Suroco Energy Inc.

TSX VENTURE : SRN


Suroco Energy Inc.

February 27, 2013 06:00 ET

Suroco Energy Inc. Announces 81% Increase in Proved Reserves for 2012

CALGARY, ALBERTA--(Marketwire - Feb. 27, 2013) -

(NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA)

Suroco Energy Inc. (TSX VENTURE:SRN) ("Suroco" or "the Corporation") is pleased to announce the results of the independent reserves report effective December 31, 2012 for the Corporation. The Corporation's reserves were evaluated by GLJ Petroleum Consultants of Calgary, Alberta ("GLJ") 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").

2012 YEAR-END RESERVE HIGHLIGHTS

  • Total proved reserves of approximately 1.6 million barrels of oil (net after royalty), with a net present value (before tax and discounted at 10%) of approximately US$61.2 million.

  • Total proved plus probable reserves of approximately 2.6 million barrels of oil (net after royalty), with a net present value (before tax and discounted at 10%) of approximately US$90.5 million.

  • Total proved, probable and possible reserves of approximately 3.9 million barrels of oil (net after royalty), with a net present value (before tax and discounted at 10%) of US$139.2 million.

  • Booked reserves increased in all categories:

    • positive revisions of 122% as compared to 2011 year-end total company gross proved reserves, resulting in a net increase of 81% after accounting for 2012 production.

    • positive revisions of 67% as compared to 2011 year-end total company gross proved plus probable reserves, resulting in a net increase of 46% after accounting for 2012 production.

    • positive revisions of 59% as compared to 2011 year-end total company gross proved plus probable plus possible reserves, resulting in a net increase of 45% after accounting for 2012 production.

  • In the Cohembi oilfield, recognition of improved recovery reserves in the proved developed category resulting from observed response to water injection that commenced in December 2012.

  • Significant undeveloped improved recovery reserve potential in all categories via waterflooding or polymer flooding in the Cohembi oilfield, as supported by a third party reservoir simulation study and Suroco's internal technical work.

2012 RESERVES

The following table summarizes the Corporation's oil and gas reserves as at December 31, 2012.

CONSOLIDATED SUMMARY OF OIL AND GAS RESERVES
BASED ON FORECAST PRICES AND COSTS
Company Reserves
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) 1,301 1,195 - - - - - -
Developed Non-Producing(2)(7) 22 20 - - - - - -
Undeveloped(2)(8) 411 377 - - - - - -
TOTAL PROVED(2) 1,734 1,591 - - - - - -
TOTAL PROBABLE(3) 1,086 993 - - - - - -
TOTAL PROVED + PROBABLE(2)(3) 2,819 2,585
TOTAL PPP(2)(3)(4) 4,236 3,874 - - - - - -

See "Notes to Tables" below.

The following table summarizes the Corporation's net present values of future net revenue as at December 31, 2012.

CONSOLIDATED 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) 61,230 56,374 52,321 48,894 45,959 49,468 45,526 42,217 39,405 36,988
Developed Non-Producing(2)(7) 986 916 854 798 749 661 605 556 513 476
Undeveloped(2)(8) 12,425 9,953 8,016 6,473 5,226 8,319 6,399 4,893 3,694 2,726
TOTAL PROVED(2) 74,641 67,243 61,191 56,165 51,934 58,449 52,530 47,666 43,612 40,189
TOTAL PROBABLE(3) 45,228 35,996 29,310 24,335 20,543 29,532 23,020 18,315 14,827 12,182
TOTAL PROVED + PROBABLE(2)(3) 119,870 103,239 90,501 80,499 72,477 87,981 75,550 65,981 58,439 52,371
TOTAL PPP(2)(3)(4) 198,785 164,316 139,164 120,236 105,609 140,854 116,279 98,261 84,650 74,099

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
Total
Proved
(Mbbl)
Gross
Total
Probable
(Mbbl)
Gross
Total
Proved
Plus
Probable
(Mbbl)
Gross
Possible
(Mbbl)
Gross Proved
Plus Probable
Plus Possible
(Mbbl)
At December 31, 2011 958 969 1,926 - -
Production (Sales) (393 ) - (393 ) - -
Acquisitions - - - - -
Dispositions - - - - -
Discoveries - - - - -
Extensions 224 158 382 - -
Economic Factors - - - - -
Technical Revisions 181 (71 ) 109 - -
Improved Recovery 764 31 795 - -
At December 31, 2012 1734 1086 2,819 - -

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 in the Annual Information Form of the Corporation that will be filed prior to the end of April 2013.

IMPACT OF OPERATIONAL ACTIVITIES ON RESERVES

The Corporation's activities in the Suroriente Block of Colombia during 2012 resulted in a net upward adjustment in total company gross proved reserves of 1,169,200 barrels of light and medium oil before production adjustments. This increase is partially attributable to the following development activities:

  • Seven successful appraisal wells were drilled and placed on production in the Cohembi oilfield during 2012.

  • Water injection for improved recovery was initiated in the Cohembi oilfield in mid-December of 2012 and within 2 to 7 days a related pressure response was observed in surrounding wells.

The remaining upward adjustments are the result of further evaluation of the production and pressure data from wells in the Cohembi oilfield, which has provided additional confidence in the discovered oil initially-in-place estimate and the high degree of continuity and reservoir quality within the pool.

DISCOVERED OIL INITIALLY-IN-PLACE AND IMPROVED RECOVERY POTENTIAL IN THE COHEMBI VILLETA N OIL POOL

In the third quarter of 2012, the Corporation followed up on the 2011 integrated development study of the Cohembi oil pool conducted by DeGolyer and MacNaughton of Dallas (see the Corporation's February 24, 2012 press release) with an updated reservoir simulation study conducted by Kade Technologies Inc. ("Kade") of Calgary. Geological data from five new wells and an additional year of production and pressure data was incorporated. The Kade study estimated the discovered light or medium oil initially-in-place (DOIIP) for the Cohembi Villeta N pool to be approximately 126 million barrels (100% gross field basis). The oil recovery factor technically achievable by waterflooding was estimated at 25%-34% of the DOIIP based on a 20-well development plan (requiring 10 additional wells to be drilled in 2013 and 2014). The concept of chemical enhanced recovery with polymer injection was also investigated, resulting in a predicted incremental oil recovery factor of 11% to 21% over waterflood recovery. On this basis, the operator and the Corporation are planning a 2013 laboratory feasibility and design study using core acquired from previously drilled Cohembi wells to identify an optimal chemical enhanced recovery plan.

The incremental reserve potential achievable by improved recovery techniques in Cohembi may not have been fully recognized in the GLJ Report, as the field has not yet been adequately delineated. Company gross total proved reserves of 1.4 million barrels of oil for Cohembi are assigned in the GLJ Report on the basis of a DOIIP of 100 million barrels of oil, with primary recovery of 7% of the DOIIP, plus incremental improved recovery of 12% (for a total recovery of 19%) over an area that includes 70% of the DOIIP in Cohembi.

Company gross total proved plus probable reserves of 2.3 million barrels of oil for Cohembi are assigned in the GLJ Report on the basis of a DOIIP of 110 million barrels of oil, with primary recovery of 8% of the DOIIP, plus incremental improved recovery of 17% (for a total recovery of 25%) over an area that includes 74% of the DOIIP in Cohembi.

Company gross total proved plus probable plus possible reserves of 3.6 million barrels of oil for Cohembi are assigned in the GLJ Report on the basis of a DOIIP of 125 million barrels of oil, with primary recovery of 8% of the DOIIP, plus incremental improved recovery of 28% (for a total recovery of 36%) over an area that includes 85% of the DOIIP in Cohembi.

Prior to 2013, development in the Cohembi oilfield has been focused in the northern, western, and central parts of the interpreted pool area. Seismic interpretation and reservoir simulation indicate additional development potential away from the developed area, primarily in the south but also further west and north. The Corporation in now in the process of a four well appraisal and development drilling program from the Cohembi-6 multi-well surface pad that is expected to increase the area available for improved recovery, particularly in the proved reserve category.

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 Handbook. The evaluations are conducted from the fundamental geological and engineering data. The reserves committee, chaired by Mr. 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 1,773,600 barrels of oil; (b) proved plus probable reserves of 2,819,300 barrels oil; and (c) proved plus probable plus possible reserves of 4,235,800 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