ENERGY TRUSTS / PrimeWest Energy Inc. Drilling Update
PRIMEWEST ENERGY INC. ANNOUNCES SIGNIFICANT DRILLING RESULTS AND
APPROVAL FOR NORMAL COURSE ISSUER BID
Date: 7/6/98 7:51:09 AM
Stock Symbol: PWI.UN
Kent J. MacIntyre, Chief Executive Officer of PrimeWest Energy Inc.
(PrimeWest), is pleased to announce that PrimeWest has achieved significant
success with its recent horizontal re-entry drilling program in the Lone Pine
Creek area of Alberta. PrimeWest has completed testing of two 100 percent
working interest natural gas wells that will result in natural gas sales and
unitholder distribution increases for PrimeWest Energy Trust (the Trust) for
the balance of 1998 and beyond.
In addition, PrimeWest announces that its Board of Directors has approved the
Trust's intention to make application to the Toronto Stock Exchange to
implement a Normal Course Issuer Bid.
Lone Pine Creek Horizontal Re-Entry Wells
PrimeWest has completed the production testing phase on two recently
completed 100 per cent working interest horizontal re-entry wells drilled in
the Lone Pine Creek area. The combined absolute open flow of the two wells
is approximately 21.5 million cubic feet per day (MMCFD).
The first well is located at 11-14-030-29 W4M and has a horizontal section of
approximately 740 meters in the Wabamum formation. The second well, also in
the Wabamum formation, is located at 11-36-030-29 W4M and has a horizontal
section of approximately 600 meters. The combined cost of horizontally
drilling and completing the two wells was approximately $1.9 million.
Both wells have been placed on stream and are producing to the East
Crossfield Plant where PrimeWest owns processing capacity. The combined
initial sales capability for the two wells is approximately 11 MMCFD of
natural gas and 180 barrels per day of natural gas liquids. This compares to
the recent combined sales from these two wells of approximately 1.8 MMCFD of
natural gas and 30 barrels per day of natural gas liquids, prior to the
horizontal drilling enhancement program. In the near term, gathering system
constraints will restrict sales from the two wells to approximately 50 per
cent of their capability. PrimeWest is investigating alternatives to
de-bottleneck the gathering system to permit unrestricted production later
this year.
"This development will have a positive impact on unitholder distributions,
reserves and net asset value," said Kent MacIntyre. "This new natural gas
production has a very high netback or profit margin. First, because this
natural gas is not dedicated to long term natural gas sales contracts, we can
take advantage of the higher prices we are currently seeing in the natural
gas markets. Second, this production is eligible for Alberta Royalty Tax
Credit, which significantly reduces the royalty burden. And finally, the
marginal cost of the increased production is minimal because we can process
this natural gas through spare capacity at the East Crossfield plant."
PrimeWest has a budget of $16 million for property enhancement projects in
1998. As a result of low oil prices, PrimeWest has shifted its focus towards
natural gas development activities for the remainder of the year to take
advantage of strong natural gas markets. Natural gas production currently
comprises approximately 45 per cent of PrimeWest's total production.
"PrimeWest's strategy is to grow the Trust through low cost reserve
acquisitions and follow-up capital development to enhance the value of those
reserves. These well results, in addition to PrimeWest's development
successes over the past two years are the result of the efforts of our
seasoned technical team applying themselves to opportunity rich, high quality
assets, such as Lone Pine Creek," said Mr. MacIntyre.
PrimeWest operates 78 gross (46.7 net) Wabamum natural gas wells and holds
16,000 gross (10,200 net) acres of undeveloped land in the Lone Pine Creek
and East Crossfield areas. PrimeWest believes there are additional natural
gas production and reserve enhancement opportunities to be gained through
horizontal drilling. Plans in this respect are supported by the recent
acquisition in the Lone Pine Creek area, announced by PrimeWest on July 2,
1998.
Normal Course Issuer Bid Application
PrimeWest Energy Trust announces that it has received Board of Director
approval to make an application to the Toronto Stock Exchange (the TSE) for
the implementation of a Normal Course Issuer Bid. The proposed Normal Course
Issuer Bid is subject to the approval of the TSE. The Trust intends to
undertake the Normal Course Issuer Bid because the Trust believes that its
units have been trading in a price range which does not adequately reflect
the value of the assets under pinning the Trust or its future business
prospects. The Trust has not purchased any of its units during the past 12
months.
PrimeWest Energy Trust units trade through the facilities of The Toronto
Stock Exchange under the symbol "PWI.UN". The Toronto Stock Exchange has
neither approved nor disapproved of the information contained herein.
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