Petrobank Energy and Resources Ltd.

Petrobank Energy and Resources Ltd.

January 16, 2007 02:11 ET

Petrobank Fires up Second THAI'TM' Well Pair at WHITESANDS

CALGARY, ALBERTA--(CCNMatthews - Jan. 16, 2007) - Petrobank Energy and Resources Ltd. (TSX:PBG) (OSLO:PBG) is pleased to provide an operational update on the ongoing field demonstration of Petrobank's THAI™ technology. Production from our first well pair has ramped up following facility modifications and we have now commenced air injection and oil production from our second well pair at the WHITESANDS project.

Air injection and combustion was initiated on the first of the three project horizontal/vertical well pairs on July 20, 2006, and since then, we have been continually injecting air into the vertical well of this center pair. During the first three weeks of air injection, in-situ combustion was confirmed as we measured various indicators of the combustion reaction, including significantly rising temperatures in the reservoir zone, production of combustion gases and rising horizontal well bore temperatures. This trend continued through the third quarter with recorded reservoir temperatures reaching as high as 800 degrees Centigrade. Combustion gas analysis consistently demonstrated a high ratio of carbon dioxide to carbon monoxide, indicating a very high level of conversion of oxygen, hydrocarbon gases indicative of thermal cracking of oil in-situ, and free hydrogen generated from high temperature reactions, all indicators of efficient high temperature combustion. These data also suggest that we are partially upgrading the oil in-situ. We are still very early in the process of building out the combustion front in the first THAI™ well pair and estimate that to-date we have only affected approximately one percent of the total reservoir volume anticipated to be impacted by the fireflood over the life of each THAI™ well pair.

Since initiating THAI™ production operations, the gross production capability from the first horizontal well has consistently exceeded 1,000 barrels of fluid per day with the potential production capability approximately double our initial forecast rate. This high productive capacity has meant that we have had to manage operations to match well flow with current plant design capability. The composition of produced fluids has also been highly variable, resulting in a poor on-stream factor and requiring facility modifications that were substantially completed in early January. Production currently consists of a combination of bitumen, reservoir water, sand and diminishing quantities of residual condensed steam from the Pre-Ignition Heating Cycle ("PIHC"). Since the start up of the new sand handling facilities, well production rates, on a restricted choke, have been increased to 1,000 barrels of total fluid per day and the bitumen cut is between 40 and 50 percent. In addition, our recent facility modifications to handle sand production have improved operating efficiencies. There has been a significant decrease in sand carrying over into the production facilities, with total sand production currently at less than one percent. This improvement in sand handling capability should allow for a substantially improved on-stream factor and we also expect to continue to increase the total fluid production rate. This may require further facility modifications and de-bottlenecking.

Modified PIHC operations have been implemented for the second and third well pair which are focused on reducing the amount of steam injected before initiating air injection and also to potentially reduce sand production. On January 10, 2006 we commenced air injection in the second well pair. Combustion has now been confirmed by thermocouple readings in the horizontal and vertical wells of more than 400 degrees Centigrade. While it is still extremely early in the combustion phase of the second well pair, we have experienced a rapid increase in oil production on a restricted choke and low amounts of produced sand. As the combustion front expands, we expect production to increase comparable to the results achieved to-date on our first well pair.

The PIHC phase was initiated on the third well pair in December 2006 and we are planning to initiate air injection before the end of the first quarter 2007.

Overall, at the WHITESANDS Project, we have been continuously injecting air since first initiating combustion operations in July 2006 and we have consistently measured produced gas compositions and reservoir temperatures consistent with high temperature combustion. This highly efficient, lower cost heat source situated in the heart of the reservoir will continue to expand and mobilize greater amounts of bitumen as the process advances. Temperatures currently being generated in the reservoir far exceed the maximum potential of similar sources of heat delivered via steam processes, and the THAI™ technology has eliminated almost all requirements to burn natural gas and consume fresh water as well as the associated capital investment and surface environmental footprint required for steam generating and water handling facilities. As the process advances and we increase air injection rates to design volumes, with all three well pairs in operations, we expect to achieve significantly higher bitumen production and overall resource recovery with the potential for some degree of in-situ upgrading.

We are still in the very early stages of the THAI™ process and in a state of continual adjustment of our operations. This continuous improvement process is consistent with starting up the first field scale demonstration of a new technology, allowing us to modify certain aspects of our surface facilities and operating procedures. We foresee an ongoing process of technical improvement and innovation as we enhance our ability to produce significant volumes of oil using the THAI™ process.

Project Development

In addition to the ongoing delineation of the recoverable resource potential of our lands, we are also evaluating a potential project site for a THAI™ expansion project of approximately 10,000 barrels per day. We have been in the early stages of evaluating a new project area proximal to the current pilot site, to optimize infrastructure. Project scoping and preliminary engineering have commenced. In connection with this expansion, an additional one to three new well pairs are expected to be drilled in 2007 that will also incorporate the CAPRI™ technology enhancement.

We believe that THAI™ can also be applied to other heavy oil deposits beyond the Canadian oil sands and it is our strategy to next initiate projects in mobile oil reservoirs in Canada and/or internationally. Our goal is to capture a global portfolio of heavy oil resources where the application of our THAI™ technology can lead to greatly improved recovery rates and significant long-term value growth for the Company. In support of this activity, we are evaluating, with our Latin American subsidiary Petrominerales Ltd., three Exploration Blocks in Colombia with the potential for THAI™ suitable heavy oil accumulations.

Additional Resource Delineation

We expect to spud the first well of our winter resource delineation program on January 17th and we plan to drill between six and 12 additional wells during this winter drilling season to delineate additional new recoverable bitumen resources on our WHITESANDS leases.

While SAGD is the recognized technology used to define in-situ oil sands reserves at the present time, THAI™ has many potential benefits over SAGD, including expected higher resource recovery (70%-80% versus 30%-50% for SAGD), lower production and capital costs, minimal usage of natural gas and fresh water, a partially upgraded crude oil product, reduced diluent requirements for transportation, and lower greenhouse gas emissions. The THAI™ process also has the potential to operate in lower pressure, lower quality, thinner and deeper reservoirs than current steam-based recovery processes. The successful application of THAI™ is expected to have an enormous impact on resource recovery and our estimates of reserve volumes along with net present values.

The THAI™ Process

THAI™ is an evolutionary in-situ combustion technology for the recovery of bitumen and heavy oil that combines a vertical air injection well with a horizontal production well. THAI™ integrates existing proven technologies and provides the opportunity to create a step change in the development of heavy oil resources globally. During the process, a high temperature combustion front is created underground where part of the oil in the reservoir is burned, generating heat, which reduces the viscosity of the remaining oil allowing it to flow by gravity to the horizontal production well. The combustion front sweeps the oil from the toe to the heel of the horizontal producing well, recovering up to an estimated 80 percent of the original-oil-in-place while partially upgrading the crude oil in-situ. Petrobank controls all intellectual property rights to the THAI™ process and related enhancements, including the patented CAPRI™ technology, which offers the potential for further in-situ upgrading through the use of a well-bore integrated catalyst.

Petrobank Energy and Resources Ltd.

Petrobank Energy and Resources Ltd. is a Calgary-based oil and natural gas exploration and production company with operations in western Canada and Colombia. The Company operates high-impact projects through three business units. The Canadian Business Unit is developing a solid production platform from low risk gas opportunities in central Alberta along with light oil resource plays in southeast Saskatchewan, complemented by new exploration projects and a large undeveloped land base. The Latin American Business Unit is operated by Petrobank's 80.7% owned, TSX-listed subsidiary, Petrominerales Ltd. (trading symbol: PMG), which produces oil through two Incremental Production Contracts in Colombia and has exploration contracts and Technical Evaluation Agreements covering a total of 2.0 million acres in the Llanos and Putumayo Basins. WHITESANDS Insitu Ltd., Petrobank's 84% owned subsidiary, owns 39,680 acres of oil sands leases with an estimated 1.6 billion barrels of bitumen-in-place and operates the WHITESANDS project to field-demonstrate Petrobank's patented THAI™ heavy oil recovery process. THAI™ is an evolutionary in-situ combustion technology for the recovery of bitumen and heavy oil that combines a vertical air injection well with a horizontal production well. THAI™ integrates existing proven technologies and provides the opportunity to create a step change in the development of heavy oil resources globally.

Certain statements in this release are "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. Specifically, this press release contains forward-looking statements relating to, prospects for technologies which remain unproven, the expected amount and timing of capital projects and the results of operations. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors. Such factors include, but are not limited to: the ability to economically test, develop and utilize the technologies described herein, the feasibility of the technologies, general economic, market and business conditions; fluctuations in oil and gas prices; the results of exploration and development of drilling and related activities; fluctuation in foreign currency exchange rates; the uncertainty of reserve estimates; changes in environmental and other regulations; risks associated with oil and gas operations; and other factors, many of which are beyond the control of the Company. There is no representation by Petrobank that actual results achieved during the forecast period will be the same in whole or in part as those forecast.

Contact Information

  • Petrobank Energy and Resources Ltd.
    John D. Wright
    President and CEO
    (403) 750-4400
    Petrobank Energy and Resources Ltd.
    Chris J. Bloomer
    Vice-President Heavy Oil and CFO
    (403) 750-4400
    Petrobank Energy and Resources Ltd.
    Corey C. Ruttan
    Vice-President Finance
    (403) 750-4400
    (403) 266-5794 (FAX)