Compass Petroleum Ltd.
TSX VENTURE : CPO

Compass Petroleum Ltd.

April 13, 2011 16:30 ET

Compass Petroleum Ltd.: Expansion of Viking Light Oil Opportunity Base and Operational Update

CALGARY, ALBERTA--(Marketwire - April 13, 2011) - Compass Petroleum Ltd. ("Compass" or the "Company") (TSX VENTURE:CPO) is pleased to provide an update concerning its activities and announce that, through a series of recent agreements, it has expanded its Viking light oil opportunity base in west central Saskatchewan.

Operational Update - Continued Strong Drilling Results and Light Oil Production Growth at Lucky Hills

  • During the third quarter of fiscal 2011, Compass drilled and cased nine (9.0 net) successful Viking horizontal oil wells in the Lucky Hills area of west central Saskatchewan. All nine wells were completed and fracture stimulated prior to the end of March 2011 and the onset of Spring break-up/road bans.
  • In addition to the nine horizontal wells, Compass has drilled 3 (3.0 net) vertical wells outside of its Lucky Hills focus area in an effort to further "de-risk" its opportunity base and identify future horizontal drilling locations. All three wells were cased prior to the onset of road bans. Cores were obtained from two of the three vertical wells to obtain reservoir information and assist with the planning of future horizontal drilling and enhanced recovery studies. Management believes that these vertical tests have confirmed that the lands are prospective for Viking light oil and the use of horizontal multistage fracturing technology.
  • Initial production rates on two of the new horizontal wells drilled at Lucky Hills have exceeded management's expectations and are the highest achieved by Compass to date for horizontal wells employing multistage fracturing technology. One well flowed at an average rate of 184 bopd over the first 33 days of production while the second well flowed at an average rate of 151 bopd over its first 34 days of production.
  • With the strong horizontal drilling results achieved at Lucky Hills, overall Company production at the end of March 2011 was 1,210 boe/d (83% oil), based on field estimates. Viking horizontal wells at Lucky Hills contributed 640 boe/d (90% oil) to this estimated total. However, due to early road bans (resulting in restrictions on trucking crude oil and limitations on oilfield access and operations) and an expected prolonged Spring break-up, Q4 fiscal 2011 production volumes are anticipated to be materially lower from Lucky Hills.
  • Compass continued to evaluate methods to optimize production from its horizontal wells at Lucky Hills during Q3 of fiscal 2011. Eight pumping units were installed in the quarter, bringing to ten the number of pumping units installed to date. A number of systems to handle paraffin or wax issues were assessed, including the use of solvents, inhibitors, and dispersants, in combination with hot oiling.
  • With the proceeds of the financing completed by the Company in January 2011 and expansion of the fiscal 2011 capital expenditure budget, three to four net additional Viking horizontal wells are scheduled to be drilled on the Company's existing Lucky Hills lands prior to the end of fiscal 2011 (June 30, 2011), subject to timely receipt of all necessary regulatory approvals and weather permitting.
  • Other activities initiated in Q3 of fiscal 2011 including construction of pipelines to gather solution gas and emulsion from 12 Viking horizontal oil wells and the expansion of the 1-29 oil treating facility at Lucky Hills. Both of those projects have been completed. The installation of two additional oil treating facilities has also been initiated. The expanded pipeline infrastructure and additional oil treating facilities were installed in an effort to improve operational efficiencies and reduce operating costs. Solution gas sales are expected to commence in late June 2011.

Expansion of Viking Light Oil Opportunity Base

  • Compass recently closed the acquisition of approximately 640 acres (1 section) of land in its Lucky Hills core area. In addition, Compass has entered into a farm in agreement that provides for the Company to earn a working interest in approximately 600 acres of land in the Lucky Hills area, through the satisfaction of certain drilling commitments (subject to an industry standard overriding royalty agreement). The recently acquired and optioned lands immediately offset recently drilled Compass horizontal Viking oil wells. Management currently estimates that Compass can drill up to 8 horizontal wells per section on the recently acquired and optioned lands at Lucky Hills and anticipates commencing drilling operations on those lands in August, 2011, subject to the receipt of all necessary regulatory approvals and weather permitting.
  • As well, through a series of pooling, farm in and participation agreements (the "Agreements"), the Company has the right to earn interests in lands in the Forgan and Elrose areas of west central Saskatchewan, which management believes are prospective for Viking light oil. The Agreements provide Compass with access to approximately 16,000 acres (25 sections). Compass has committed to drill four (3.0 net) Viking horizontal wells on the affected lands and anticipates commencing drilling operations in July, 2011, subject to the receipt of all necessary regulatory approvals and weather permitting. Through the satisfaction of drilling commitments, the Company has the right, under the Agreements, to earn working interests ranging from 32.5% to 65% in 25 sections.

Outlook

West central Saskatchewan experienced record snow fall this winter, which is expected to result in an extended Spring break-up period. Road bans commenced on March 21, 2011 at Lucky Hills and this has severely restricted crude oil trucking and other oilfield operations. Compass expects that production volumes for the fourth quarter of fiscal 2011 will be negatively affected by the road bans and Spring break-up conditions.

Given the strong drilling results and production growth achieved in recent months in west central Saskatchewan, the Company's business plan contemplates a continued focus on the development and exploitation of its light oil Viking resource lands at Lucky Hills. Compass plans to drill and complete an additional three to four net horizontal wells at Lucky Hills subsequent to Spring break-up, but prior to the end of fiscal 2011 (June 30, 2011). Subject to timely completion of drilling, completion and other activities noted above in this news release and assuming no constraints in delivering production to sales points or pipeline apportionment issues, the Company expects to meet its June 2011 exit guidance of 1,350 boepd.

The Company continues to expand its undeveloped land base on the Viking light oil resource play in west central Saskatchewan. Currently, Compass has an average 98% working interest in approximately 41,600 net acres (~66 sections) of land in west central Saskatchewan with Viking mineral rights. Additionally, as discussed above, through the Agreements, Compass has the right to earn interests, through the satisfaction of drilling commitments, in an additional approximately 16,000 acres (25 sections).

Compass is a public, oil weighted, oil focused junior oil and gas exploration and production company based in Calgary, Alberta. The Company's current main focus is on the exploitation and development of its Viking light oil resource lands in the Dodsland area of west central Saskatchewan.

ADVISORY RESPECTING USE OF BARREL OF OIL EQUIVALENTS

Where amounts are expressed on a barrel of oil equivalent ("boe") basis, natural gas is converted at a ratio of six thousand cubic feet to one boe. This ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Boe's may be misleading, particularly if used in isolation.

ADVISORY REGARDING FORWARD LOOKING STATEMENTS

This news release contains certain forward-looking information (referred to herein as "forward-looking statements") within the meaning of applicable Canadian securities laws. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "plan", "intend", "estimate", "expect", "may", "will", "should", or similar words suggesting future activities or outcomes. In particular, this news release contains forward-looking statements concerning: (1) expectations with respect to the drilling of additional wells on the Company's existing lands at Lucky Hills; (2) expectations with respect to the commencement of drilling operations on recently acquired or optioned lands at Lucky Hills and in the Forgan and Elrose areas of west central Saskatchewan (3) expectations with respect to Lucky Hills production for Q4 of fiscal 2011 and the Company's exit production as at the end of June 2011; (4) expectations with respect to the continued expansion of the Company's undeveloped land base in west central Saskatchewan; and (5) expectations with respect to the timing of commencement of sales of solution gas produced from horizontal oil wells drilled in west central Saskatchewan.

Forward-looking statements are based upon the opinions and expectations of management of the Company as at the effective date of such statements and, in some cases, information supplied by third parties. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions and that information received from third parties is reliable, it can give no assurance that those expectations will prove to have been correct. Forward-looking statements are subject to certain risks and uncertainties that could cause actual events or outcomes to differ materially from those anticipated or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, such things as changes in general economic conditions in Canada, the United States and elsewhere, changes in operating conditions (including as a result of weather patterns), delays associated with Spring break-up, the volatility of prices for oil and gas and other commodities, commodity supply and demand, fluctuations in currency and interest rates, inherent risks associated with the exploration, development and production of oil and gas (including mechanical problems), timing, results and costs of exploration and development activities, the accuracy of geological and geophysical data and the Company's interpretation of that data, availability of financial resources or third-party financing, availability of equipment, materials, services and personnel in a timely manner and on terms acceptable to the Company, defaults by counterparties under commercial arrangements to which the Company is a party, the ability to obtain all required regulatory approvals on a timely basis and on satisfactory terms, and new laws and regulations (domestic and foreign).

Accordingly, readers should not place undue reliance upon the forward-looking statements contained in this news release and such forward-looking statements should not be interpreted or regarded as guarantees of future outcomes.

  • Forward-looking statements concerning the drilling of additional wells by the Company on its existing Lucky Hills lands and the commencement of drilling activities on recently acquired/optioned and other lands are based upon various assumptions and factors including the results of horizontal wells drilled to date by the Company in west central Saskatchewan, the time required to complete wells previously drilled by the Company in west central Saskatchewan, the Company's experience with the drilling of other oil and gas wells, that the Company's success rate on new wells drilled in west central Saskatchewan will be substantially similar to the success rates historically achieved by the Company on wells drilled in west central Saskatchewan, the accuracy of geological and geophysical data and the Company's interpretation of that data, the availability of materials, services, equipment and personnel in a timely manner and on commercial terms acceptable to the Company, favorable weather conditions (including access to well sites and leases), the ability of the Company to obtain all required regulatory approvals in a timely manner and on satisfactory terms, the current business plan of the Company (which is subject to change), prices for oil and natural gas remaining at or near levels experienced in recent months, no adverse changes in royalties payable on oil and gas production, the Company's ability to economically produce oil and gas from its properties and the timing and costs of such production, that production from new wells drilled by the Company will be substantially consistent with wells drilled by Compass and others in the vicinity of such new wells, the ability of the Company to generate internal cash flow, and the availability of external financing on terms satisfactory to the Company.
  • Forward-looking statements concerning the Company's estimated exit production as at June 30, 2011 are based upon various assumptions and factors including the Company's current production from its various properties, that Spring break-up and associated road bans in west central Saskatchewan will not extend past the end of May 2011, that the Company will drill and complete three to four additional wells on its Lucky Hills properties prior to the end of fiscal 2011 (as contemplated by its amended capital budget), Compass' historical success rate with wells drilled on its properties in west central Saskatchewan, the results of wells drilled by third parties in the vicinity of Compass' oil and gas properties in west central Saskatchewan (including production from those wells), that production from new wells drilled by Compass will be substantially consistent with wells drilled by Compass and others in the vicinity of such new wells, prices for oil and natural gas remaining at or near levels experienced in recent months, no adverse changes in royalties payable on oil and gas production, the Company's ability to economically produce oil and gas from its properties and the timing and costs of such production, the accuracy of geological and geophysical data and the Company's interpretation of that data, the availability of materials, services, equipment and personnel in a timely manner and on commercial terms acceptable to the Company, favorable weather conditions (including access to well sites and leases), the ability of the Company to obtain all required regulatory approvals in a timely manner and on satisfactory terms, the ability of the Company to generate internal cash flow, and the availability of external financing on terms satisfactory to the Company.
  • Forward-looking statements concerning continued continued expansion of the Company's undeveloped land base in west central Saskatchewan are based upon various assumptions and factors, including current production of oil and natural gas by the Company, the current business plan of the Company (which contemplates the continued dedication of significant corporate resources to the development of the Viking light oil play in west central Saskatchewan, but which is subject to change) and commodity prices remaining at or near levels experienced in recent months.
  • Forward-looking statements concerning the timing of commencement of sales of solution gas produced from horizontal oil wells drilled in west central Saskatchewan are based upon various assumptions and factors, including continued production of solution gas from the Company's Lucky Hills properties at levels consistent with historical production, the availability of transportation infrastructure, no adverse changes in royalties payable on gas production, commodity prices remaining at or near levels experienced in recent months and the availability of materials, services, equipment and personnel in a timely manner and on commercial terms acceptable to the Company.

The forward-looking statements contained in this news release are made as of the date hereof and Compass does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, except as required by applicable Canadian securities law. The forward-looking statements contained herein are expressly qualified by this cautionary statement.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Compass Petroleum Ltd.
    Yook L. Mah
    President and CEO
    (403) 261-1911

    Compass Petroleum Ltd.
    Graham Barnes
    CFO
    (403) 261-1911
    info@compasspetroleum.com