21 Oct 2014 07:00
Embargoed for release: 21 October 2014 at 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 production activities in north west Alberta, Canada.
Highlights
Summer drilling results
§ | Three wells targeting the Keg River edge reef now drilled and completed |
§ | The wells targeted different parts of two reefs to test edge reef development and productivity |
§ | The first well tested at a constrained rate under natural flow of more than 1,300 barrels of oil per day ("b/d") |
§ | This well will be produced at a flaring restricted 80 to 100 b/d until tied in; forecast for January 2015 |
§ | Post tie-in production rate expected to be between 300 and 400 b/d from this one well |
§ | The second well, targeting an extreme edge reef location, encountered oil saturated reservoir with poor reservoir quality; moderate production contribution expected |
§ | Additional economic contribution expected from higher gas zone |
§ | The third well which tested a more central location encountered a water swept reservoir section and will not be produced but suspended as a potential water disposal well |
§ | Two well drilling campaign currently being planned for Q1 2015 |
Production update
§ | The Company's initial three wells have been producing at a combined restricted rate of approximately 140 barrels of oil per production day |
§ | Tie-in operations to be completed by year end and production raised to between 200 and 250 b/d for these original wells |
§ | Group production post tie-in of all wells forecast to be between 500 and 650 b/d at which point the Company is forecast to become cashflow positive |
Corporate
§ | Year end cash position forecast to be in excess of US$12 million |
Keith Bush, Chief Executive Officer, commented:
"The production capacity of the first well in this campaign is outstanding and it does not take many wells of this calibre to significantly increase the value of the whole project. This well demonstrates the ability of the area to still produce high value production wells. The second and third wells were disappointing from a short term production perspective, but have contributed hugely to the understanding of reservoir development and sweep at the reef edge. The data gained from all three wells will increase the chances of drilling more high production wells as the project progresses.
"The Company has now delivered a second drilling campaign this year, with five new wells drilled and one well recompleted; a great operational performance and a first for the group. In less than a year, the Company has built a production project which should put the business in a positive cashflow position and has the proven potential to significantly grow production and core value. Given the conditions and volatility of the current market and business environment, these are very important milestones to have reached."
Drilling results
The summer drilling campaign started in August and involved the drilling of three new wells into two previously produced reefs. The wells deliberately targeted varying distances from the core of the reef to test reservoir development and sweep. A drilling rig was used to drill and run a liner on each well and was followed by a service rig, used to perforate and test. The wells were designed to drill through the Keg River Formation reef sections and down into the water leg. Using formation pressure testing tools the Company was able to determine swept and un-swept reservoir sections using static pressure gradient and down hole fluid analysis techniques.
Well 102/15-23
This well targeted an edge reef location on a large reef complex which had been produced from three previous wells. The well encountered a net pay of 14 metres of Keg River reservoir. Formation test pressures demonstrated that the reef had returned, after extended shut-in, to original pressure and that the unswept layers were overpressured due to a significant hydrocarbon column. A 9.2 metre section of pay was perforated at a measured depth of 1,499 metres, acidised and swab tested. The well began to flow almost immediately.
The well was then tested under natural flow without a pump for the maximum 72 hours allowed by the Alberta Energy Regulator, without incurring flaring restrictions. The well was flowed with different choke sizes to measure performance throughout the test period, including a 12 hour period with a half inch choke during which the average rate was restricted to 1,313 b/d of dry oil at a tubing head pressure of 300 to 400 pounds per square inch.
Prior to tie-in, the well will be produced into tanks with fluids trucked, at a flare restricted rate of between 80 to 100 b/d, again under natural flow. A pump will be added when required. Under the current development plan, the well will be tied in to the local infrastructure by the end of January, after which the rate is expected to be increased to 300 to 400 b/d. The tie-in work is partly weather dependent, since it requires hard, frozen ground.
Well 100/14-23
This well was drilled into the same reef as 102/15-23, but at a more distal location from the core of the reef in order to test the outer edge. The well encountered poorly developed oil saturated pay at a measured depth of 1,541 metres. A service rig was used to perforate and test this zone to determine reservoir productivity. Following perforation and an acid squeeze, the well cleaned up on swab and delivered 20 b/d.
The well also encountered significant gas shows in the higher Sulphur Point formation. The Sulphur Point is a formation which provides economic gas production for other operators in the region. This zone will be perforated and tested once the Keg River oil production has become uneconomic, to assess the benefit of producing from this higher formation.
The well has significantly contributed to the Company's understanding of dolomite development in distal locations from the reef edge as well as to the seismic interpretation of the reefs, information which will be incorporated into future well planning.
Well 100/1-27
The 100/1-27 well also targeted a previously produced reef with a down hole location closer to the core of the reef. While there were oil shows from a top section of the reservoir at a measured depth of 1,516 metres, the pressure and down hole fluid analysis data retrieved through the wireline formation pressure testing indicated that this section had been swept by water during primary recovery from the original production well.
A liner was cemented in place before the rig was demobilised and the well has been left suspended with the option to use it as a water disposal well for future associated water production. Part of the wider development plan of the Keg River will be to build a small facility to separate and dispose of produced water through injection, which will materially reduce operating costs by removing third party processing tariffs.
Production update
The Company's existing wells drilled earlier in the year have been on production at a combined restricted rate of approximately 140 barrels per production day. Production up-time in August was in excess of 90 per cent, however the Plains Midstream pipeline system, which transports crude for many operators across Alberta, was shut in for part of September due to fluid contamination from another operator's well stream. This shut in halted production from the three wells for the last third of the month. The wells are now back on production.
The current development plan envisages the three original wells to be tied in before the end of the year which lifts the restriction on the flaring of associated gas and delivers substantial operating cost reductions. These tie-in operations are partly weather dependent since frozen ground is required. The forecast combined rate from these three wells, once tied in, is expected to be between 200 and 250 b/d.
The two productive wells from the current campaign will be produced to tanks and trucked at a restricted rate of approximately 120 b/d. The planning and licencing for the tie-in of 102/15-23 has begun and the operation is expected to complete by the end of January.
With all wells tied in by the end of January, the Company's production is forecast to be between 500 and 650 b/d which is expected to provide sufficient monthly operating income to make the Company cashflow positive.
The Company is now refining plans for a first quarter 2015 drilling programme, which is likely to involve the drilling of two new wells to increase production further.
Corporate
Taking into account the capital programme planned for the rest of the year, and the recent completion of the sale of the Company's UK assets, it is forecast that the Company's cash balance should be in excess of US$12 million at the year end.
-Ends-
For further information please contact:
Northern Petroleum Plc Tel: +44 (0)20 7469 2900
Keith Bush, Chief Executive Officer
Nick Morgan, Finance Director
Graham Heard, Exploration and Technical 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
Camarco Tel: +44 (0)20 3757 4980
Billy Clegg
Georgia Mann
In Accordance with AIM Rules - Guidance for Mining and Oil & Gas Companies, the information contained in this announcement has been reviewed and signed off by the Exploration and Technical Director of Northern Petroleum, Mr Graham Heard CGeol. FGS, who has 40 years' experience as a petroleum geologist. He has compiled, read and approved the technical disclosure in this regulatory announcement. The technical disclosure in this announcement complies with the SPE/WPC standard.
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