7 Jul 2016 07:00
Northern Petroleum Plc
("Northern Petroleum", "the Group" or "the Company")
Canadian production and operational update
Northern Petroleum (AIM: NOP), the AIM quoted oil company focusing on production led growth, provides the following update regarding production and development in north west Alberta, Canada:
§ net average oil production for the last week of June was approximately 500 barrels of oil per day ("bopd")
§ three wells from the 9-25 battery are now on production following the granting of final approvals from the Alberta Energy Regulator ("AER")
- three further wells tied in to the 9-25 battery are planned to be brought into production following remedial work on the pipeline
§ first refund of abandonment deposit from AER due this month
- total deposit of approximately US$1.4 million forecast to be returned to the Company in four consecutive monthly instalments
§ production interruptions occurred during May and June due to heavy rain, which caused damage to roads and restricted trucking movements
- total net average monthly production in May and June was therefore restricted to approximately 300 bopd
§ tariff now being received for processing third party production through the 13-36 battery
§ Q3 work programme being planned with focus on:
- remedial work on the pipeline to bring the additional three 9-25 wells into production
- investigation and possible installation of local generation units to use produced gas for power generation, resulting in material operating cost reductions
- pipeline engineering studies to tie the two main batteries together and thereby reduce trucking requirements and periods of future production downtime
§ subsurface review being undertaken to high grade well workover candidates and well sidetrack opportunities for a winter work programme to further increase Group production
Keith Bush, Chief Executive Officer, commented:
"The Company has achieved its initial goal of increasing production from the Rainbow assets to more than 400 barrels of oil per day. This production, combined with the rise in oil price since February, is providing material monthly revenue and cashflow. The next step for the Company is to increase production further and not only cover group costs, but also create net operating cashflow for future investment.
"The Rainbow assets have a broad range of development opportunities, including well workovers and sidetracks to increase production and pipeline and equipment enhancements, which can reduce operating costs and increase netback per barrel. The key aspect of these development opportunities is that they are relatively low risk and require relatively low levels of capital investment."
Initial work programme completed
The Company completed its acquisition of 28,000 acres of mineral leases, wells, tank batteries and processing facilities, in the Rainbow area of north west Alberta (the "Rainbow Assets") in January this year. The Rainbow Assets are located approximately 20 kilometres south of the Company's existing assets in Virgo (the "Virgo Assets").
Production from the Rainbow Assets at the time of acquisition was approximately 150 bopd. From February through to April, the Company executed a workover programme designed to increase production to more than 400 bopd. The workover programme involved three key initiatives:
§ the reconfiguring of tank storage and pipelines at two single well batteries;
§ the replacement of tubing, rods and pumps in five wells; and
§ the re-testing of pipelines and re-certification for use with the AER.
The cost of the programme was budgeted in 2015 at more than US$1 million. However, with adjustments to the programme and a reduction in the cost environment, the same production target was achieved at a total cost of approximately US$0.5 million.
Production
The Rainbow Assets have two main processing facilities, the 13-36 battery and the 9-25 battery, both of which have processing, separation, water disposal and tank storage capabilities. The 13-36 battery has a direct sales point into the Plains pipeline system and all of the Group's Rainbow production is shipped and sold through this sales point. There are eleven producing wells tied in to 13-36 and four single well batteries currently in production whose output is trucked to this facility.
The 9-25 battery is approximately 25 kilometres to the south east of the 13-36 battery and currently has three wells tied in to the facility and on production. Following processing and water separation, dry oil is stored at the facility before being trucked to the 13-36 battery for sale. The produced water disposed of at 9-25 is used in a waterflood programme to bring pressure support to three additional wells that are awaiting pipeline reinstatement before being brought online.
In the Virgo area the 15-23 well, which was drilled by the Company in 2014, is tied in to the local operator's infrastructure. Produced oil, water and associated gas are piped for processing, separation and sale by the local operator.
The average production for May and June, during which there were unusually heavy rains, was approximately 300 bopd due to trucked wells being shut in as road conditions restricted the trucking of oil to the 13-36 battery for sale. With roads repaired and all wells on production, net average production for the last week in June was approximately 500 bopd.
Q3 work programme
The focus for the proposed Q3 work programme is to improve operating synergies and costs and increase production through the restart of three waterflood wells at the 9-25 facility.
One of the largest operating cost items in the field is electrical power, which is used for pumps and the processing facilities. Within the Rainbow Asset are 16 sweet gas wells which are connected to the 13-36 facility and have approximately 0.7 million standard cubic feet of daily production capacity behind pipe. This is sufficient to provide more power than is currently required by the Rainbow Assets and the Company is evaluating the possibility of installing gas powered generators to produce electricity from this sweet gas supply.
There are three wells connected to the 9-25 battery which are shut in due to the pipeline needing some repair and testing work. These wells receive the benefit of the pressure support from the waterflood programme active in the 9-25 region. Subject to confirmation from engineering studies, the Company plans to repair and test the pipeline this summer and bring the wells back into production.
While the 9-25 battery is located approximately 25 kilometres from the 13-36 battery, the nearest point between each facility's connected pipeline network is only three kilometres. The Company has commissioned engineering studies to assess the cost and work required to connect the two facilities which is anticipated to have significant operating cost savings and also reduce production downtime due to trucking restrictions in bad weather.
Winter work programme
Engineering and subsurface work to date indicates that there are between 10 and 15 further well workover candidates from the existing well inventory, which should require only the pulling and replacement of rods or pump assemblies to bring these wells back into production.
Alongside this work, the Company is considering a list of reefs in the Rainbow area which have had limited oil recovery and could support further production from a sidetrack well, drilled from an existing well, as a deviated or horizontal extension. Material production gains could be possible from this activity with relatively low risk and limited capital outlay, especially in the current cost environment.
The final activity being considered for a winter work programme is the recompletion of some of the Company's wells in the Virgo region. The original plan for these wells was to tie them in to local pipeline infrastructure for transportation and processing of produced oil and water by the local operator. The 15-23 well was completed this way and is on production with a tariff being paid to separate and dispose of produced water as well as process the oil for sale.
Given the third party tariff paid for this work, the lower sales price achieved for oil in Virgo and that the Company now owns its own processing facilities in Rainbow, the Company is considering the recompletion of these wells without connecting them to the local infrastructure. This would allow the separation of oil and water at the well site and the disposal of produced water downhole to a lower formation through a dual completion assembly. Dry oil could then be trucked to the 13-36 facility where it would receive a better sales price and not incur third party tariff.
-Ends-
For further information please contact:
Northern Petroleum Plc Tel: +44 (0)20 7469 2900
Keith Bush, Chief Executive Officer
Nick Morgan, Finance Director
Stockdale Securities Limited (Nomad and Joint Broker) Tel: +44 (0)20 7601 6100
Antonio Bossi
Robert Finlay
David Coaten
FirstEnergy Capital LLP (Joint Broker) Tel: +44 (0)20 7448 0200
Jonathan Wright
Note to Editors:
Northern Petroleum is an oil and gas company focused on production led growth. The Company is undertaking a redevelopment and production project in north west Alberta and has a broader portfolio of exploration and appraisal opportunities in countries of relatively low political risk, primarily Italy. Comprehensive information on Northern Petroleum and its oil and gas operations, including press releases, annual reports and interim reports are available from Northern Petroleum's website: www.northernpetroleum.com