NAL Oil & Gas Trust
TSX : NAE.UN

NAL Oil & Gas Trust

May 25, 2010 09:23 ET

NAL Oil & Gas Trust Significantly Increases Mississippian Light Oil Acreage in Saskatchewan

CALGARY, ALBERTA--(Marketwire - May 25, 2010) - NAL Oil & Gas Trust (the "Trust" or "NAL") (TSX:NAE.UN) announces that it has, through a series of transactions, acquired additional acreage in southeast Saskatchewan.

On the transactions, Mr. Andrew Wiswell, NAL's President and CEO, stated "The addition of this acreage creates a new Mississippian light oil resource play for NAL in southeast Saskatchewan and further strengthens the Trust's total oil portfolio which complements NAL's leadership position in the Cardium oil resource play in central Alberta. The acquisition of this acreage is consistent with our strategy of adding organic light oil opportunities with significant running room in an emerging play. These transactions represent another strategic step toward positioning NAL as a sustainable dividend paying E&P company as we prepare for corporate conversion later this year".

HIGHLIGHTS OF HOFFER ACREAGE ACQUISITIONS:

  • Significantly increases NAL's net developed and undeveloped acreage position in southeast Saskatchewan from approximately 95,000 acres to approximately 173,000 acres.
  • Builds upon NAL's new pool discovery at Hoffer in SE Saskatchewan, which was drilled during the fourth quarter of 2009.
  • Adds 244 gross sections at an average cost of approximately $1,200 per hectare ($525 per acre).
  • Increases NAL's Mississippian horizontal oil prospect inventory by up to 300 potential drilling locations.
  • NAL's 2010 exit production rate is expected to increase to the 31,000 – 32,000 boe/d range.

BUILDING ON NEW POOL DISCOVERY AT HOFFER IN SE SASKATCHEWAN

Through a series of transactions, the Trust has acquired a significant undeveloped acreage position near the Trust's new light oil discovery at Hoffer in southeast Saskatchewan. NAL operates this core area and has acquired a 50% working interest in the acreage, with the Trust's strategic partner Manulife acquiring the other 50% working interest. Total acquired acreage is approximately 244 gross sections which, in aggregate, have been added at an average cost of approximately $1,200 per hectare ($525 per acre) and compares favourably with recent land sales in the $2,400 per hectare range for adjacent lands. These transactions demonstrate NAL's ability to execute a first-mover advantage in an emerging light oil resource.  

Scalable horizontal drilling for light oil in the Mississippian will be the primary focus for the area during the initial stage of development. The acquired acreage possesses multi-zone potential in several Mississippian horizons, including the Oungre and the Ratcliffe and is also prospective for the Bakken. In aggregate, the 244 gross sections have increased NAL's horizontal oil prospect inventory by up to 300 potential drilling locations. It is expected that the inventory of prospects will continue to grow as the resource potential is delineated on the acquired lands.

To view Figure 1: NAL SE SASKATCHEWAN LAND MAP, please visit the following link: http://media3.marketwire.com/docs/NALFigure1.pdf

HOFFER PLAY OVERVIEW

The resource at Hoffer is stratigraphically controlled and analogous to the Trust's successful play at Elswick to the north. NAL's technical teams have applied the experience gained at Elswick to the Hoffer area in order to successfully identify and delineate the resource. At Hoffer, NAL drilled its initial well in the fourth quarter of 2009 and followed up that success with five additional locations in the first quarter of 2010. To date, these six wells are on production with current production rates ranging between 75 and 200 boe per day. These initial positive results have validated a 10 to 15 well delineation and development program for the remainder of 2010 which is expected to commence by the end of May.

Potential for continuity of the play across the acquired acreage is supported by mapping that reflects the stratigraphic nature of the play, the presence of bypassed pay in several well bores, and observations made from NAL's proprietary 3D seismic. Program risk is mitigated through the multi-zone potential in the area. Based on the Trust's experience in Saskatchewan, it is expected that this play type would reasonably support a drilling density of 3 to 4 wells per section where delineation drilling is successful.

NAL's view of the Mississippian play on the Hoffer trend is currently characterized by:

  • First month IP's of 100 - 300 boe per day
  • Light sweet crude oil
  • Production that qualifies for a 100 Mbbl royalty holiday which delivers C$60/boe netbacks at US$70/bbl WTI
  • Recycle ratios of greater than 3 times
  • Reserves per well of approximately 100 – 200 Mboe
  • Drilling density of 3-4 wells per section
  • Average cost per horizontal well of approximately $1.8 million to drill, complete, equip and tie-in
  • Wells do not require fracture stimulation
  • Operating costs that are expected to be approximately $6 per boe upon completion of a central battery facility that is planned to be built in 2011

Recent Bakken drilling activity by competitors offsetting NAL's newly acquired acreage has demonstrated encouraging results and validates potential for future Bakken development on NAL's lands. Figure 2 below illustrates this activity by the red stars in relation to the acquired lands.

To view Figure 2: NAL GREATER HOFFER LAND MAP, please visit the following link: http://media3.marketwire.com/docs/NALFigure2.pdf

OUTLOOK

NAL management is encouraged by the initial results at Hoffer and believes this area provides near term production and reserve growth potential, as well as both a platform, and drilling inventory for sustained activity going forward.

The recent acquisition of acreage in southeast Saskatchewan and the incremental net capital spending of approximately $14 million for the remainder of 2010 in the greater Hoffer area, is included in the increased capital expenditure guidance of $210 million announced with the Trust's $100 million equity financing on April 5, 2010. NAL's development program for the remainder of 2010 continues to be approximately 75% to 80% weighted toward oil and evenly balanced between Cardium oil projects in Alberta and Mississippian projects in Saskatchewan. NAL's Cardium oil drilling continues to deliver strong economics with ongoing activity being positively encouraged by the Alberta government's royalty incentive programs.

With an increased capital program of $210 million, and reasonable success in the Trust's drilling programs in the Cardium and Mississippian light oil plays through the second half of 2010, the Trust's exit rate is expected to increase to the 31,000 – 32,000 boe/d range.

FORWARD LOOKING STATEMENTS

This press release contains statements that constitute "forward-looking information" within the meaning of applicable securities legislation. Forward looking information is typically identified by words such as "anticipate", "estimate", "expect", "forecast", "may", "will", "could", "plan", "intend", "should", "believe", "outlook", "project", "potential", "target", and similar words suggesting future events or future performance. In addition, statements relating to "reserves" are forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities estimated and can be profitably produced in the future. This press release contains forward-looking information pertaining to, among other things, potential reserves, the number and location of prospective drilling locations, anticipated 2010 production, anticipated 2010 capital expenditures, operating, drilling and completion costs, anticipated drilling density, the continuity of the Hoffer play, the potential for future Mississippian (including Bakken) development and production and the future structure of the Trust and its subsidiaries.

Various assumptions were used in drawing the conclusions contained in the forward-looking information contained in this press release. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by NAL and described in the forward-looking information contained in this press release. Undue reliance should not be placed on forward-looking information. The material risk factors include, but are not limited to, changes in commodity prices, unanticipated operating results or production declines, the impact of weather on NAL's ability to execute its capital program, risks inherent in oil and gas operations, the uncertainty associated with the interpretation of seismic data, the imprecision of reserve estimates, limited, unfavorable or no access to capital or credit markets, the lack of availability of qualified operating or management personnel, the inability to obtain industry partner and other third party consents and approvals, when required, general economic conditions in Canada, the United States and globally, changes in government regulation of the oil and gas industry, including environmental regulation, changes in royalty rates and other risk factors discussed in other public filings of the Trust including the Trust's current Annual Information Form. Readers are cautioned that the foregoing list of risk factors is not exhaustive.

Forward-looking information is based on the estimates and opinions of NAL's management at the time the information is released.

BOE CONVERSION

Throughout this press release, the calculation of barrels of oil equivalent (boe) is calculated at a conversion rate of six thousand cubic feet (mcf) of natural gas for one barrel of oil and is based on an energy equivalence conversion method. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalence conversion method primarily applicable at the burner tip and does not represent a value equivalence at the wellhead.

ABOUT NAL

NAL Oil & Gas Trust provides investors with a yield-oriented opportunity to participate in the Canadian upstream oil and gas industry. The Trust generates monthly cash distributions for its Unitholders by pursuing a strategy of acquiring, developing, producing and selling crude oil, natural gas and natural gas liquids from pools in southeastern Saskatchewan, central Alberta, northeastern British Columbia and Lake Erie, Ontario. Trust units trade on the Toronto Stock Exchange under the symbol "NAE.UN".

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