13 Jan 2015 07:00
Northern Petroleum Plc
("Northern Petroleum" or "the Company")
Drilling and production update
Northern Petroleum, the AIM quoted oil company focusing on production led growth, provides the following update regarding drilling and operational activities in north west Alberta, Canada.
Highlights
Drilling
§ Drilling operations commenced on revised single well winter drilling programme on 5 January
§ Well 102/11-30 is targeting a different reef to those previously drilled by the Company
§ Results of post summer drilling subsurface review used to optimise drilling location to target a higher production and recovery well
§ Results expected in early February
Production
§ Tie-in of high rate well from the summer campaign, 102/15-23, completed on 23 December 2014
§ Total production from the Company's Canadian operations exceeded 500 barrels of oil per day ("bopd") on 27 December 2014
§ Production range from the beginning of February expected to be 400 - 550 bopd, subject to a final review of the tie-in of other wells and excluding any contribution from 102/11-30
Corporate
§ Unaudited cash balance at the year end was approximately US$12 million
§ Challenging oil price environment has led to capital programme revisions and corporate cost reductions
§ Graham Heard stepped down from the board at the end of last year, as previously announced
Keith Bush, Chief Executive Officer, commented:
"A thorough technical review of the lessons learned from our 2014 drilling programme has indicated that our current well model assumptions may be conservative with regard to the initial production rate and ultimate recovery from future wells.
"The well currently being drilled will test our revised subsurface concept and, if successful, has the potential to improve the redevelopment plan for the Virgo project, such that fewer wells than previously forecast will be required to achieve our initial recovery target of five million barrels of oil, significantly reducing the capital cost of the redevelopment.
"While the reduced oil price makes the business environment difficult and affects cashflow, I expect the service industry in Canada to react quickly and appropriately such that the operating costs of our production remain proportionate.
"The Company's management remains focused on keeping the running cost of the business, both in terms of operating expenditure and overhead, as low as possible while continuing the redevelopment in Alberta."
Drilling operations
The Company has reviewed the drilling plans for the Virgo area of north west Alberta this winter in light of the results of the wells drilled in the second half of 2014 and the current oil price. As a result, one well will be drilled during the first quarter of 2015, to evaluate the revised redevelopment concept and potentially increase the Company's forecast oil production for the year. The drilling of this well, 102/11-30, commenced on 5 January 2015 and the results are expected in early February.
The focus of the subsurface review after the 2014 drilling campaign was on the results of the 102/15-23 well, which produced dry oil at very high production rates. The review has refined the Company's understanding of the subsurface, primarily through seismic interpretation, to help optimise the well location and reduce the risks of a lack of reservoir or encountering swept zones while maximising recovery. The 102/11-30 well is now being drilled into a reef previously undrilled by the Company to test this revised concept with the aim of achieving results closer to the 102/15-23 well, as opposed to the Company's existing type well.
If the 102/11-30 well results support the revised view of the subsurface, the redevelopment programme will be redesigned to prioritise high performance wells only. This revision will involve a programme of subsurface and operations study work to optimise the drilling and tie-in of future redevelopment wells.
Production
During Q4 2014 it was decided to prioritise the more prolific 102/15-23 well for tie-in by year end in preference to the other phase 1 wells from earlier in the year. The tie-in was completed on 23 December 2014 and production commenced through a pipeline tie-in to the Apache 7-34 production facility. After start up at low rates for reservoir monitoring purposes, the well was progressively increased enabling the Company to achieve a total production rate from four phase 1 wells of 507 bopd on 27 December 2014. During January 2015, a stable flow rate for 102/15-23 will be determined and this will then help establish what total production the Company can expect during 2015.
The tie-in of the other phase 1 wells is under review in order to ensure the optimum economic solution for oil transportation to the point of offtake. As the oil price has reduced, the Company expects there to be a decrease in service costs, which in turn will make the economics of trucking the produced fluids more cost effective. This option also significantly reduces the initial capital outlay, which currently will have a slower payback period due to the depressed oil price.
Subject to the final review of the tie-in programme, the continuing performance of the existing wells and any changes in operating cost, the forecast range of production for the field from the start of February is 400 - 550 bopd, which is below the previous forecast of 500 - 650 bopd. This excludes any additional production upon the success of the 102/11-30 well. The Company will provide further production guidance for the year when the results of the 102/11-30 well are known, stable production has been established from 102/15-23 and the review of the tie-in programme is completed.
Corporate
As previously forecast, the unaudited cash balance of the Company at the end of 2014 was approximately $12 million.
The Company has undergone a comprehensive review of general and administration costs and has taken measures to significantly lower the cost base. This has been conducted in order to provide the best position possible for the Company in the event of an extended period of low oil prices.
As previously announced Graham Heard, Exploration and Technical Director stepped down from the Board of the Company at the end of 2014.
-Ends-
For further information please contact:
Northern Petroleum Plc Tel: +44 (0)20 7469 2900
Keith Bush, Chief Executive Officer
Nick Morgan, Finance Director
Westhouse Securities Limited (Nomad and Joint Broker) Tel: +44 (0)20 7601 6100
Alastair Stratton
Robert Finlay
FirstEnergy Capital LLP (Joint Broker) Tel: +44 (0)20 7448 0200
Jonathan Wright
David van Erp
Camarco Tel: +44 (0)20 3757 4980
Billy Clegg
Georgia Mann
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