Corridor Resources Inc.

Corridor Resources Inc.

February 19, 2010 08:00 ET

Corridor Announces $28.6 Million Capital Budget for 2010

HALIFAX, NOVA SCOTIA--(Marketwire - Feb. 19, 2010) - Corridor Resources Inc. (TSX:CDH) announced today its capital and operating budget for 2010 as approved by its Board of Directors. The Corporation plans a total capital expenditure program of $28.6 million which includes drilling and completing additional natural gas production wells in the McCully Field in southern New Brunswick. The budget program is designed to maintain natural gas production and revenues from the McCully Field and to undertake selective exploration activities, while allowing the Corporation to maintain a strong balance sheet with no outstanding debt. Capital expenditures for 2010 will be based on the cash currently available and net cash flow projected to be available from projected 2010 natural gas production and sales.

Priorities for 2010 include:

- drilling, testing, completing and tying in two new McCully horizontal wells in the upper part of the Hiram Brook formation;

- installing an inlet separator and compressor at the McCully gas plant;

- conducting a joint venture four-well oil exploration program on Anticosti Island (contingent upon participation of Corridor's joint venture partner);

- drilling an exploration core-hole at Sally's Brook located approximately 17 kilometers north of the McCully Field to test the oil and natural gas potential of the Hiram Brook and Frederick Brook formations at that location;

- conducting a site survey at a proposed drilling location on the Newfoundland side of the Old Harry structure in the Gulf of St. Lawrence in preparation for drilling an exploration well on this giant prospect, with the potential for recoverable reserves in the order of 2 billion barrels of oil or 5 trillion cubic feet of natural gas. Corridor is immediately commencing efforts to contract a suitable floating drilling rig to drill an initial well on this prospect within the next two years; and

- undertaking gas plant maintenance and other corporate expenditures.

An additional $3 million ($2.7 million net to Corridor) of expenditures are planned for McCully well workover operations in 2010 and are budgeted for in operating expenditures instead of the capital budget.

Apache Farmout Program

Corridor has farmed out the majority of its New Brunswick properties with shale gas and oil potential to Apache Canada Ltd., where Apache has committed to a $25 million appraisal program to be completed prior to June 1, 2011 (please refer to Corridor press release dated December 7, 2009). Consequently, no expenditures by Corridor for oil exploration or shale gas appraisal in New Brunswick are planned for 2010. In an earlier press release dated June 26, 2008, Corridor released the results of an independent shale gas resource study conducted by GLJ Consultants of Calgary describing a shale gas resource-in-place potential in excess of 60 trillion cubic feet in the Sussex/Elgin area of New Brunswick. The Apache program is, of course, of particular interest to Corridor because of its potential to open up the initial development of these resources.

2010 Capital Budget

The total 2010 capital budget is forecast to be $28.6 million net to Corridor's working interest. The budget forecasts that one new McCully horizontal development well will be drilled, completed and tied-in by the end of May, 2010, at an estimated net cost to Corridor of $7.5 million and forecast to initially add 6 mmscf/day to the field production rate (100% Corridor). A second horizontal well is forecast to be drilled, completed and tied-in by the end of the fourth quarter at a net cost to Corridor of $7.0 million (100% Corridor). Additional funds have been allocated to other activities, including $6.0 million to install an inlet separator and compressor at the McCully gas plant and which Corridor forecasts will add 5 mmscf/day to the gross field production rate, $4.4 million for Corridor's share of four exploration wells on Anticosti Island, $0.6 million for drilling an exploration core-hole at the Sally's Brook prospect located 17 kilometers north of the McCully gas plant, $0.8 million for a well-site survey at Old Harry and $2.3 million for gas plant maintenance and other corporate assets.

Corridor's 2010 capital budget is designed to be affordable within the Corporation's projected fiscal capacity, including approximately $11 million of working capital carried forward from Corridor's 2009 fiscal year plus approximately $25.5 million of anticipated net cash flow from McCully production during 2010. The budget assumes that no additional funds will be utilized from other sources such as equity financings, corporate debt or asset sales. The budget has been prepared based on several assumptions regarding projected capital expenditures, production volumes and sales gas prices. Revenues from gas sales are based on a gross average production forecast of 22.3 mmscf/day (17.5 mmscf/day net to Corridor), an average sales gas price of US$5.50/MMbtu at Henry Hub (NYMEX) and an exchange rate of $0.95 Canadian per US dollar. The production forecast has been based on hyperbolic decline curve projections keyed on production performance to date and in consideration for rates of production decline observed to date.

McCully Drilling Plans

Corridor is proposing to drill the McCully L-37 horizontal well using an oil-base mud in order to minimize formation damage during drilling operations. Based on the quality of reservoirs observed in the upper part of the Hiram Brook formation in the McCully P-47, J-47 and I-47 wells, Corridor expects that a horizontal well penetrating this part of the reservoir section may be free of bitumen and productive based on perforating stimulation alone (ie. no fracs). This completion approach, if successful, will be significantly less expensive than conducting a multi-stage frac program in the horizontal leg of the well. However, the option to carry out a multi-stage frac program will be retained in the event the perforated completion is unsuccessful and provided it can be economically justified. If frac'ing the well is desirable, then the second McCully well proposed for 2010 may be deferred to 2011 and part of the funds utilized to frac the L-37 well. The following diagrams illustrate the planned location for the L-37 horizontal well, both in plan view and in a cross sectional view. Also shown in plan view is a potential location for the second 2010 well proposed to be drilled in the fall provided the L-37 well is successful. The estimated cost to drill, complete and tie-in the L-37 well is $7.5 million and the well is projected to have an initial production capacity of 6 mmscf/day and not be subject to the high decline rates experienced in the vertical (and bitumen impacted) L-38 and P-47 wells (please see discussion below). The projected cost to drill, complete and tie-in the second McCully well in the fall of 2010 is estimated to be $7.0 million, assuming the well is drilled from the same well pad as L-37.

To view the two images associated with this press release, please visit the following links:

Budget Context

The production performances of the McCully L-38 and P-47 wells have been important considerations in developing plans and a budget for 2010 activities. These were the first two wells in the McCully Field to be completed using propane as the frac fluid. In a press release dated September 9, 2009 Corridor announced that the propane fracs were very successful, resulting in high initial production capacities in the order of 10 mmscf/day for each of the wells. In a subsequent press release dated October 15, 2009, Corridor announced that the two wells were being flow-tested at rates of approximately 5 mmscf/day each and, that in the case of P-47, ".....early pressure response suggests the well may decline at a more rapid rate than observed for most McCully wells". The L-38 well was subsequently observed to also be declining at an initially more rapid than expected rate. Both wells appear to be following hyperbolic decline trajectories and are currently each producing at a rate of approximately 1 mmscf/day. The production performances of wells in this part of the field suggest that the physical dimensions of these reservoirs may be smaller than indicated by sand thicknesses observed in well logs. One explanation may be that the observed abundance of pyrobitumen in these sands in this part of the field significantly reduces the size of the effective reservoir. Another possible explanation for the observed production performance of wells in this part of the field is the presence of petroleum wax observed in some wellheads and on tools extracted from the wells. Rapid drawdown of formation pressure during initial (high rate) production may be causing deposition of wax in the perforations and in the reservoir in the immediate vicinity of the wellbore, causing higher than normal declines in initial production rates. To evaluate this possibility, Corridor is currently undertaking a xylene soak / squeeze in the "E" sand of the L-38 well to attempt to remove possible wax deposition in the immediate wellbore area, with final results expected to be available by early March. Preliminary results suggest this treatment may not be effective. Alternatively, Corridor is considering restricting initial flow rates in new McCully wells in this area in an attempt to reduce or possibly prevent the deposition of wax during production.

Corridor is using a seismic technique referred to as AVO (amplitude variation with offset) to attempt to image productive parts or "target areas" within the reservoirs for future drilling that may be porous and free of bitumen. Several iterations have already been attempted using this technique, resulting in the identification of some potential anomalies. However, more work is required before the Corporation can have sufficient confidence to recommend future drilling locations based on this technology. In addition, Corridor's staff is working to complete a detailed reservoir model of the McCully Field which brings together all of the available structural, petrophysical, reservoir and production data for each productive horizon for approximately 30 wells across the field. Once this phase of the work is completed later this year, Corridor expects the field model will be a very useful tool for understanding fluid drainage patterns and for selecting potential infill wells for future drilling and production.

Corridor has the flexibility to expand, reduce or defer its drilling and frac program if available funds exceed or fall short of its projections in the 2010 budget. Decisions regarding which, if any, of these options are to be pursued will be dependent upon availability of capital and other information obtained as operations progress. Corridor intends to monitor commodity prices closely and adjust capital expenditures accordingly.

Production and Revenue Update

Preliminary numbers for Q4 2009 indicate a decrease in Corridor's production from a previously estimated 23 mmscf/day to 19.5 mmscf/day and revenues from a previously estimated $14 million to approximately $11 million, primarily as a result of the greater than expected production declines for the L-38 and P-47 wells. Preliminary numbers for the year ended December 31, 2009 indicate a decrease in Corridor's production from a previously estimated 18 mmscf/day to 17 mmscf/day and revenues from a previously estimated $52 million to approximately $49 million. Corridor expects to make year-end 2009 results available on March 26, 2010.

Corridor is a junior resource company engaged in the exploration for and development and production of petroleum and natural gas onshore in New Brunswick, Prince Edward Island and Quebec and offshore in the Gulf of St. Lawrence. Corridor currently has reserves of natural gas at only one property, the McCully Field near Sussex, New Brunswick. In June 2007, Corridor completed the construction of a field gathering system, a gas plant and a pipeline lateral connecting the McCully Field to markets through the Maritimes & Northeast Pipeline.

Forward Looking Statements

This press release contains certain forward-looking statements and forward-looking information (collectively referred to herein as "forward-looking statements") within the meaning of Canadian securities laws. All statements other than statements of historical fact are forward-looking statements. Forward-looking information typically contains statements with words such as "anticipate", "believe", "plan", "continuous", "estimate", "expect", "may", "will", "project", "should", or similar words suggesting future outcomes. In particular, this press release contains forward-looking statements pertaining to the following:, corporate priorities for 2010; the 2010 capital budget, including expected capital expenditures, cash flow, costs, sales gas prices, production, and the Canada - U.S. exchange rate; and planned workover operations.

Undue reliance should not be placed on forward-looking statements, which are inherently uncertain, are based on estimates and assumptions, and are subject to known and unknown risks and uncertainties (both general and specific) that contribute to the possibility that the future events or circumstances contemplated by the forward-looking statements will not occur. These factors include, but are not limited to: risks associated with oil and gas exploration, financial risks, substantial capital requirements, bank financing, government regulation, environmental, prices, markets and marketing, issuance of debt, variations in exchange rates and hedging. Further information regarding these factors may be found under the heading "Risk Factors" in Corridor's annual information form for the year ended December 31, 2008 and its most recent management's discussion and analysis. Readers are cautioned that the foregoing list of factors that may affect future results is not exhaustive. There can be no assurance that the plans, intentions or expectations upon which forward-looking statements are based will in fact be realized. Actual results will differ, and the difference may be material and adverse to Corridor and its shareholders.

Forward-looking statements are based on Corridor's current beliefs as well as assumptions made by, and information currently available to, Corridor concerning anticipated financial performance, business prospects, strategies, regulatory developments, future natural gas and oil commodity prices, exchange rates, future natural gas production levels, the ability to obtain equipment in a timely manner to carry out development activities, the ability to market natural gas successfully to current and new customers, the impact of increasing competition, the ability to obtain financing on acceptable terms, and the ability to add production and reserves through development and exploration activities. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. The forward-looking statements contained in this press release are made as of the date hereof and Corridor does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, except as required by applicable law. The forward-looking statements contained herein are expressly qualified by this cautionary statement.

Contact Information

  • Corridor Resources Inc.
    Norman W. Miller, President
    902-429-0209 (FAX)