EFL Overseas Inc.

OTCBB : EFLO


December 03, 2012 17:00 ET

EFL Overseas Inc. Reports Acquisition of Additional Interest at Kotaneelee and Reserves and Resources Update

HOUSTON, TEXAS--(Marketwire - Dec. 3, 2012) - EFL Overseas Inc. ("EFLO" or the "Company") (OTCBB:EFLO) is pleased to announce the acquisition of additional working interests in the Kotaneelee gas property and the results of independent reserves and resources evaluations (NI-51-101 compliant).

ACQUISITION

Effective October 17, 2012, EFLO acquired a 30.664% interest in the Liard basin gas field and facilities located in the Kotaneelee Area, Yukon Territory, Canada (the "Assets") from Nahanni Energy Inc. and certain of its wholly owned subsidiaries ("Nahanni"). The Nahanni purchase follows EFLO's earlier acquisition of Devon Canada's interest (generally a working interest of 22.989%, with a working interest of 69.337% in one gas well) in the Assets. Upon closing the Nahanni purchase, EFLO became the largest interest holder in the Kotaneelee with a general interest of 53.65% and a working interest of 100% in one gas well.

"Our acquisition of the additional interest at Kotaneelee provides us with a controlling position in this exciting project", stated EFLO Chairman Henry Aldorf. "Increasing our working interest to approx. 54% allows us to drive forward development plans and offers our shareholders greater potential upside."

"With the closing of the Nahanni acquisition, we are focused on actively pursuing additional interests at Kotaneelee and the surrounding area," added EFLO Chief Executive Officer Keith Macdonald. "The larger asset base will be helpful as we evaluate our future market opportunities in the Pacific Rim, North America and the Yukon."

The Assets include 30,542 acres of land, a gas dehydration plant (capacity: 70 MMcf/d), one water disposal well (capacity: 6,000 bbls/d), one well temporarily shut-in for plant maintenance and two suspended gas wells, flarestack, storage tanks, airstrip, roads, gathering systems, geological data, equipment, and other transportation and camp infrastructure.

As consideration for the Assets, EFLO paid Nahanni US$132,600 in cash (representing closing consideration of Cdn$400,000 less certain pre-closing liabilities settled by EFLO), and 1,614,767 shares of one of its subsidiaries, which are exchangeable on a one-for-one basis for shares of EFLO's common stock (valued at Cdn$4,100,000; US$4,190,610). In addition, EFLO indemnified Nahanni against its portion of the abandonment, reclamation and environmental liabilities associated with the Assets. EFLO intends to undertake an active development and exploration program, which is expected to defer these potential liabilities into the future.

EFLO continues to pursue the acquisition of additional working interests in the Assets.

RESERVES

The following reports certain pro forma reserve information, after giving effect to both the Devon and Nahanni acquisitions, based on an independent assessments by AJM Deloitte ("AJM") of dated effective June 30, 2012 using forecast prices and costs (the "EFLO AJM Reserve Reports"). AJM prepared separate reports for the Devon and Nahanni acquired working interests. The numbers presented below reflect an aggregation of the two reports. The EFLO AJM Reserve Reports were prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). In addition reserve information required under NI 51-101 and effective for the EFLO's fiscal year ended August 31, 2012 will be included in NI 51-101 forms which will be filed in connection with EFLO's financial statements as at and for the year ended August 31, 2012. Such reserve information was filed on Sedar on November 29, 2012 and gives effect only to the Company's reserves resulting from the Devon acquisition, as the Nahanni acquisition occurred subsequent to August 31, 2012. The differences between Devon related reserves and net present values reported in the June 30 report and the August 31 report are not material.

SUMMARY OF RESERVES
Before Tax Net Present Value ($Cdn) Discounted @
Oil and NGL's (Mbbl ) Gas (MMcf ) Combined (Mboe ) 0 % 5 % 10 % 15 %
Proved Developed Producing - 3,213 536 1,574 1,561 1,430 1,270
Proved Undeveloped - 7,656 1,276 6,961 4,879 3,318 2,126
TOTAL PROVED - 10,869 1,812 8,535 6,440 4,748 3,396
Probable Additional - 10,108 1,685 15,925 10,827 7,361 4,930
Total Proved plus Probable - 20,977 3,496 24,460 17,267 12,109 8,326
Possible - 9,279 1,547 30,565 19,804 13,573 9,762
Total Proved plus Probable plus Possible - 30,256 5,043 55,025 37,071 25,682 18,088

Gas prices for the report were based on delivery and sale at Station 2 in British Columbia. The EFLO AJM Reserve Reports base case forecast effective June 30, 2012 is as follows: 2012 - $2.00; 2013 - $2.95; 2014 - $3.55; 2015 - $3.95; 2016 - $4.35; 2017 - $4.80; 2018 - $5.35; 2019 - $5.80; 2020 - $6.50; and thereafter escalated at 2% per annum. Prices are in Canadian dollars per Mcf.

SUMMARY OF RESOURCES

The following reports certain pro forma resource information, based on an independent assessment by AJM dated effective June 30, 2012 using forecast prices and costs (the "EFLO AJM Resource Report"). The EFLO AJM Resource Report was prepared in accordance with definitions, standards and procedures contained in the COGE Handbook and NI 51-101.

The AJM Resource report evanuated the resources on EFLO acreage on gross terms and did not consider working interest. AJM evaluated the lands to assess the resource potential for the Middle Devonian Shales designated as Lower Black Shale (Muskwa/Evie), Middle Shale (Fort Simpson), and Upper Shale (Kotcho/Exshaw) as well as the potential for expansion of resource for the Nahanni on the producing East Flank. The results are summarized as follows, adjusted by management to reflect EFLO's 53.65% interest in the evaluated lands after giving effect to the Devon and Nahanni acquisitions.

Summary of Resources on EFL Overseas Lands (1)
Kotaneelee, Yukon Territory
EFLO Gross MMcfe
Resource Class Low Best High
Cumulative production 126,766 126,766 126,766
Remaining reserves (1) 2,267 2,709 5,072
Surface loss/shrinkage 30,967 31,074 31,641
Total commercial 160,000 160,550 163,479
Contingent resources 145,037 167,006 192,301
Unrecoverable (2) 82,975 74,046 62,536
Total sub-commercial 228,012 291,052 254,837
Total discovered PIIP 388,013 401,052 418,317
Prospective resources 1,749,479 2,209,131 2,799,837
Unrecoverable (2) 2,267,722 2,656,098 3,120,244
Total undiscovered PIIP 4,017,201 4,865,229 5,920,081
Total PIIP 4,405,214 5,266,831 6,338,399
Notes: (1) Effective June 30, 2012.
(2) Unrecoverable includes surface loss/shrinkage on contingent and prospective volumes.

The following represents the total for the low, best and high cases as evaluated for the Shales.

Upper Shale (Kotcho/Exshaw)
Case Low Best High
Original raw gas in place (MMcf) 3,760,146 4,957,765 6,568,430
Company Share 53.65% 2,017,318 2,659,841 3,523,963
Middle Shale (Fort Simpson)
Case Low Best High
Original raw gas in place (MMcf) 2,432,017 3,201,406 4,224,720
Company share 53.65% 1,304,777 1.717,554 2,266,562
Lower Shale (Muskwa/Evie)
Case Low Best High
Original raw gas in place (MMcf) 1,036,890 1,495,803 2,171,567
Company share 53.65% 556,291 802,498 1,165,046

In addition, AJM has evaluated a Nahanni prospect on the West Flank.

Nahanni West Flank resource summary
Low Best High
Original raw gas in place (MMcf) 199,291 351,598 620,304
Company share 53.65% 106,919 188,632 332,793
Recovery factor (fraction) 0.35 0.49 0.70
Recoverable gas (MMcf) 37,418 101,201 232,955

NOTICE REGARDING PRESENTATION OF THE COMPANY'S RESERVE AND CONTINGENT RESOURCE INFORMATION

The determination of reserves and resources involves the preparation of estimates that have an inherent degree of associated uncertainty. The estimation and classification of reserves and resources requires the application of professional judgment combined with geological and engineering knowledge to assess whether or not specific reserve or resource classification criteria have been satisfied. Knowledge of concepts including uncertainty and risk, probability, statistics and deterministic and probabilistic estimation methods is required to properly use and apply reserve and resource definitions.

Disclosure in this document of reserves and resources is presented in accordance with Canadian securities laws. The United States Securities and Exchange Commission (the "SEC") generally permits U.S. reporting oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves and production, net of royalties and interests of others. The Company uses certain terms in this document, such as resources or contingent resources that the SEC's rules would prohibit a U.S. company from including in filings with the SEC. The SEC generally does not permit U.S. companies to disclose net present value of future net revenue from reserves based on forecast prices and costs. Canadian securities laws permit, among other things, the presentation of certain categories of resources and the disclosure of production on a gross basis before deducting royalties. Unless noted otherwise, all disclosures of reserves and resources in this document are made on a gross basis using forecast price and cost assumptions.

In this news release:

"gross" means:

(a) in relation to the Company's interest in production or reserves, its working interest share before deduction of royalties;

(b) in relation to wells, the total number of wells in which the Company has an interest; and

(c) in relation to properties, the total area of properties in which the Company has an interest.

"net" means:

(a) in relation to the Company's interest in production or reserves, its working interest share after deduction of royalty obligations;

(b) in relation to the Company's interest in wells, the number of wells obtained by aggregating the Company's working interest in each of its gross wells; and

(c) in relation to the Company's interest in a property, the total area of properties in which the Company has an interest multiplied by the working interest owned by the Company.

All evaluations of future revenue are after the deduction of royalties, development costs, production costs and well abandonment costs but before consideration of indirect costs such as administrative, overhead and other miscellaneous expenses.

Disclosure of Reserves

The reserves estimates and related estimates of net present values presented in this document were prepared to comply with Canadian reserves disclosure standards and reserves definitions as set out in NI 51-101 and the COGE Handbook prepared jointly by The Society of Petroleum Evaluation Engineers (Calgary Chapter) and the Canadian Institute of Mining, Metallurgy & Petroleum (Petroleum Society).

Reserves are estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from known accumulations, from a given date forward, based on:

  • analysis of drilling, geological, geophysical and engineering data;

  • the use of established technology; and

  • specified economic conditions, which are generally accepted as being reasonable.

Reserves are classified according to the degree of certainty associated with the estimates:

  • Proved reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves;

  • Probable reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves; and

  • Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated proved plus probable plus possible reserves.

Each of the reserves categories (proved, probable and possible) may be divided into developed and undeveloped categories:

  • Developed reserves are those reserves that are expected to be recovered from existing wells and installed facilities or, if facilities have not been installed, that would involve a low expenditure (for example, when compared to the cost of drilling a well) to put the reserves on production. The developed category may be subdivided into producing and non-producing.

  • Developed producing reserves are those reserves that are expected to be recovered from completion intervals open at the time of the estimate. These reserves may be currently producing or, if shut-in, they must have previously been on production, and the date of resumption of production must be known with reasonable certainty.

  • Developed non-producing reserves are those reserves that either have not been on production, or have previously been on production, but are shut-in, and the date of resumption of production is unknown.

  • Undeveloped reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (for example, when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves classification (proved, probable, possible) to which they are assigned.

In multi-well pools it may be appropriate to allocate total pool reserves between the developed and undeveloped categories or to subdivide the developed reserves for the pool between developed producing and developed non-producing. This allocation should be based on the estimator's assessment as to the reserves that will be recovered from specific wells, facilities and completion intervals in the pool and their respective development and production status.

The qualitative certainty levels referred to in the definitions above are applicable to individual reserves entities (which refers to the lowest level at which reserves calculations are performed) and to reported reserves (which refers to the highest level or the sum of individual entity estimates for which reserves estimates are presented). Reported reserves should target the following levels of certainty under a specific set of economic conditions:

  • at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimated proved reserves;

  • at least a 50 percent probability that the quantities actually recovered will equal or exceed the sum of the estimated proved plus probable reserves; and

  • at least a 10 percent probability that the quantities actually recovered will equal or exceed the sum of the estimated proved plus probable plus possible reserves.

Additional clarification for the classification of reserves and the certainty levels associated with reserves estimates is provided in the COGE Handbook.

Disclosure of Resources

In this news release, the Company also refers to estimates of "contingent resources". These estimates represent the best estimate of the contingent resources attributed to the Company's interest, are not classified or recognized as reserves, and are in addition to the Company's disclosed reserve volumes.

Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political, and regulatory matters, or a lack of markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage. There is no certainty that it will be commercially viable to produce any portion of the contingent resources and the estimated future net revenues do not necessarily represent the fair market value of such contingent resources.

The Company's resources classified as contingent resources, rather than as reserves, are so classified pending the need for further facility design, preparation of firm development plans and regulatory applications (including associated reservoir studies and delineation drilling) and corporate approvals to proceed with development.

When evaluating contingent resources, the following mutually exclusive categories are recommended in the COGE Handbook:

  • Low Estimate: This is considered to be a conservative estimate of the quantity that will actually be recovered. It is likely that the actual remaining quantities recovered will exceed the low estimate. If probabilistic methods are used, there should be at least 90 percent probability that the quantities actually recovered will equal or exceed the low estimate.

  • Best Estimate: This is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. If probabilistic methods are used, there should be at least a 50 percent probability that the quantity actually recovered will equal or exceed the best estimate.

  • High Estimate: This is considered to be an optimistic estimate of the quantity that will actually be recovered. It is unlikely that the actual remaining quantities recovered will exceed the high estimate. If probabilistic methods are used, there should be at least a 10 percent probability that the quantities actually recovered will equal or exceed the high estimate.

FORWARD-LOOKING STATEMENTS

This news release includes forward-looking statements, including but not limited to estimates of reserves and resources and the present value of revenues associated with such reserves and resources. Statements in this news release relating to reserves and resources involve the implied assessment, based on certain estimates and assumptions, that the described reserves and resources, as the case may be, exist in the quantities predicted or estimated, and can be profitably produced in the future. There is no assurance that the forecast price and cost assumptions contained in the AJM reports will be realized and variances could be material. Other assumptions and qualifications relating to project schedules, costs and other matters are inherent in these estimates.

In addition, all statements other than statements of historical facts, included in this news release that address activities, events, or developments that the Company believes or anticipates will or may occur in the future are forward-looking statements, including but not limited to the Company's intent to pursue the acquisition of additional interest in the Kotaneelee property, the Company's planned exploration activities and the existence of potential opportunities in the Pacific Rim, North America and the Yukon. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements expressed or implied by such forward-looking statements. Such factors include general economic and business conditions, the ability to acquire and develop specific projects and reach commercially acceptable terms with counterparties, the ability to secure government and other third party approval, potential third party claims, the ability to fund operations, and other factors over which the Company has little or no control. The Company does not intend to update publicly any forward-looking statements, except as may be required by law. There can be no assurance that EFLO will be successful in completing the acquisition of additional interest(s) in the Kotaneelee properties or executing its planned exploration and development activities.

The contents of this news release should be considered in conjunction with the warnings and cautionary statement contained in the Company's public filings, which are accessible on SEDAR at www.sedar.com.

Definitions

In this news release: (i) Mcf means thousand cubic feet; (ii) Mcf/d means thousand cubic feet per day; (iii) MMcf means million cubic feet; (iv) MMcf/d means million cubic feet per day; (v) bbls means barrels; (vi) Mbbls means thousand barrels; (vii) MMbbls means million barrels; (viii) bbls/d means barrels per day; (ix) Bcf means billion cubic feet; (x) Mboe means thousand barrels of oil equivalent; (xi) MMboe means million barrels of oil equivalent; (xii) boe means barrels of oil equivalent; and (xiii) boe/d means barrels of oil equivalent per day.

Boe means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. References to boe may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet to natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Contact Information

  • EFL Overseas Inc.
    Keith Macdonald
    1 (403) 246-8443