Petrobank plans extensive drilling in 2008
2007-12-17 11:49 ET - News Release
Mr. John Wright reports
PETROBANK ACCELERATES 2008 ACTIVITY LEVELS IN ALL THREE BUSINESS UNITS
Petrobank Energy & Resources Ltd. is planning to implement its most ambitious capital program in 2008. The Canadian business unit is expected to be the most active driller in the Bakken formation in southeastern Saskatchewan, the Latin American business unit is expected to be one of the most active explorers in Colombia, with an extensive development drilling program also planned, and the heavy-oil business unit will expand activity, not only at Whitesands, but also on the company's other two resource opportunities at Dawson in the Peace River area of Alberta and in northwestern Saskatchewan. Petrobank will also be pursuing the development and acquisition of new and complementary technologies in its Archon Technologies Ltd. subsidiary. Petrobank's 2008 plan reflects the significant progress in all parts of the company in 2007, and forms the foundation for an accelerated growth plan in all three business units for the coming years.
Canadian business unit
Petrobank'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 southeastern 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. In 2007, Petrobank constructed its first Bakken central processing facility at Innes, 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 it to continue to capture the liquids-rich natural gas associated with its high-value Bakken light-oil production. Although the Bakken formation will be the Canadian business unit's primary focus in 2008, Petrobank also plans to drill at least 19 new exploration wells focused on building new core areas. In addition, the company has an extensive inventory of shallow-gas locations that, with improvement in natural gas prices, can be quickly developed.
The Bakken formation
The Bakken formation is found in the Williston basin, underlying much of North Dakota, eastern Montana and extending into southern Saskatchewan. The expansion of Petrobank's presence in the play began with a drilling program that commenced in late 2006. The Mississippian-aged Bakken is an extensive regional resource play with the oil contained mostly in siltstones and thin-sandstone reservoirs with low porosity and permeability. The formation is capable of high initial production rates of sweet, light, 41-plus-degree API gravity oil and liquids-rich solution gas. This resource is significant, with approximately 4.5 million barrels of original oil-in-place per section (one square mile or 640 acres) of land within the known play area.
Management believes that the key to unlocking the potential in the Bakken has been Petrobank's application of new horizontal fracturing and completion technologies. Horizontal wells allow maximum exposure to the reservoir, and the new completion techniques allow fracturing to be contained primarily within the Bakken siltstone along the full extent of the wellbore, to maximize oil production and minimize water production, leading to substantially improved recovery rates. Petrobank's typical Bakken wells are expected to come on production at rates between 150 and 250 barrels of oil per day and after six months they are expected to be producing approximately 80 barrels of oil per day each. Several of the company's wells, that commenced production in December of 2006, reached the end of their 37,740-barrel royalty holiday in less than 11 months and one well has now produced in excess of 55,000 barrels. The recovery of the royalty holiday reserves represents more than 50 per cent of the Sproule proven reserves initially attributed to these wells. This was not forecast by Sproule to be achieved until December, 2010, highlighting the strong performance Petrobank is achieving from its well completions. Petrobank's independent reserve evaluator, Sproule Associates Ltd., currently assigns a proved, probable plus possible (3P) reserves estimate of 125,000 barrels per Bakken well. With Petrobank's high initial production rates from its 100-per-cent working interest wells, it is producing in excess of the forecast type-curves used in this preliminary evaluation. Petrobank's internal estimate is that each well may recover in excess of 150,000 barrels. The companys expects its next reserve evaluation to more appropriately reflect its actual performance to date. It also anticipates additional reserves of approximately 25,000 barrels of oil equivalent per well that is pipeline connected to Petrobank's central gas facility, related to incremental-solution gas conservation and liquids recovery.
As reported in Stockwatch on Nov. 22, 2007, Petrobank and Peerless Energy Inc. that they 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. Based on the five-day weighted average share price of Petrobank ended on Nov. 22, 2007, of $54.33 per share, the effective price per Peerless Class A share is $5.25. The total acquisition cost is expected to be approximately $334-million, including assumption of debt and costs of the transaction. It is expected that approximately four million Petrobank common shares will be issued to effect the arrangement.
This acquisition contributes 18 sections of undeveloped land and 1,900 barrels of oil per day from the Bakken play, which also complements Petrobank's position in the area and 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, Petrobank 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, Petrobank will redeploy its capital resources to further accelerate the development of its existing Bakken lands.
The majority of Petrobank's Bakken land base is expected to yield four horizontal wells per section. Including the land base being acquired with Peerless, Petrobank will have 155,000 net acres of Bakken undeveloped land and estimates 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. Petrobank's highly effective drilling and stimulation program, along with the expansion of its significant land base, has strategically positioned the company to be a key long-term Bakken light-oil player.
Latin American business unit -- Petrominerales Ltd.
In 2008, Petrobank's Latin American business unit, operated through its 76.5-per-cent-owned subsidiary, Petrominerales Ltd., plans to drill seven additional wells at Corcel, 10 wells at Orito and a further seven exploration wells focused primarily in the Llanos basin. This will make Petrominerales one of the most active explorers in Colombia in 2008. In addition, the company has defined a 30-well development-drilling program at its Neiva field, which may require the importation of a specialized drilling system to efficiently implement the project.
Corcel block
With the success of the Corcel-1 and 2 exploration wells in 2007 the company is planning for a significant Corcel capital program in 2008. Its Corcel-3 well is currently drilling and is at a depth of approximately 10,865 feet. After drilling Corcel-3 Petrobank expects to temporarily relocate the drilling rig to drill two of its Llanos basin dry-season-only exploration wells, after which its plans to resume its Corcel drilling program starting with the Corcel-C exploration well. Petrobank then expects to continue drilling additional Corcel exploration and delineation wells through to the end of 2008.
Corcel production is currently being processed through temporary facilities and trucked. In the second half of 2008 Petrobank expects to have all the permits in place required to commence construction on permanent production facilities and an oil pipeline. The permanent production facilities will incorporate a three-train modular design with an initial fluid-handling capacity of 180,000 barrels of fluid per day. The production facility will be designed to incorporate additional fluid-processing trains as required. The company expects the Corcel pools to exhibit the same production characteristics of most Llanos basin fields, with increasing watercut over time and high ultimate recoveries of original oil in place. The 80-kilometre, 10-inch pipeline from Corcel to the Llanos basin's main pipeline off-take point at Porvenir will have a capacity of approximately 40,000 barrels of oil per day. Starting in September, 2008, the company expects to have access to up to 30,000 barrels of oil per day of offloading capacity at Monterrey, 77 kilometres from Corcel, which should be sufficient for the company's requirements before the pipeline is completed.
Petrobank's existing inventory of Corcel drilling locations has been defined from its 47-square-kilometre 3-D seismic survey, which covers approximately 15 per cent of the 79,815-acre block. A 2008 3-D seismic program is planned for the company's 26,341-acre Guatiquia Block, which adjoins the Corcel Block to the south. At that time Petrobanks also plans to further expand the 3-D seismic coverage over its Corcel block by shooting an additional 100 square kilometres of 3-D seismic covering an additional 32 per cent of the block.
Orito
Petrominerales plans to drill 10 Orito wells in 2008. This program will be focused in updip areas of the field where Petrobank had success in 2007 and in the southwest extension area near the highly successful Orito-117 and 118 wells. In addition, the company will be initiating a secondary recovery project in the Pepino formation with a water injection program. Lastly, following the success of the Conga-1 well in the Villeta formation on the adjacent Las Aguilas block, Petrobank is redesigning its drilling and completion program to more fully delineate the potential of this formation on the Orito block. In addition to its development drilling program, a 48-square-kilometre 3-D seismic program is planned for Orito in 2008 which will help delineate the southern extension and eastern flanks of the main Orito field. This is expected to add further to Petrobank's large inventory of development drilling locations.
Las Aguilas block
The Conga-1 well was drilled to a total depth of 7,963 feet and was initially perforated and fracture stimulated in the Caballos formation. The Caballos sands tested non-commercial quantities of hydrocarbons on a stand-alone basis, and were temporarily isolated. Petrobank then perforated and acidized an initial 16 feet of pay in the lower Villeta formation. The well naturally flowed a total of 725 barrels of 31 degree API oil over a 34-hour period. The company has now completed a second acid stimulation and placed the well on an extended production test using a jet pump assembly capable of handling production of up to 1,000 barrels per day.
Exploration program
Petrominerales drilled five exploration wells in Petrobank's 2007 exploration program. Four of these wells were drilled in the Llanos basin, two of which were completed as new pool discoveries (Joropo and Corcel). The Conga-1 well drilled in the Putumayo basin adjacent to Orito was also a success. Petrominerales holds over 1.5 million acres of land in Colombia, on which Petrobank has acquired 357 square kilometres of 3-D seismic and reprocessed all available 2-D seismic data. Currently Petrobank has an additional 18 leads and prospects on these lands. In 2008, the company plans to drill eight exploration wells: two at Mapache and one at each of Joropo, Casanare Este, Castor, Casimena, Corcel and Las Aguilas. Petrobank also plans to shoot seismic over nine of its 13 exploration blocks in 2008, including large programs on its three heavy-oil blocks. These programs are intended to be the foundation for expanded exploration drilling programs beyond 2008, including the company's longer-term growth plan for heavy oil in the Llanos basin.
Heavy oil
Petrominerales has three large blocks in the southern Llanos basin heavy-oil belt: Chiguiro Oeste, Chiguiro Este and Rio Ariari. The company's heavy-oil blocks offset the Cano Sur block, which is being developed by a recently announced partnership between Shell and Ecopetrol, reflecting the increasing interest in the heavy-oil potential of this area.
In 2008, the company plans to shoot 576 kilometres of reconnaissance 2-D seismic on its Chiguiro Oeste and Rio Ariari blocks and a combination of 2-D and 3-D seismic over its Chiguiro Este block where the company is targeting large heavy-oil accumulations.
In addition, Petrominerales intends to participate in the upcoming heavy-oil bid round, expected to be announced early next year. Petrobank's proprietary THAI technology, which Petrominerales has licensed, represents a paradigm shift in heavy-oil recovery technology. THAI is well suited to the Colombian heavy-oil environment and should give Petrobank a competitive advantage to efficiently develop Colombian heavy-oil opportunities in an environmentally and socially responsible fashion.
Heavy-oil business unit
The 2008 capital program for the heavy-oil business unit is focused on: expanding the current Whitesands project to include three new THAI/CAPRI wells with related facilities modifications; designing the adjacent 100,000-barrels-of-oil-per-day May River project; additional resource delineation; designing and constructing the Dawson project in the Peace River area; initial exploration and delineation of the Sutton Creek acreage acquired in Saskatchewan; acquisition of additional heavy-oil resources globally; and additional THAI business development activities. Petrobank also plans to expand its technology development activities in its wholly owned subsidiary, Archon Technologies Ltd., through the evaluation, acquisition and development of new technologies and innovations around the company's base THAI and CAPRI technologies with the intention of enhancing and capturing their full commercial potential.
Whitesands
Since July, 2006, Petrobank has proven its ability to operate the THAI process continuously under a variety of operating conditions in one of the world's most challenging reservoir environments. THAI is a field-proven technology that will be deployed globally.
As of the end of October, all three of the new sand-handling facilities were installed and are being commissioned and optimized on each of the wells. These new facilities are designed to better manage produced sand and to increase the on stream availability, allowing them to produce at their indicated potential of approximately 2,000 barrels of fluid per day per well with a greater-than-50-per-cent oil cut. In addition to the sand-handling facilities, Petrobank has also upgraded other portions of the plant to improve produced-gas handling, surface facility heat integration and produced-water handling. Because of unanticipated delays in receiving regulatory approvals, some of these facilities are still waiting on regulatory approvals to commence operations. This could impact Petrobank's ability to ramp up all three wells to their full potential by the end of 2007. While the company expects these approvals to be issued shortly, it is also experiencing increasing delays for other approvals from all of the Alberta regulatory bodies, which could impact the pace of implementation of its future plans. This regulatory slowdown is currently affecting many oil sands operators along with the rest of the oil and gas industry in Alberta.
Three new THAI/CAPRI wells
Petrobank has revised the design for its three-well expansion of the Whitesands project to reduce the surface footprint and eliminate facilities at both the injection and production pads, in an attempt to facilitate an easier and more timely regulatory approval process associated with this expansion. The company is ready to drill the new wells but is still waiting on required regulatory approvals, and its hope is that it will be able to drill these three new wells early in 2008. These wells will incorporate the CAPRI process, in which a catalyst is added around the outside of the wellbore to enhance the upgrading of the oil in situ. The company will also use a modified liner completion designed to reduce sand production with a more efficient surface-facility design.
May River project -- 100,000 barrels of oil per day
Petrobank plans to file its public disclosure document for its 100,000-barrels-of-oil-per-day May River project by the end of 2007, which will kick off the associated regulatory process. The company has completed the project's conceptual design and developed a centralized process design that will significantly reduce the facilities footprint, with the expectation that this should enable faster regulatory approval and project execution. The first phase of the project is expected to be a 15,000-barrels-of-oil-per-day module, expandable from a central location to the ultimate design capacity of 100,000 barrels of oil per day.
Resource delineation
In the first quarter of 2007, Petrobank drilled eight delineation wells on the Whitesands lands and increased the gross discovered resources of bitumen-in-place on its oil sands leases to 2.6 billion barrels, as estimated in its March, 2007, McDaniel and Associates Consultants Ltd. reserve report. This represented a one-billion-barrel increase from the 1.6 billion barrels first announced in May 2006 (see the company's news release in Stockwatch dated June 5, 2006). McDaniel assigned a recoverable bitumen resource of up to 799 million barrels at March 1, 2007, which compared with 660 million barrels estimated at Dec. 31, 2006. Further delineation drilling to be conducted in late 2007 or early 2008 is expected to add additional recoverable volumes from the existing and recently acquired Alberta oil sands lands. The current recoverable resource evaluations are based only on SAGD recovery technology. McDaniel has been engaged to conduct an evaluation of the THAI technology which should be available as part of Petrobank's reserve and resource update in the first quarter of 2008.
During 2007, Petrobank acquired ten additional sections of oil sand leases south of its existing lands, bringing its total portfolio of Alberta oil sands leases to 72 sections. These new sections are not currently included in the McDaniel reserve report and Petrobank plans to evaluate the resource potential of these new Alberta oil sands lands with an early 2008 drilling program.
Dawson project
In 2007, Petrobank completed a THAI licence agreement and property acquisition from Duvernay Oil Corp. The acquisition included a 50-pre-cent working interest in certain heavy-oil lands and related assets in the Peace River region of northwestern Alberta. These assets comprise 2,880 acres of land, and include two existing horizontal wells and related facilities. Petrobank's internal evaluation of the Dawson property yields an estimated original-oil-in-place resource of approximately 100 million barrels, using existing 3-D seismic and available well data. Petrobank intends to update the reserve and resource estimated for the property in connection with its year-end independent reserve evaluation.
The main producing zone in the Dawson area is the Bluesky formation, which contains heavy oil capable of being produced using cold production techniques. There are already numerous cold producing operations in the area, and operators have indicated plans to implement conventional thermal recovery projects. For Petrobank, this property represents an excellent opportunity to implement the THAI process in a more conventional heavy-oil reservoir, which was the initial target-reservoir application for THAI when it was first developed at the University of Bath in England.
Petrobank's 2008 development plans at Dawson include a two-well THAI project, which can then be expanded to accommodate additional wells. These first two wells will incorporate the company's central processing facility design and revised production-well completion and may incorporate the CAPRI technology.
Sutton Creek, Saskatchewan
Petrobank acquired a 23,040-acre oil sands licence in Saskatchewan in 2007. The licence has a primary term of five years and forms the basis for a possible future expansion of the application of the THAI technology into an exciting new oil sands resource fairway. Initial resource delineation of this licence is expected to commence in late 2008 with a 3-D seismic program and, potentially, an exploratory drilling program.
THAI business development
Along with Petrobank's project development plans for its oil sands leases, the company continues to evaluate the use of the THAI technology in various reservoirs in other regions of the world, including conventional heavy oil reservoirs in Canada. These evaluations are being conducted with third parties that have executed technology-evaluation agreements and are aimed at demonstrating the applicability of the THAI technology in other potential projects, and include provisions for future licensing opportunities. The activities are now at the stage where Petrobank expects to develop a pipeline of licensing opportunities and projects for the implementation of THAI on a global basis.
Archon Technologies Ltd. -- evaluating new technologies
Petrobank's wholly owned subsidiary, Archon, has also been actively evaluating the acquisition and development of several new technologies and innovations around the base THAI and CAPRI technologies to provide an integrated project design and to capture the full commercial benefits of any THAI project. These technologies are in the areas of sulphur recovery, innovative additional surface-upgrading processes, produced-water processing, oxygen-enriched air injection to increase combustion efficiency, CO2 capture and heat recovery for power generation. Archon has its own research and development facilities in Calgary and a full time staff of researchers who also perform fluids and gas analysis for the current Whitesands project. Archon has already filed patents supporting the THAI technology and plans other THAI-related patents. Archon is also the vehicle for licensing Petrobank's technology, intellectual property and know-how to third parties.
The THAI process
Petrobank's patented THAI process is a step change in the recovery of heavy oil and bitumen resources worldwide. While there are other technologies in use, the THAI process has many advantages ranging from speed of project construction, lower capital and operating costs, reduced environmental impact, and higher resource recovery potential. Petrobank believes that THAI is the most sustainable of currently available technologies.
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