Mr. Jim Britton reports
PEARL/WAFTS WELL INCREASED PRODUCTION
Theoperatorof the Watts project (also referred to as Pearl) has informed PennantEnergy Inc. that tie-inconstruction operations were completed and production from the DrumlinPearl 7-9-30-16W4 wellbegan on Aug. 15, 2010, on time and under budget. Production wasinitiated at a raw gas rate ofapproximately 500 thousand cubic feet per day and as of Sept. 3 hadgradually beenramped up to the planned operating range of one million cubic feet a day(167barrels of oil equivalent a day, or 82 barrels of oil equivalent a daynet to company interest). The company owns a reversionary workinginterestin the well and Section 9 and a 50-per-cent working interest in variouspetroleum and natural gas rights (P&NG) rights in two sections(1,280 grossacres) of land offsetting the Drumlin Pearl acreage, as describedhereunder. Contingent upon theperformance of the Drumlin Pearl well, development drilling of theoffset acreage may commence inearly fall 2010.
The terms of the farm-in agreement called for the company to pay 75 percent of the costs to drill and complete the test well, and 50 per centof equipping and tie-in costs. By satisfying the terms of the agreement,the company has earned a reversionary working interest of 50 per centbefore payout, reverting to an after-payout interest of 25 per centafter recovery of a capital cost multiple equal to 300 per cent of adrilling and completion costs. There are no burdens other than AlbertCrown royalties on new gas, which will qualify for the Alberta new wellincentive program maximum rate of 5 per cent during the first year ofoperation, or 500 million cubic feet of gas, whichever occurs first. Inaddition, the company earned an undivided 25-per-cent working interestin all PNG rights to the base of the deepest formation evaluated on thefarmout lands, which covered one section, or 640 gross acres. Thecompany also owns a 50-per-cent interest in the P&NG rights belowthe base of the Edmonton group in Section 16-30-16W4 and a 50-per-centinterest in the P&NG rights from surface to the base of the BellyRiver group in Section 4-16-30W4, totalling 1,280 gross acres. Thecompany has the option to participate as to a 50-per-cent workinginterest in future land acquisitions, exploration and development withinan area of mutual interest for a period of one year from the effectivedate of the agreement.
The Pearl well not only qualifies for the Alberta new well incentive program, upon application thecompany will qualify for the $200-per-metre-drilled Crown royalty drilling credit.