Granite Oil produces 2,850 bbl/d oil in Q1 2016
2016-04-28 10:36 ET - News Release
Mr. Michael Kabanuk reports
GRANITE OIL CORP. PROVIDES OPERATIONAL UPDATE
Granite Oil Corp. has provided an operational update, including advancement of its gas-injection enhanced oil recovery (EOR) scheme and improving capital efficiencies.
Granite has achieved a 100% voidage replacement ratio (VRR) in the core of its 100%-owned Alberta Bakken oil pool ahead of schedule, reaching a significant milestone in the long-term development of the Company's gas injection EOR scheme. Granite currently has regulatory approval for the EOR scheme over a 23 section area which contains an internally estimated 200 million barrels of original oil in place (OOIP).
After recognizing favourable reservoir characteristics, Granite initiated a gas injection EOR pilot scheme on its Alberta Bakken oil pool in early 2012, only one year after discovery of the pool. Since then, the Company has continued to expand and evaluate the performance of the scheme and has conducted internal and third party reservoir simulation studies that continue to demonstrate its efficiency and benefits. Since receiving regulatory approval to consolidate the scheme over 23 sections of land in the fourth quarter of 2015, the primary operational goal of the Company has been to achieve 100% voidage replacement in the oil pool through gas injection under the EOR scheme. The Company believes that attaining the 100% VRR has major long-term implications with respect to increasing ultimate oil recoveries from the pool. The performance of the EOR scheme to-date continues to demonstrate positive response from the pool and third party reservoir modeling shows that the scheme has the potential to triple overall recovery rates compared to the primary recovery rate alone. In addition to recovering significantly more oil, the efficiency of the scheme is expected to reduce the number of wells required to develop the oil pool, decreasing associated capital and operating costs. This combination of improved recovery and efficient development places the Company in a strong position for the continued success of its efficient growth and sustainable dividend model.
Operations Update
Granite continues to improve its capital cost structure. The Company is pleased to announce that in the second quarter it drilled and completed its lowest cost well to-date, with an all in cost of approximately $1.5 million. This represents a 47% decrease year over year, and a 17% decrease as compared to Granite's 2016 budgeted well costs. The well was a re-entry of an existing well and was successfully drilled deeper in the reservoir to optimize oil recovery within the EOR scheme.
The Company continues to optimize operations and anticipates it can drill and complete new wells for similar costs. Granite has a significant inventory of both re-entries and new drills, totaling 40 wells within the area under the influence of its current EOR approval area. The Company will also add two additional gas injector wells this year, building VRR capacity for growth and further developing its model of efficient gas injection for maximizing oil recovery.
Land and EOR Expansion
Granite continues to expand its oil resource potential through the acquisition of highly prospective lands and plans to test its successful gas injection EOR scheme on the western edge of its previously delineated Bakken oil pool, 15 miles west of the existing producing pool.
Granite acquired a total of 7,275 gross acres (7,275 net) of crown lands during the first quarter, along with 3,840 gross acres (3,840 net) of freehold lands. The Company also acquired an option to purchase an additional 16,160 gross acres (16,160 net) of freehold lands over the western portion of the oil pool, approximately 20 miles west of the Company's main producing Alberta Bakken oil pool.
These newly acquired lands allow Granite the opportunity to test the application of its successful EOR technology on its western land base. The Company will commence work on a gas reinjection EOR pilot project that will test the original Alberta Bakken horizontal discovery well along with a second horizontal producing well as an injector-producer pair. Injection gas for this pilot will be supplied from an up-hole Bow Island gas pool. The original horizontal discovery well was drilled in 2011 and flowed oil at approximately 250 bbl/d at the end of a three day production test and produced 22,000 Bbls over a three year period. With improved pressure support and enhanced oil mobility anticipated from the gas reinjection EOR pilot project, the Company hopes to replicate the positive and significant results of its successful EOR scheme applied in the main producing oil pool. If successful, the EOR test has the potential to add significant value to Granite's west Bakken resource, delineated over 15 miles from the existing EOR.
First Quarter 2016
Granite took advantage of competitive equipment and service pricing during the first quarter of 2016 to successfully complete several major facility projects, which considerably advanced the Company's long-term development and expansion of the EOR scheme. In addition to completing a number of field optimization projects, the Company installed and commissioned approximately 2,000 horsepower of additional gas compression equipment, as well as a utility pipeline and related meter station which will provide Granite with secure access to a long-term, reliable gas supply for use under the EOR scheme. With these facility expansions, the Company has built-in capacity for the further expansion of its EOR scheme and the future development of its Alberta Bakken oil pool with reduced capital commitments necessary for future growth. As well, during the re-pressurization phase, the Company is permitted to inject gas at rates greater than 100% VRR to return the oil pool to original pressure conditions. Accordingly, the Company is positioned to take advantage of current gas prices and its expanded facilities to optimize injection rates during this re-pressurization phase.
Granite produced approximately 2,850 Bbl/d of oil during the first quarter of 2016. Total capital expended in the first quarter is estimated to be approximately $4.2 million, which includes the drilling and completion of one Bakken horizontal well for $1.9 million, and $2.3 million of one-time capital outputs primarily for facilities and land. First quarter funds flow from operations was approximately $6.0 million.
Outlook
After satisfying its primary goal of attaining a 100% VRR, the Company has returned its production to approximately 3,000 bbls/d of oil. Granite now has additional gas injection capacity and a number of restricted flowing oil wells which provide the Company go-forward flexibility. As well, with reduced costs, the oil price threshold required to be fully sustainable at the current dividend payout has been reduced. In combination with a strong balance sheet and higher-than-budget commodity pricing, the Company will continue to monitor the effectiveness of its EOR scheme and determine the best use of free cash flow with continued emphasis on maximizing efficient, long-term oil recovery and shareholder value.
We seek Safe Harbor.
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