Will They Twining and Penhold ( $200+ million ) CONNACHER'S TWINING RESERVES ASSIGNED 10% NPV OF $36.2 MILLION AND RESOURCES SEPARATELY ASSIGNED A 10% NPV OF $114 MILLION
Connacher Oil and Gas Ltd. has received a report from GLJ Petroleum Consultants, independent reserves and resource evaluators of Calgary, Alta., assigning Connacher's Twining proved and probable (2P) reserves a 10-per-cent net present value of $36.2-million and, separately, assigning Connacher's Twining best estimate contingent resources an additional 10-per-cent NPV of $114-million.
Connacher also disclosed that it has engaged Macquarie Capital Markets Canada Ltd. as its exclusive adviser to assist in a value realization process for the Twining property and for Connacher's adjacent Penhold property. The process will likely involve a cash and carry farm-out or a sell down. Landholdings in each of the aforementioned areas exceed well over one township (36 square miles), so there is considerable room for additional development activity to fully realize the resource potential of these light gravity crude oil and associated natural gas plays.
"The Twining and Penhold value realization process is part of our broader effort to increase liquidity, reduce debt and constrain direct capital spending," said Peter Sametz, president and chief operating officer. "We think GLJ's new Twining valuation, which represents a significant multiple of our sunk costs in this project, will help us to conclude the process successfully and quickly, with considerable liquidity benefits for Connacher."
Twining reserves and resources estimates
For Twining, GLJ estimated 2P reserves of 2.15 million barrels of oil equivalent (boe), of which approximately 76 per cent was light gravity crude oil. GLJ also separately assigned best estimate contingent resources of 12 million boe (76 per cent light gravity crude oil) to the balance of Connacher's Twining property, pending the outcome of additional drilling.
The 10-per-cent NPV of $36.2-million for the estimated future net revenue from the Twining 2P reserves and, separately, the additional 10-per-cent NPV of $114-million for the Twining best estimate contingent resources, were prepared by GLJ using its current forecast prices, after deducting royalties, operating costs and future capital requirements but before income tax and after applying a discount factor of 10 per cent. The GLJ Twining report was dated Nov. 2, 2011, with an effective date of Sept. 30, 2011. As the Penhold area is awaiting the outcome of two recently completed wells and is at an earlier stage of assessment, a similar report was not prepared for Connacher's Penhold assets at this time.
Twining and Penhold are both situated in central Alberta and are substantially wholly owned producing and non-producing resource properties, prospective for development of light gravity crude oil and associated natural gas using new technology, incorporating horizontal drilling and multifrac completions.
At Twining, which is prospective for Pekisko light gravity crude oil, Connacher has now drilled a total of seven horizontal multifrac wells and is in the process of tying in the last of six 2011 wells scheduled to be on stream by year-end 2011. A seventh well is scheduled for completion in 2012. Production results for 2011 will be issued when all wells have been brought on stream for a sufficiently long period to provide meaningful results, including production from recently completed wells.
At Penhold, which is prospective for Viking light gravity crude oil and associated natural gas, Connacher owns an extensive land base, together with established infrastructure, and has recently drilled and fractured two horizontal wells, which are currently being brought on stream. The timing of drilling, completions and tie-ins in both regions was delayed earlier this year by unusually wet weather, and more recently, activity was affected by the availability and scheduling of completion services.
Readers are reminded that references to boe are calculated on the basis of six thousand cubic feet to one barrel. This conversion is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head. Barrels of oil equivalent may be misleading, particularly if used in isolation