Suroco Energy Inc.
TSX VENTURE : SRN

Suroco Energy Inc.

February 24, 2012 11:44 ET

Suroco Energy Inc. Announces 2011 Year-End Reserves

CALGARY, ALBERTA--(Marketwire - Feb. 24, 2012) -

NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA

Suroco Energy Inc. (TSX VENTURE:SRN) (the "Corporation") is pleased to announce the results of the independent reserves report effective December 31, 2011 for the Corporation. The Corporation's Colombian and Canadian reserves were evaluated by GLJ Petroleum Consultants of Calgary, Alberta ("GLJ"), independent qualified reserves evaluators, in compliance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities and in accordance with the COGE (Canadian Oil and Gas Evaluation) Handbook (the "GLJ Report").

2011 YEAR-END RESERVE HIGHLIGHTS

  • Total proved reserves of approximately 0.9 million barrels of oil (net after royalty), with a net present value (before tax and discounted at 10%) of approximately US$43.2 million.
  • Total proved plus probable reserves of approximately 1.8 million barrels of oil (net after royalty), with a net present value (before tax and discounted at 10%) of approximately US$72.5 million.
  • Total proved, probable and possible reserves of approximately 2.7 million barrels of oil (net after royalty), with a net present value (before tax and discounted at 10%) of US$118.6 million.
  • Positive revisions of 64% as compared to 2010 year-end company gross proved producing reserves, resulting in a net increase of 12% after accounting for 2011 production.
  • Positive revisions of 20% as compared to 2010 year-end company gross total proved reserves, resulting in a net decrease of 12% after accounting for 2011 production.
  • Positive revisions of 35% as compared to 2010 year-end company gross total proved plus probable reserves, resulting in a net increase of 14% after accounting for 2011 production.
  • Positive revisions of 12% as compared to 2010 year-end company total gross proved plus probable plus possible reserves, which essentially offset 2011 production to result in no significant net change for this category.
  • Recognition by GLJ of significant undeveloped waterflood reserve potential in the Cohembi area in both the probable and possible reserves categories.

2011 RESERVES

A complete filing of the Corporation's Statements of Reserves Data and Other Oil and Gas Information (form 51-101F1), Report on Reserves Data by Independent Qualified Reserves Evaluator or Auditor (form 51-101F2) and Report of Management and Directors on Oil and Gas Disclosure (form 51-101F3), will be available under the Corporation's profile on SEDAR (www.sedar.com) prior to the end of March 2012.

The following table summarizes the Corporation's oil and gas reserves as at December 31, 2011.

SUMMARY OF OIL AND GAS RESERVES BASED ON FORECAST PRICES AND COSTS

Company Reserves(1)
Light and Medium Oil Heavy Oil Natural Gas Natural Gas Liquids
Gross Net Gross Net Gross Net Gross Net
Reserves Category MSTB MSTB MSTB MSTB MMscf MMscf Mbbl Mbbl
PROVED
Developed Producing(2)(6) 744 685 - - - - - -
Developed Non-Producing(2)(7) 30 27 - - - - - -
Undeveloped(2)(8) 183 168 - - - - - -
TOTAL PROVED(2) 958 880 - - - - - -
TOTAL PROBABLE(3) 969 890 - - - - - -
TOTAL PROVED + PROBABLE(2)(3) 1,926 1,770
TOTAL PROVED+PROBABLE+POSSIBLE (2)(3)(4) 2,913 2,670 - - - - - -

See "Notes to Tables" below.

The following table summarizes the Corporation's net present values of future net revenue as at December 31, 2011.

SUMMARY OF NET PRESENT VALUES BASED ON FORECAST PRICES AND COSTS

Net Present Values of Future Net Revenue
Before Income Tax After Income Tax
Discounted at Discounted at
0%/yr 5%/yr. 10%/yr. 15%/yr. 20%/yr. 0%/yr 5%/yr. 10%/yr. 15%/yr. 20%/yr.
Reserves Category $M $M $M $M $M $M $M $M $M $M
PROVED
Developed Producing(2)(6) 41,572 38,527 35,969 33,791 31916 32,592 30,221 28,222 26,513 25,038
Developed Non-Producing(2)(7) 1,225 1,170 1,121 1,076 1,036 821 772 729 691 658
Undeveloped(2)(8) 7,002 6,498 6,060 5,678 5,340 4,691 4,220 3,822 3,482 3,190
TOTAL PROVED(2) 49,799 46,195 43,150 40,545 38,292 38,105 35,213 32,773 30,687 28,886
TOTAL PROBABLE(3) 45,339 36,144 29,356 24,220 20,248 30,374 23,945 19,192 15,591 12,807
TOTAL PROVED + PROBABLE(2)(3) 95,138 82,340 72,507 64,765 58,539 68,478 59,159 51,964 46,278 41,692
TOTAL PROVED+PROBABLE+POSSIBLE (2)(3)(4) 164,484 138,111 118,614 103,745 92,103 114,944 96,268 82,415 71,825 63,521

See "Notes to Tables" below.

The price forecast used in the variable dollar economics is available on the GLJ website at www.gljpc.com.

The following table sets forth a reconciliation of the Corporation's reserves by product type:

RECONCILIATION OF COMPANY GROSS RESERVES BY PRINCIPAL PRODUCT TYPE BASED ON FORECAST PRICES AND COSTS

Light and Medium Oil
Gross
Proved
(Mbbl
) Gross
Probable
(Mbbl
) Gross
Proved Plus Probable
(Mbbl
) Gross Possible (Mbbl ) Gross Proved Plus Probable Plus Possible (Mbbl )
At December 31, 2010 1,111 606 1,717 - -
Production (Sales) (348 ) - (348 ) - -
Acquisitions - - - - -
Dispositions (24 ) (6 ) (30 ) - -
Discoveries - - - - -
Extensions 194 (194 ) - - -
- - -
Economic Factors - - - - -
Technical Revisions 25 (57 ) (32 ) - -
Improved Recovery - 619 619 - -
At December 31, 2011 958 969 1,926 - -

IMPACT OF OPERATIONAL ACTIVITIES ON RESERVES

The Corporation's activities in the Suroriente Block of Colombia during 2011 resulted in a net upward adjustment in company share total proved plus probable reserves of 587,000 barrels of light and medium oil before production and disposition adjustments. This increase is partially attributable to the following development activities:

  • The Cohembi-2 and Cohembi-3 wells were drilled and placed on production in the first half of 2011.
  • Core was acquired from the Cohembi-2 well, and subjected to a full suite of special core analysis (SCAL) to provide a basis for geological, petrophysical, and engineering analysis.
  • The Pinuna-4 and Pinuna-6 wells were drilled in the second half of 2011. Pinuna-6 was placed on production shortly after drilling. Engineering complications encountered during completion prevented the Pinuna-4 well from producing despite good oil indications on logs. Remedial work is planned to repair cement that isolates the oil zone from underlying water.

The remaining upward adjustments are the result of further technical evaluation of the Cohembi oil pool production and well data, which has confirmed that oil recovery can be substantially increased with implementation of pressure maintenance by water injection.

WATERFLOOD POTENTIAL OF THE COHEMBI VILLETA N OIL POOL

Reserves assigned in the GLJ Report to the Cohembi Villeta N pool ("Cohembi") are based on discovered light or medium oil initially in place (DOIIP) of between 100 and 140 million barrels (gross field basis). Due to the early stage of development of this large accumulation, improved recovery potential has been assigned to only 25% of the DOIIP area for probable reserves and 40% of the DOIIP area for possible reserves.

Company gross total proved reserves of 548 thousand barrels for Cohembi are assigned in the GLJ Report on the basis of primary recovery of 8% of the DOIIP. National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities and COGE (Canadian Oil and Gas Evaluation) Handbook reporting guidelines do not support recognition of proven reserve potential for waterflooding until actual demonstration of the recovery scheme, which is targeted for late 2012 to early 2013 in Cohembi.

Company gross total proved plus probable reserves of 1.3 million barrels of oil for Cohembi are assigned in the GLJ Report on the basis of primary recovery of 8% of the DOIIP, plus incremental recovery of 17% (for total recovery of 25%) over an area that includes 25% of the DOIIP in Cohembi.

Company gross total proved plus probable plus possible reserves of 2.2 million barrels of oil for Cohembi are assigned in the GLJ Report on the basis of primary recovery of 8% of the DOIIP, plus incremental recovery of 22% (for total recovery of 30%) over an area that includes 40% of the DOIIP in Cohembi.

The Corporation plans to drill six development wells in the Cohembi field in 2012, with the objective of further delineating the pool and initiating pressure maintenance by water injection. Drilling will continue in 2013 as necessary to fulfill the objective of developing a waterflood project that will achieve optimal recovery of the full DOIIP of the Cohembi Villeta N pool. Additional material that illustrates the current reserve booking of the Cohembi field, and the Corporation's vision of full field development will be made available on our website at www.suroco.com.

RESERVES COMMITTEE

The Corporation has a reserves committee, which has a majority of independent board members, which reviews the qualifications and appointment of the independent reserve evaluators. The committee also reviews the procedures for providing information to the evaluators. All booked reserves are based upon annual evaluations by the independent qualified reserve evaluators in accordance with the COGE (Canadian Oil and Gas Evaluation) Handbook. The evaluations are conducted from the fundamental geological and engineering data. The reserves committee, chaired by Daryl Gilbert, has reviewed the reserves information and approved the reserves report.

GENERAL

The Corporation is a Calgary-based junior oil and gas company, which explores for, develops and sells crude oil, natural gas liquids and natural gas in Colombia. The Corporation's common shares trade on the TSX Venture Exchange under the symbol SRN.

CAUTIONARY LANGUAGE

Possible reserves are those additional reserves that are less certain to be discovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

With respect to the Suroriente Block, the GLJ Report reports company gross total reserves as follows: (a) proved reserves of 970,000 barrels of oil; (b) proved plus probable reserves of 1,947,000 barrels oil; and (c) proved plus probable plus possible reserves of 2,941,000 barrels of oil.

The estimates of reserves for individual properties may not reflect the same confidence level as estimates of reserves for all properties, due to effects of aggregation

FORWARD LOOKING STATEMENTS

Certain statements included in this press release constitute forward-looking statements under applicable securities legislation. These statements relate to future events or future performance of the Corporation. All statements other than statements of historical fact are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue", or the negative of these terms or other comparable terminology. Forward-looking statements or information in this press release include, but are not limited to, the characteristics of the Corporation's oil and natural gas properties, reserve quantities and the discounted present value of future net cash flows from such reserves, net revenue, capital expenditures, exploration plans and development plans. In addition, this press release may contain forward-looking statements attributed to third party industry sources. Undue reliance should not be placed on these forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, estimates, forecasts, projections and other forward-looking statements will not occur, which may cause actual performance and results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These assumptions, risks and uncertainties include, among other things, the state of the economy in general and capital markets in particular; fluctuations in oil prices; the results of exploration and development drilling, recompletions and related activities; changes in environmental and other regulations; risks associated with oil and gas operations and future exploration activities; and other factors, many of which are beyond the control of the Corporation. You can find an additional discussion of those assumptions, risks and uncertainties in the Corporation's Canadian securities filings.

The forward-looking statements contained in this press release are made as of the date of this press release. Except as required by law, the Corporation disclaims any intention and assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, the Corporation undertakes no obligation to comment on the expectations of, or statements made by, third parties in respect of the matters discussed above. New factors emerge from time to time, and it is not possible for management of the Corporation to predict all of these factors and to assess in advance the impact of each such factor on the Corporation's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement or information. The forward-looking statements contained herein are expressly qualified by this cautionary statement. Moreover, neither the Corporation nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements.

Statements relating to "reserves" are deemed to be forward-looking statements or information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitable in the future. There are numerous uncertainties inherent in estimating quantities of proved reserves, including many factors beyond the control of the Corporation. The reserve data included herein represents estimates only. In general, estimates of economically recoverable oil and natural gas reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary considerably from actual results. All such estimates are to some degree speculative and classifications of reserves are only attempts to define the degree of speculation involved. For those reasons, estimates of the economically recoverable oil and natural gas reserves attributable to any particular group of properties and classification of such reserves based on risk of recovery and estimates of future net revenues expected therefrom, prepared by different engineers or by the same engineers at different times, may vary substantially. The actual production, revenues, taxes and development and operating expenditures of the Corporation with respect to these reserves will vary from such estimates, and such variances could be material.

Estimates with respect to proved reserves that may be developed and produced in the future are often based upon volumetric calculations and upon analogy to similar types of reserves rather than actual production history. Estimates based on these methods are generally less reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production history will result in variations, which may be substantial, in the estimated reserves.

Consistent with the securities disclosure legislation and policies of Canada, the Corporation has used forecast prices and costs in calculating reserve quantities included herein. Actual future net cash flows also will be affected by other factors such as actual production levels, supply and demand for oil and natural gas, curtailments or increases in consumption by oil and natural gas purchasers, changes in governmental regulation or taxation and the impact of inflation on costs.

All evaluations of future revenue are after the deduction of future income tax expenses, unless otherwise noted in the tables, royalties, development costs, production costs and well abandonment costs but before consideration of indirect costs such as administrative, overhead and other miscellaneous expenses. The estimated future net revenue contained in the table above does not necessarily represent the fair market value of the Corporation's reserves. There is no assurance that the forecast price and cost assumptions contained in the GLJ Report will be attained and variances could be material. Other assumptions and qualifications relating to costs and other matters are included in the GLJ Report. The recovery and reserves estimates on the Corporation's properties described herein are estimates only. The actual reserves on the Corporation's properties may be greater or less than those calculated.

NOTES TO TABLES

1. "Gross Reserves" are the Corporation's working interest (operating or non-operating) share before deducting of royalties and without including any royalty interests of the Corporation. "Net Reserves" are the Corporation's working interest (operating or non-operating) share after deduction of royalty obligations, plus the Corporation's royalty interests in reserves.

2. "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.

3. "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.

4. "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.

5. "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 (e.g. when compared to the cost of drilling a well) to put the reserves on production.

6. "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.

7. "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.

8. "Undeveloped" reserves are those reserves expected to be recovered from know 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.

Some values in the tables set forth above may not add due to rounding.

Neither 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

  • Suroco Energy Inc.
    Alastair Hill
    President and Chief Executive Officer
    (403) 232-6784
    (403) 232-6747 (FAX)

    Suroco Energy Inc.
    Travis Doupe
    VP Finance and Chief Financial Officer
    (403) 232-6784
    (403) 232-6747 (FAX)
    www.suroco.com