Petrobank Energy and Resources Ltd.
TSX : PBG
OSLO STOCK EXCHANGE : PBG

Petrobank Energy and Resources Ltd.

December 17, 2007 04:01 ET

Petrobank Accelerates 2008 Activity Levels in All Three Business Units

CALGARY, ALBERTA--(Marketwire - Dec. 17, 2007) - Petrobank Energy and Resources Ltd. ("Petrobank" or the "Company") (TSX:PBG)(OSLO:PBG) is pleased to announce that we plan to implement the Company's most ambitious capital program in 2008. Our Canadian Business Unit is expected to be the most active driller in the Bakken formation in southeast Saskatchewan, our Latin American Business Unit is expected to be one of the most active explorers in Colombia, with an extensive development drilling program also planned, and our Heavy Oil Business Unit will expand activity, not only at WHITESANDS, but also on our other two resource opportunities at Dawson in the Peace River area of Alberta and in northwest Saskatchewan. We will also be pursuing the development and acquisition of new and complimentary technologies in our Archon Technologies Ltd. subsidiary. Our 2008 plan reflects the significant progress in all parts of the Company in 2007, and forms the foundation for an accelerated growth plan in all three business units for the coming years.

Canadian Business Unit

Our 2008 plan for the Canadian Business Unit includes drilling 135 (100% working interest) Bakken locations, making Petrobank the most active player in southeast Saskatchewan's Bakken trend. In addition to these wells, the Company expects to participate in a further 38 (17 net) Bakken wells with partners in 2008. In 2007, we constructed our first Bakken central processing facility at Innes, which is tied into the Enbridge oil pipeline system and the Transgas gathering system. In 2008, we plan to supplement this facility with two additional satellite locations that will allow us to continue to capture the liquids-rich natural gas associated with our high-value Bakken light oil production. Although the Bakken formation will be the Canadian Business Unit's primary focus in 2008, we also plan to drill at least 19 new exploration wells focused on building new core areas. In addition, the Company has an extensive inventory of shallow gas locations that, with improvement in natural gas prices, can be quickly developed.

The Bakken Formation

The Bakken formation is found in the Williston Basin, underlying much of North Dakota, eastern Montana and extending up into southern Saskatchewan. The expansion of our presence in the play began with a drilling program that commenced in late 2006. The Mississippian aged Bakken is an extensive regional resource play with the oil contained mostly in siltstones and thin sandstone reservoirs with low porosity and permeability. The formation is capable of high initial production rates of sweet, light, 41+ degree API gravity oil, and liquids-rich solution gas. This resource is significant, with approximately 4.5 million barrels of original oil-in-place per section (square mile or 640 acres) of land within the known play area.

Management believes that the key to unlocking the potential in the Bakken has been our application of new horizontal fracturing and completion technologies. Horizontal wells allow maximum exposure to the reservoir, and the new completion techniques allow fracturing to be contained primarily within the Bakken siltstone along the full extent of the wellbore, to maximize oil production and minimize water production, leading to substantially improved recovery rates. Our typical Bakken wells are expected to come on production at rates between 150 and 250 bopd and after six months they are expected to be producing approximately 80 bopd each. Several of our wells, that commenced production in December of 2006, reached the end of their 37,740 barrel royalty holiday in less than 11 months and one well has now produced in excess of 55,000 barrels. The recovery of the royalty holiday reserves represents more than 50% of the Sproule proven reserves initially attributed to these wells. This was not forecast by Sproule to be achieved until December 2010, highlighting the strong performance we are achieving from our well completions. Petrobank's independent reserve evaluator, Sproule Associates Limited ("Sproule"), currently assigns a proved, probable plus possible (3P) reserves estimate of 125,000 barrels per Bakken well. With our high initial production rates from our 100 percent working interest wells, we are producing in excess of the forecast type-curves used in this preliminary evaluation. Petrobank's internal estimate is that each well may recover in excess of 150,000 barrels. We expect our next reserve evaluation to more appropriately reflect our actual performance to-date. We also anticipate additional reserves of approximately 25,000 boe per well that is pipeline connected to our central gas facility, related to incremental solution gas conservation and liquids recovery.

On November 22, 2007, Petrobank and Peerless Energy Inc. ("Peerless") announced that we had entered into an arrangement agreement whereby Petrobank will acquire all of the issued and outstanding shares of Peerless. The acquisition will be accomplished through a Plan of Arrangement (the "Arrangement") wherein each Class A share of Peerless will be exchanged for $0.90 cash and 0.08 of one Petrobank common share and each Class B share of Peerless will be exchanged for $10.00 cash. Based on the five-day weighted average share price of Petrobank ending on November 22, 2007 of $54.33/share, the effective price per Peerless Class A share is $5.25. The total acquisition cost is expected to be approximately $334 million, including assumption of debt and costs of the transaction. It is expected that approximately 4.0 million Petrobank common shares will be issued to effect the Arrangement.

This acquisition contributes 18 sections of undeveloped land and 1,900 bopd from the Bakken play, which also complements Petrobank's position in the area and will improve our ability to conserve the liquids rich natural gas associated with the oil through efficiencies in common facilities and infrastructure. Although this transaction is still subject to final Peerless shareholder approval, expected in January 2008, we have included our development plans for the combined entity on a go-forward basis. In the event that the Peerless transaction is not completed as anticipated, we will redeploy our capital resources to further accelerate the development of Petrobank's existing Bakken lands.

The majority of our Bakken land base is expected to yield four horizontal wells per section. Including the land base being acquired with Peerless, we will have 155,000 net acres of Bakken undeveloped land and estimate our drilling inventory at over 600 (540 net) locations. This light oil resource play is expected to be the Canadian Business Unit's primary focus area for years to come. Our highly effective drilling and stimulation program, along with the expansion of our significant land base, has strategically positioned Petrobank to be a key long-term Bakken light oil player.

Latin American Business Unit - Petrominerales Ltd. (TSX:PMG)

In 2008, Petrobank's Latin American Business Unit, operated through our 76.5 percent owned subsidiary, Petrominerales Ltd. ("Petrominerales"), plans to drill seven additional wells at Corcel, 10 wells at Orito and a further seven exploration wells focused primarily in the Llanos Basin. This will make Petrominerales one of the most active explorers in Colombia in 2008. In addition, we have defined a 30 well development-drilling program at our Neiva field, which may require the importation of a specialized drilling system to efficiently implement the project.

Corcel Block

With the success of the Corcel-1 and 2 exploration wells in 2007 we are planning for a significant Corcel capital program in 2008. Our Corcel-3 well is currently drilling and is at a depth of approximately 10,865 feet. After drilling Corcel-3 we expect to temporarily relocate the drilling rig to drill two of our Llanos Basin dry-season-only exploration wells, after which we plan to resume our Corcel drilling program starting with the Corcel-C exploration well. We then expect to continue drilling additional Corcel exploration and delineation wells through to the end of 2008.

Corcel production is currently being processed through temporary facilities and trucked. In the second half of 2008 we expect to have all the permits in place required to commence construction on permanent production facilities and an oil pipeline. The permanent production facilities will incorporate a three-train modular design with an initial fluid handling capacity of 180,000 barrels of fluid per day. The production facility will be designed to incorporate additional fluid processing trains as required. We expect the Corcel pools to exhibit the same production characteristics of most Llanos Basin fields, with increasing watercut over time and high ultimate recoveries of original oil in place. The 80 kilometer, 10 inch pipeline from Corcel to the Llanos Basin's main pipeline off-take point at Porvenir will have a capacity of approximately 40,000 bopd. Starting in September 2008, we expect to have access to up to 30,000 bopd of offloading capacity at Monterrey, 77 kilometers from Corcel, which should be sufficient for our requirements before the pipeline is completed.

Our existing inventory of Corcel drilling locations has been defined from our 47 square kilometer 3D seismic survey, which covers approximately 15 percent of the 79,815-acre Block. A 2008 3D seismic program is planned for our 26,341-acre Guatiquia Block, which adjoins the Corcel Block to the south. At that time we also plan to further expand the 3D seismic coverage over our Corcel Block by shooting an additional 100 square kilometers of 3D seismic covering an additional 32 percent of the block.

Orito

Petrominerales plans to drill 10 Orito wells in 2008. This program will be focused in updip areas of the field where we had success in 2007 and in the southwest extension area near the highly successful Orito-117 and 118 wells. In addition, we will be initiating a secondary recovery project in the Pepino formation with a water injection program. Lastly, following the success of the Conga-1 well in the Villeta formation on the adjacent Las Aguilas block, we are redesigning our drilling and completion program to more fully delineate the potential of this formation on the Orito block. In addition to our ongoing development drilling program, a 48 square kilometer 3D seismic program is planned for Orito in 2008 which will help delineate the southern extension and eastern flanks of the main Orito field. This is expected to add further to our large inventory of development drilling locations.

Las Aguilas Block

The Conga-1 well was drilled to a total depth of 7,963 feet and was initially perforated and fracture stimulated in the Caballos formation. The Caballos sands tested non-commercial quantities of hydrocarbons on a stand-alone basis, and were temporarily isolated. We then perforated and acidized an initial 16 feet of pay in the lower Villeta formation. The well naturally flowed a total of 725 barrels of 31 degree API oil over a 34-hour period. We have now completed a second acid stimulation and placed the well on an extended production test using a jet pump assembly capable of handling production of up to 1,000 barrels per day.

Exploration Program

Petrominerales drilled five exploration wells in our 2007 exploration program. Four of these wells were drilled in the Llanos Basin, two of which were completed as new pool discoveries (Joropo and Corcel). The Conga-1 well drilled in the Putumayo Basin adjacent to Orito was also a success. Petrominerales holds over 1.5 million acres of land in Colombia, on which we have acquired 357 square kilometers of 3D seismic and reprocessed all available 2D seismic data. Currently we have an additional 18 leads and prospects on these lands. In 2008, we plan to drill eight exploration wells: two at Mapache and one at each of Joropo, Casanare Este, Castor, Casimena, Corcel, and Las Aguilas. We also plan to shoot seismic over nine of our 13 exploration blocks in 2008, including large programs on our three heavy oil blocks. These programs are intended to be the foundation for expanded exploration drilling programs beyond 2008, including our longer-term growth plan for heavy oil in the Llanos Basin.

Heavy Oil

Petrominerales has three large blocks in the southern Llanos Basin heavy oil belt, Chiguiro Oeste, Chiguiro Este and Rio Ariari. Our heavy oil blocks offset the Cano Sur Block, which is being developed by a recently announced partnership between Shell and Ecopetrol, reflecting the increasing interest in the heavy oil potential of this area.

In 2008, we plan to shoot 576 kilometres of reconnaissance 2D seismic on our Chiguiro Oeste and Rio Ariari Blocks and a combination of 2D and 3D seismic over our Chiguiro Este Block where we are targeting large heavy oil accumulations.

In addition, Petrominerales intends to participate in the upcoming Heavy Oil Bid Round, expected to be announced early next year. Petrobank's proprietary THAI™ technology, which Petrominerales has licensed, represents a paradigm shift in heavy oil recovery technology. THAI™ is well suited to the Colombian heavy oil environment and should give us a competitive advantage to efficiently develop Colombian heavy oil opportunities in an environmentally and socially responsible fashion.

Heavy Oil Business Unit

The 2008 capital program for the Heavy Oil Business Unit is focused on: expanding the current WHITESANDS project to include three new THAI™/CAPRI™ wells with related facilities modifications; designing the adjacent 100,000 bopd "May River Project"; additional resource delineation; designing and constructing the Dawson project in the Peace River area; initial exploration and delineation of the Sutton Creek acreage acquired in Saskatchewan; acquisition of additional heavy oil resources globally; and additional THAI™ business development activities. We also plan to expand our technology development activities in our wholly-owned subsidiary, Archon Technologies Ltd. ("Archon") through the evaluation, acquisition and development of new technologies and innovations around our base THAI™ and CAPRI™ technologies with the intention of enhancing and capturing their full commercial potential.

WHITESANDS

Since July 2006, we have proven our ability to operate the THAI™ process continuously under a variety of operating conditions in one of the world's most challenging reservoir environments. THAI™ is a field-proven technology that will be deployed globally.

As of the end of October, all three of the new sand-handling facilities were installed and are being commissioned and optimized on each of the wells. These new facilities are designed to better manage produced sand and to increase the on-stream availability, allowing them to produce at their indicated potential of approximately 2,000 barrels of fluid per day per well with a greater than 50% oil cut. In addition to the sand-handling facilities, we have also upgraded other portions of the plant to improve produced gas handling, surface facility heat integration, and produced water handling. Because of unanticipated delays in receiving regulatory approvals, some of these facilities are still waiting on regulatory approvals to commence operations. This could impact our ability to ramp up all three wells to their full potential by the end of 2007. While we expect these approvals to be issued shortly, we are also experiencing increasing delays for other approvals from all of the Alberta regulatory bodies, which could impact the pace of implementation of our future plans. This regulatory slowdown is currently affecting many oil sands operators along with the rest of the oil and gas industry in Alberta.

Three New THAI™/CAPRI™ wells

We have revised the design for our three-well expansion of the WHITESANDS project to reduce the surface footprint and eliminate facilities at both the injection and production pads, in an attempt to facilitate an easier and more timely regulatory approval process associated with this expansion. We are ready to drill the new wells but are still waiting on required regulatory approvals, and our hope is that we will be able to drill these three new wells early in 2008. These wells will incorporate the CAPRI™ process, in which a catalyst is added around the outside of the well bore to enhance the upgrading of the oil in-situ. We will also use a modified liner completion designed to reduce sand production with a more efficient surface facility design.

May River Project - 100,000 bopd

We plan to file our public disclosure document for our 100,000 bopd May River Project by the end of 2007, which will kick-off the associated regulatory process. We have completed the project's conceptual design and developed a centralized process design that will significantly reduce the facilities footprint, with the expectation that this should enable faster regulatory approval and project execution. The first phase of the project is expected to be a 15,000 bopd module, expandable from a central location to the ultimate design capacity of 100,000 bopd.

Resource Delineation

In the first quarter of 2007, Petrobank drilled eight delineation wells on the WHITESANDS lands and increased the gross discovered resources of bitumen-in-place on our oil sands leases to 2.6 billion barrels, as estimated in our March 2007 McDaniel and Associates Consultants Ltd. ("McDaniel") reserve report. This represented a 1.0 billion barrel increase from the 1.6 billion barrels first announced in May 2006. McDaniel assigned a recoverable bitumen resource of up to 799 million barrels at March 1, 2007 which compared to 660 million barrels estimated at December 31, 2006. Further delineation drilling to be conducted in late 2007 or early 2008 is expected to add additional recoverable volumes from the existing and recently acquired Alberta oil sands lands. The current recoverable resource evaluations are based only on SAGD recovery technology. McDaniel has been engaged to conduct an evaluation of the THAI™ technology which should be available as part of our reserve and resource update in the first quarter of 2008.

During 2007, we acquired ten additional sections of oil sand leases south of our existing lands bringing our total portfolio of Alberta oil sands leases to 72 sections. These new sections are not currently included in the McDaniel reserve report and we plan to evaluate the resource potential of these new Alberta oil sands lands with an early 2008 drilling program.

Dawson Project

In 2007, we completed a THAI™ license agreement and property acquisition from Duvernay Oil Corp. The acquisition included a 50% working interest in certain heavy oil lands and related assets in the Peace River region of northwest Alberta (the "Dawson Property"). These assets are comprised of 2,880 acres of land, and include two existing horizontal wells and related facilities. Petrobank's internal evaluation of the Dawson Property yields an estimated original-oil-in-place resource of approximately 100 million barrels, utilizing existing 3D seismic and available well data. We intend to update the reserve and resource estimated for the property in connection with our year-end independent reserve evaluation.

The main producing zone in the Dawson area is the Bluesky formation, which contains heavy oil capable of being produced using cold production techniques. There are already numerous cold producing operations in the area, and operators have indicated plans to implement conventional thermal recovery projects. For Petrobank, this property represents an excellent opportunity to implement the THAI™ process in a more conventional heavy oil reservoir, which was the initial target reservoir application for THAI™ when it was first developed at the University of Bath in England.

Our 2008 development plans at Dawson include a two-well THAI™ project, which can then be expanded to accommodate additional wells. These first two wells will incorporate our central processing facility design and revised production well completion and may incorporate the CAPRI™ technology.

Sutton Creek Saskatchewan

Petrobank acquired a 23,040 acre oil sands licence in Saskatchewan in 2007. The licence has a primary term of five years and forms the basis for a possible future expansion of the application of the THAI™ technology into an exciting new oil sands resource fairway. Initial resource delineation of this licence is expected to commence in late 2008 with a 3D seismic program and, potentially, an exploratory drilling program.

THAI™ Business Development

Along with our project development plans for our oil sands leases, we continue to evaluate the use of the THAI™ technology in various reservoirs in other regions of the world, including conventional heavy oil reservoirs in Canada. These evaluations are being conducted with third parties that have executed technology evaluation agreements and are aimed at demonstrating the applicability of the THAI™ technology in other potential projects, and include provisions for future licensing opportunities. The activities are now at the stage where we expect to develop a pipeline of licensing opportunities and projects for the implementation of THAI™ on a global basis.

Archon Technologies Ltd.- Evaluating New Technologies

Petrobank's wholly-owned subsidiary, Archon, has also been actively evaluating the acquisition and development of several new technologies and innovations around the base THAI™ and CAPRI™ technologies to provide an integrated project design and to capture the full commercial benefits of any THAI™ project. These technologies are in the areas of sulfur recovery, innovative additional surface upgrading processes, produced water processing, oxygen enriched air injection to increase combustion efficiency, CO2 capture, and heat recovery for power generation. Archon has its own research and development facilities in Calgary and a full time staff of researchers who also perform fluids and gas analysis for the current WHITESANDS project. Archon has already filed patents supporting the THAI™ technology and plans other THAI™ related patents. Archon is also the vehicle for licensing our technology, intellectual property, and know-how to third parties.

The THAI™ Process

Petrobank's patented THAI™ process is a step-change in the recovery of heavy oil and bitumen resources worldwide. While there are other technologies in use, the THAI™ process has many advantages ranging from speed of project construction, lower capital and operating costs, reduced environmental impact and higher resource recovery potential. We believe that THAI™ is the most sustainable of currently available technologies.

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 and an extensive inventory of Bakken light oil locations in southeast Saskatchewan, complemented by new exploration projects and a large undeveloped land base. The Latin American Business Unit, operated by Petrobank's 76.5% owned TSX-listed subsidiary, Petrominerales Ltd. (trading symbol:PMG), is a Latin American-based exploration and production company producing oil from three blocks in Colombia and has contracts on 13 exploration blocks covering a total of 1.5 million acres in the Llanos and Putumayo Basins. WHITESANDS Insitu Ltd., Petrobank's wholly-owned subsidiary, owns 70,720 net acres of oil sands leases with an estimated 2.6 billion barrels of gross bitumen-in-place and operates the WHITESANDS project which is field-demonstrating 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 integrates existing proven technologies and provides the opportunity to create a step change in the development of heavy oil resources globally. THAI™ and CAPRI™ are registered trademarks of Archon Technologies Ltd., a wholly-owned subsidiary of Petrobank Energy and Resources Ltd.

Barrels of Oil Equivalent

Disclosure provided herein in respect of boe units may be misleading, particularly if used in isolation. A boe conversion relationship of 6 mcf to 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.

Forward-Looking Statements

Certain information provided in this press release constitutes forward-looking statements. The words "anticipate", "expect", "project", "estimate", "forecast" and similar expressions are intended to identify such forward-looking statements. Specifically, this press release contains forward-looking statements relating to the 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. You can find a discussion of those risks and uncertainties in our Canadian securities filings. Such factors include, but are not limited to: general economic, market and business conditions; fluctuations in oil prices; the results of exploration and development drilling, recompletions and related activities; timing and rig availability, outcome of exploration contract negotiations; 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. Except as may be required by applicable securities laws, Petrobank assumes no obligation to publicly update or revise any forward-looking statements made herein or otherwise, whether as a result of new information, future events or otherwise.

Contact Information

  • Petrobank Energy and Resources Ltd.
    John D. Wright
    President and Chief Executive Officer
    (403) 750-4400
    or
    Petrobank Energy and Resources Ltd.
    Chris J. Bloomer
    Vice-President Heavy Oil
    (403) 750-4400
    or
    Petrobank Energy and Resources Ltd.
    Corey C. Ruttan
    Chief Financial Officer
    (403) 750-4400
    (403) 266-5794 (FAX)
    Email: ir@petrobank.com
    Website: www.petrobank.com