Mr. Bill Ostlund reports
PAN ORIENT ANNOUNCES JUNE 30, 2016 CONTINGENT BITUMEN RESOURCES FOR SAWN LAKE, ALBERTA PROJECT OF ANDORA ENERGY CORPORATION
Pan Orient Energy Corp., on behalf of its 71.8-per-cent-owned subsidiary Andora Energy Corp., has released the June 30, 2016, contingent resources report, which is a National Instrument 51-101-compliant resource evaluation for Andora's oil sands interests at Sawn Lake, Alberta, Canada, as evaluated by Sproule Unconventional Ltd. The evaluation included all of Andora's oil sand leases at Sawn Lake based on exploitation using steam-assisted gravity drainage (SAGD).
The evaluation at June 30, 2016, incorporates the final results of the Sawn Lake demonstration project which produced bitumen from September, 2014, to February, 2016, from one SAGD well pair. The demonstration project established the viability of the SAGD process in the Bluesky formation at Sawn Lake and provided information on productive capability and instantaneous steam-oil ratio of the reservoir.
Highlights of Sawn Lake, Alberta, contingent resources report as at June 30, 2016
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Results of the demonstration project increased unrisked recoverable
resources 8 per cent, significantly increased average peak production rates and
decreased the requirement for natural gas by 16 per cent.
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Andora's unrisked best estimate contingent resources increased 8 per cent to
231.6 million barrels of recoverable bitumen (166.3 million barrels net
to Pan Orient's 71.8-per-cent interest in Andora).
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The estimated before-tax net present value, discounted at 10 per cent, of
Andora's unrisked best estimate contingent resources increased 21 per cent to
$568-million ($408-million net to Pan Orient's 71.8-per-cent interest in
Andora), despite a 15-per-cent decrease in the forecast average realized price
per barrel for bitumen, given the performance of the demonstration
project in terms of peak production rate and cumulative steam-oil ratio
(CSOR).
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The estimated after-tax net present value, discounted at 10 per cent, of
Andora's unrisked best estimate contingent resources increased 26 per cent to
$374-million ($268-million net to Pan Orient's 71.8-per-cent interest in
Andora).
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The evaluation assigned an 85-per-cent chance of development for Sawn Lake, or a
15-per-cent development risk, and the risked best estimate contingent
resources for Andora are 196.9 million barrels of bitumen recoverable
(141.4 million barrels net to Pan Orient's 71.8-per-cent interest in Andora).
The risked best estimate net present value, discounted at 10 per cent, for
Andora's interests is $482-million on a before-tax basis and $318-million on an after-tax basis ($346-million and $228-million net to Pan
Orient's 71.8-per-cent interest in Andora respectively).
Summary
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The oil sands project at Sawn Lake, Alberta, as at June 30, 2016, was
evaluated by Sproule. 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 for SAGD, but which are not currently considered to be
commercially recoverable due to one or more contingencies. The
contingent resources volumes estimated in the Sproule report are
considered contingent until such time as commercial recovery has been
confirmed by further evaluation drilling, refinement of the development
plan, regulatory approval, corporate commitment, financing and economic
factors. Contingent resources are further classified as high, best
and low in accordance with the level of certainty. There is
uncertainty that it will be commercially viable to produce any portion
of the reported contingent resources volumes.
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The June 30, 2016, contingent resources report by Sproule represents an
update of a Dec. 31, 2014, contingent resources report also by
Sproule. The June 30, 2016, report has been updated for results of the
Sawn Lake demonstration project, the June 30, 2016, price forecasts for
crude oil, bitumen, natural gas and exchange rates, and a revised date
of 2020 for the estimated commencement of commercial production. There
is no change to the geology or the industry standard development
strategy. The Dec. 31, 2014, contingent resources report reported
unrisked volumes and values and did not report risked volumes and
values.
-
As an indicator of the impact of the demonstration project, the
geological setting where the demonstration project well pair at 16-30-91-12W5M is located (where the reservoir thickness is at least 20
metres thick with no complications), was assigned the following peak
rate values and CSOR at June 30, 2016, for the full life of the well pair:
low estimate of 580 barrels of oil per day with a CSOR of 3.7; best estimate of 620
bopd with a CSOR of 3.4: high estimate of 660 bopd with a CSOR of 2.7.
This compares with the Dec. 31, 2014, contingent resources report
which assigned values of: low estimate of 242 bopd with a CSOR of 6.7;
best estimate of 345 bopd with a CSOR of 4.7; high estimate of 449
bopd with a CSOR of 3.6.
- The unrisked net present value of the best estimate (discounted at
10 per cent) before income tax using forecast prices attributed to Andora's Sawn
Lake contingent resources increased by $99-million, or 21 per cent to $568-million at June 30, 2016, from $469-million at Dec. 31, 2014. The
unrisked net present value of the best estimate (discounted at 10 per cent)
after income tax using forecast prices attributed to Andora's Sawn Lake
contingent resources increased by $76-million, or 26 per cent to $374-million at
June 30, 2016, from $298-million at Dec. 31, 2014. These net
increases from the Dec. 31, 2014, contingent resources report were
attributable primarily to the following factors:
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An 8-per-cent increase in unrisked best estimate contingent bitumen
resources resulting from better-than-expected performance from the
demonstration project which translates into higher average recovery
factors for future development.
-
Lower CSOR resulting in a 16-per-cent decrease in the requirement for
natural gas and lower capital costs for steam generation.
-
CSOR reflects the total steam requirement for the entire life of
each well pair, including start-up steam circulation, and is the
average for the 390 SAGD well pairs producing from six geological
settings (and various thicknesses of the reservoir) within the Sawn
Lake development. Average CSOR is 5.1 for the low estimate, 4.5
for the best estimate and 3.7 for the high estimate.
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Higher average peak production rates for each of the six geological
settings within Sawn Lake which accelerate revenue, payout of
capital expenditures, Alberta Crown royalties and drilling of
additional wells.
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The June 30, 2016, price forecasts for crude oil and bitumen reflect
a 19-per-cent reduction in the Western Canada Select reference price (in
Canadian dollars) and a 15-per-cent reduction in the average realized price
per barrel for Sawn Lake bitumen.
-
The June 30, 2016, price forecast for natural gas decreased
approximately 23 per cent from 2020 onward.
-
A revised date of 2020 for the estimated commencement of commercial
production.
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The unrisked best estimate company gross contingent resources at Sawn
Lake are 232 million barrels of bitumen recoverable attributed to
Andora's working interests. Contingent resources have been assigned
almost entirely to the South and Central blocks of Sawn Lake. Andora is
the operator of both these blocks and holds a 100-per-cent working interest in
the 16 sections of the South block, which have been assigned 79 million
barrels of unrisked recoverable bitumen, and holds a 50-per-cent working
interest in the 12 sections of the Central block, which have been
assigned 151 million barrels of unrisked recoverable bitumen recoverable
(net to Andora's interests).
Sawn Lake SAGD development
Andora is focused on developing the bitumen resources at the Sawn Lake property in the Peace River oil sands region using SAGD development. The first step toward determining the commercial viability of the SAGD recovery process at Sawn Lake was the demonstration project. The demonstration project has proven that the SAGD process works in the Bluesky formation at Sawn Lake, established characteristics of ramp-up through stabilization of SAGD performance, indicated the productive capability, ISOR, and provided critical information required for well and facility design associated with future commercial development. The final results of the demonstration project have been used to update the reservoir model and prepare the June 30, 2016, contingent resources report. Production results to date are not necessarily indicative of long-term performance or of ultimate recovery, and the Sawn Lake demonstration project has not yet proven that it is commercially viable.
Andora is the operator and holds a 50-per-cent working interest in the Central block of Sawn Lake, where the demonstration project facility and well pair are located. An application for a potential expansion at the demonstration project site to 3,200 bopd was submitted at the end of April, 2016. It is expected that a reactivation of the demonstration project facility and well pair would be considered as part of a potential commercial expansion to 3,200 bopd. The expansion application requests the drilling of up to seven additional SAGD well pairs which are tied into the existing demonstration project facility. The facility would be expanded to generate the additional necessary steam, and it is anticipated that additional steam generation would include the test installation of Andora's proprietary produced water boiler. Andora believes that its produced water boiler could achieve significant benefits for Sawn Lake SAGD field development. Regulatory approval is expected to take approximately a year and a half. An expansion is dependent on regulatory approval, completion of detailed engineering and a higher commodity price environment to support project economics and financing.
ANDORA SAWN LAKE, ALBERTA, INTERESTS AT JUNE 30, 2016
Gross sections Working interest
South block (Andora operated) 16 100%
Central block (Andora operated) 12 50%
North block (Andora operated) 9 100%
North block (non-operated) 51 10%
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SUMMARY OF CONTINGENT BITUMEN RESOURCES AS OF JUNE 30, 2016, AS PROVIDED BY
SPROULE
Marketable resources -- company gross (million Pan Orient
barrels) Andora 71.8%
Risked (evaluation assigned a 15% development risk)
Contingent -- low estimate "1C" 178.2 128.0
Contingent -- best estimate "2C" 196.9 141.4
Contingent -- high estimate "3C" 231.3 166.1
Unrisked
Contingent -- low estimate "1C" 209.7 150.5
Contingent -- best estimate "2C" 231.6 166.3
Contingent -- high estimate "3C" 272.2 195.4
SUMMARY OF NET PRESENT VALUES AS OF JUNE 30, 2016
Contingent resources as provided by Sproule
Andora 100% (Cdn$ million)
Net present values before tax (risked) 0% 5% 10% 15%
Contingent -- low estimate "1C" 3,693 1,185 406 126
Contingent -- best estimate "2C" 4,895 1,432 482 160
Contingent -- high estimate "3C" 6,613 1,852 606 199
Net present values after tax (risked) 0% 5% 10% 15%
Contingent -- low estimate "1C" 2,650 835 265 61
Contingent -- best estimate "2C" 3,579 1,015 318 84
Contingent -- high estimate "3C" 4,828 1,319 405 108
Net present values before tax (unrisked) 0% 5% 10% 15%
Contingent -- low estimate "1C" 4,345 1,394 478 149
Contingent -- best estimate "2C" 5,759 1,685 568 189
Contingent -- high estimate "3C" 7,781 2,178 713 234
Net present values after tax (unrisked) 0% 5% 10% 15%
Contingent -- low estimate "1C" 3,115 981 311 71
Contingent -- best estimate "2C" 4,210 1,194 374 98
Contingent -- high estimate "3C" 5,680 1,551 476 127
1. For risked resources and values, the evaluation assigned an 85-per-cent
chance of development for Sawn Lake, or a 15-per-cent development risk.
2. Resources assessed at forecast crude oil reference prices and costs.
3. Bitumen production is forecast to commence in 2020.
4. The reference prices for heavy oil per barrel (Western Canada Select
WCS 20.5 API in Canadian dollars) are $72.76 for 2020, $73.85 for 2021,
$74.95 for 2022, $76.08 for 2023, $77.22 for 2024, $78.38 for 2025,
$79.55 for 2026 and increase at 1.5 per cent per year thereafter.
5. Bitumen revenue per barrel for these resources is $16.54 less than the
associated WCS reference price in 2020 and the differential increases
between 18 cents to 32 cents per year until 2066.
6. The reference prices for natural gas (AECO-C Spot price per MMBTU in
Canadian dollars) are $3.92 for 2020, $3.99 for 2021, $4.06 for 2022,
$4.14 for 2023, $4.21 for 2024, $4.29 for 2025, $4.36 for 2026 and
increase at 1.5 per cent per year thereafter.
7. Future development costs (including inflation of 0 per cent per annum
for 2016 and 2017 and 1.5 per cent per annum thereafter) for contingent
resources which have been deducted in calculating the before-tax NPV:
- Unrisked low estimate -- $2,204-million with the drilling of 389
gross well pairs and building facilities;
- Unrisked best estimate -- $2,239-million with the drilling of 389
gross well pairs and building facilities;
- Unrisked high estimate -- $2,291-million with the drilling of 389
gross well pairs and building facilities.
8. The engineered values disclosed may not represent fair market value.
9. There is uncertainty that it will be commercially viable to produce any
portion of the resources.
SUMMARY OF NET PRESENT VALUES AS OF JUNE 30, 2016
Contingent resources as provided by Sproule
Pan Orient 71.8% interest in Andora (Cdn$ million)
Net present values before tax (risked) 0% 5% 10% 15%
Contingent -- low estimate "1C" 2,651 851 292 91
Contingent -- best estimate "2C" 3,515 1,029 346 115
Contingent -- high estimate "3C" 4,748 1,329 435 143
Net present values after tax (risked) 0% 5% 10% 15%
Contingent -- low estimate "1C" 1,903 599 190 44
Contingent -- best estimate "2C" 2,569 729 228 60
Contingent -- high estimate "3C" 3,466 947 290 78
Net present values before tax (unrisked) 0% 5% 10% 15%
Contingent -- low estimate "1C" 3,119 1,001 343 107
Contingent -- best estimate "2C" 4,135 1,210 408 135
Contingent -- high estimate "3C" 5,586 1,564 512 168
Net present values after tax (unrisked) 0% 5% 10% 15%
Contingent -- low estimate "1C" 2,236 704 223 51
Contingent -- best estimate "2C" 3,023 858 268 71
Contingent -- high estimate "3C" 4,078 1,114 342 91
1. For risked resources and values, the evaluation assigned an 85-per-cent
chance of development for Sawn Lake, or a 15-per-cent development risk.
2. Resources assessed at forecast crude oil reference prices and costs.
3. Bitumen production is forecast to commence in 2020.
4. The reference prices for heavy oil per barrel (Western Canada Select
WCS 20.5 API in Canadian dollars) are $72.76 for 2020, $73.85 for 2021,
$74.95 for 2022, $76.08 for 2023, $77.22 for 2024, $78.38 for 2025,
$79.55 for 2026 and increase at 1.5 per cent per year thereafter.
5. Bitumen revenue per barrel for these resources is $16.54 less than the
associated WCS reference price in 2020 and the differential increases
between 18 cents to 32 cents per year until 2066.
6. The reference prices for natural gas (AECO-C Spot price per MMBTU in
Canadian dollars) are $3.92 for 2020, $3.99 for 2021, $4.06 for 2022,
$4.14 for 2023, $4.21 for 2024, $4.29 for 2025, $4.36 for 2026 and
increase at 1.5 per cent per year thereafter.
7. Future development costs (including inflation of 0 per cent per annum
for 2016 and 2017 and 1.5 per cent per annum thereafter) for contingent
resources which have been deducted in calculating the before-tax NPV:
- Unrisked low estimate -- $1,583-million with the drilling of 389
gross well pairs and building facilities;
- Unrisked best estimate -- $1,607-million with the drilling of 389
gross well pairs and building facilities;
- Unrisked high estimate -- $1,645-million with the drilling of 389
gross well pairs and building facilities.
8. Results represent Pan Orient's 71.8-per-cent interest in Andora.
9. The engineered values disclosed may not represent fair market value.
10. There is uncertainty that it will be commercially viable to produce any
portion of the resources.
We seek Safe Harbor.
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