and is expected to be completed in March, 2008. The company plans to further increase the capacity of these facilities to 120,000 barrels of fluid per day by the end of 2008.
Approvals to commence construction of the permanent production facilities are expected by August, 2008. These facilities will have a capacity of 180,000 barrels of fluid per day and are expected to be completed in the first quarter of 2009. The design is modular and is easily expandable as required.
Orito
Petrominerales has kicked-off its 2008 Orito program in the up-dip area of the field, on the strength of production results from its Orito-122 well. The first follow-up well, Orito-161, had initial production rates of 338 barrels of oil per day with a 40-per-cent water cut. Now that the water cut has stabilized, the company will increase the frequency of the ESP to fully optimize production rates. In its next well, Orito-121, logs indicate 32 feet of pay in the A sands alone (which are typically depleted in the down-dip sections of the Orito field), and the company has started the completion of the well in these sands. The B, C and D sands in this well will then be evaluated. The company is now moving the drilling rig to a further up-dip location, Orito-168. Later in the first quarter, the company also plans to drill the Orito-130 well in the southwest extension area of the field, near its highly successful Orito-117 and Orito-118 wells.
Joropo
In addition to drilling its next Joropo exploration well in February of this year, Ojo de Tigre-3, the company will also be performing a workover on the Ojo de Tigre-2 well to remove the gravel-pack screens from its original completion, and install an ESP in the well. The company plans to conduct an extended production test on this well for the remaining duration of the dry season.
New drilling rigs
Petrominerales has signed long-term contracts (for 18 months) for two new drilling rigs. The first is a 1,000 horsepower rig that is expected to commence drilling at Orito in February, 2008. The second is a 1,500 horsepower rig that is expected to commence drilling at Corcel in the second quarter of 2008.
Heavy oil business unit
Whitesands
Recent operations at the Whitesands site have focused on the installation of the new sand-handling system which became operational for all three wells late in December, 2007. This system has increased on-stream time and enhanced its ability to manage produced sand and ultimately flow the wells to their target capacity. In conjunction with the new sand-handling system, upgrade modifications to other plant operations were made to facilitate the addition of the planned three-well expansion. Another key upgrade was further enhancement to its H2S treating facilities, which are installed and ready to operate, however regulatory approval to operate this system has been delayed and is now not expected until early February. This delay has limited its ability to increase air injection and therefore increase production levels in the short term.
As previously discussed, its three-well expansion project is also waiting on regulatory approval which is delaying the drilling of the next three That/Capri wells. Because of this, the company has decided to drill at least one additional well on the current plant footprint which will be its first Thai/Capri well. As this well is located on the existing plant footprint, the regulatory process is more streamlined. This will also enable the company to advance the testing of its Capri completion design and its revised slotted liner designed for improved downhole sand control. In addition, the company can start producing from this well sooner, using the existing combustion zone, which should allow the company to avoid the pre-ignition-heating cycle. Advancing this well provides an opportunity for continued optimization of the project design and reduction of execution times for future projects.
In December, 2007, the company also completed a 4-D seismic survey over the current project site, which the company believes will provide valuable information on the morphology of the combustion zone. The company has also completed five additional stratigraphic evaluation wells, the results of which will be included in the updated resource evaluation being conducted by its independent reserve auditors. The company plans to drill up to an additional 23 oil sands exploration wells during its 2008 drilling program.
May River
Our earlier plan at the Whitesands site was to have filed a 10,000-barrel-per-day project application by the end of 2007. This plan has been modified as the company has enhanced its process design to allow for a larger central facility with ultimate capacity for 100,000 barrels per day, as well as other facilities improvements based on data from its current operations. This new project will be known as May River. The central facility design will lower the overall environmental footprint of the project and requires a different surface location than previously planned. The company now expects to file the first phase application for the initial 10,000 to 15,000-barrel-per-day stage of the project by mid-2008, which will include pre-development for the larger overall development. This approval will require additional environmental fieldwork to accommodate the larger initial scope of May River.
To facilitate the application process for the overall project design, the company has released its public disclosure document for the May River project describing its 100,000-barrel-per-day Thai development plans for the Whitesands leases. The PDD is the first step in the public consultation process and is a key aspect of the overall project approval process. The PDD will allow the company to consult on its full development plan, thereby potentially shortening the overall approval process, rather than undertaking a detailed public consultation for each separate phase. The rationale for initiating this full-scale development plan with a 10,000 to 15,000-barrel-per-day initial stage, is that while the overall project will require a comprehensive environmental impact assessment, the first phase will only require a localized environmental assessment that the company can begin immediately. The company will also initiate the full scale EIA in the first quarter of 2008.
Please refer to the company's website for the complete May River project public disclosure document.
Dawson
Our regulatory application for the Dawson project is also expected to be filed by mid-2008. This project is a 50/50 joint venture with Duvernay Oil Corp. to develop the Thai technology in the Bluesky formation in the Peace River region. With prompt regulatory approval the company expects to undertake development by the third quarter of 2008.