LARGE-SCALE FUNDING ARRANGEMENT-I guess anything is possible GLTA
Outlook and Current Environment
As set out in the Corporation’s 2023 Annual MD&A filed last month, reduced production and revenue continued to negatively impact PetroFrontier’s bottom line in Q1 2024. The primary cause of this reduction has been the prolonged shut in of production from the Corporations top producing well (approx. 75 bopd) to carry out a two-well multi-lateral drilling program. That shut-in period has been extended, and the production add expected from the multi-lateral wells delayed, due to a shortfall in funding under the production sharing arrangement set out in the Corporation’s May 30, 2023 news release. As a result, PetroFrontier has not only foregone the expected production and revenue from the multi-lateral program and recommencement of production from its top producer, it has also had to redirect capital originally earmarked for production maintenance and enhancement in order to maintain basic operations. However, despite the significant challenges faced by the Corporation, management is taking the necessary steps to address them. In this regard, as mentioned in our last financial filings, work continues on finalizing a [large-scale] funding arrangement that would properly capitalize a sustained, long-term development program with a view to creating shareholder value and, at the same time, strengthening our First Nation joint venture partnerships, through revenue-generating performance. The goal is to also strengthen its relationships with dedicated service providers who have persevered with the Corporation, by reducing and maintaining its accounts payable at industry standard levels. With respect to PetroFrontier’s relationship with our First Nation joint venture partners, further to the disclosure set out in the Corporation’s 2023 Annual Audited Financials and MD&A, management is pleased to report progress in discussions to find a path to potentially allow the Corporation to recover approximately 6 sections of working interests and associated reserves on the basis of improved performance.
Turning to additional steps being taken, as reported in the December 31, 2023 MD&A, PetroFrontier secured additional financing to conduct workovers on the two multi-lateral wells in order to improve their production capabilities and reactivate the currently shut-in Rex production. This work is planned following spring breakup with commencement expected in the second quarter. Further, management is also continuing its efforts to pursue the enhanced oil recovery (“EOR”) potential at Cold Lake and Wabasca. In this regard, as announced on August 11, 2023, the Corporation has partnered with the renowned Korea Institute of Geoscience and Mineral Resources (“KIGAM”) to explore the EOR potential at Wabasca. As outlined in the 2023 annual filings, the project aims to advance existing EOR techniques and practices utilizing KIGAM’s leading research and innovation capacities via funding, reviewed annually, over a planned 6-year development timeline. The goal of the project is to develop unsurpassed technologically advanced and environmentally responsible EOR operations and facilities with potential near-term upside for PetroFrontier in the form of production and reserves growth resulting from, the drilling of pilot EOR wells that target commercial production within the next 12-18 months. Of course, realizing that upside is subject to funding as well as regulatory and First Nation approval. Likewise, that is also the case with respect to management’s desire to commence a pilot EOR project at Cold Lake in conjunction with a single-leg horizontal well program initially targeting conventional cold-flow heavy oil production with sand (“CHOPS”) but utilizing thermal completion techniques for potential EOR development in the future.
As described above, management is taking the necessary steps to address the challenges set out above. We thank the Board and our stakeholders, including our funding partners, for their continued support as well as our First Nation partners for their valuable participation in our efforts to address the challenges faced by PetroFrontier with a view to our mutual benefit.