PRIMARY PETROLEUM (PIE:TSX.V and PETEF: OTCQX) is pleased to provide you with the following update on the Southern Alberta Basin.
In case you have not seen the update from Rosetta Resources (ROSE) on December 12th, here is their update from their SAB Bakken prospect in NW Montana.
“Regarding our plans in the Southern Alberta Basin, ROSE’s exploration program is a complex play with limited service infrastructure that will take time for the industry to completely understand and develop. We will complete our current horizontal drilling program and adjust our exploratory efforts and spending to reflect those results and hold our position for future optionality.”
“The 2012 budget allocates approximately five percent of funds (approx. $32 million) for evaluation of the Southern Alberta Basin. ROSE continues to implement the previously announced seven-well horizontal drilling program to test the economic potential in the Banff, Bakken, and Three Forks reservoirs across its approximately 300,000 net acre position in northwestern Montana. To date, the Company has successfully drilled four of the seven horizontal wells with the remaining three scheduled to be drilled in early 2012. Two of the four wells drilled to date have been completed in the Middle Bakken and have tested at stabilized rates of 154 barrels of oil equivalent per day (“BOE/d”) and 104 BOE/d. Completion operations continue on the third well. The remaining four horizontal completions will be tested during the first half of 2012.”
Clearly the market did not find this update by ROSE as positive for Primary as our share price is down approx. 38% over the past two trading days. Primary has always attempted to provide updates to its subscribers on what is going on in the Southern Alberta Basin Bakken Fairway, especially on the Montana side of the border. In saying this I want to re-iterate and clarify our current position in this exploration program and our opinion on what ROSE disseminated.
- On Nov. 7th, ROSE announced on their 3rd Qtr release that its first horizontal well is production testing and once stabilized would release results, as well ROSE expected to release production results from all horizontal wells by year end if completed.
- On Dec. 12th, ROSE announced stabilized test production rates of 154 boe/d and 104 boe/d on two horizontal wells (Tribal Riverbend and Fee Simonson).
- On their 2nd Qtr conference call and in their presentations they identified then and continue to identify a six billion barrel resource, “advanced well science work needed to crack code to complex play”
- Targeted Assumptions for well commerciality – IP rate of 250 Boe/d; EUR 185MBOE, 160-acre spacing, $4 million well costs – 21% ROR at $85/bbl WTI
- We need to remember there are five more wells that we will be getting production results from in the 1st half of 2012.
The unknown and discrepancy in this information provided by ROSE is that they state well commerciality with an IP rate of 250 boe/d but then they announce two wells at “tested at stabilized rates of 154 boe/d & 104 boe/d. The unknown is the IP rate suggested, is it a 24 hr; 3 day; or 7 day IP rate. The tested stabilized rates was for how long? 1 day; 7 days; or 30 days? Once this is clarified, we all can accurately calculate the commerciality of these wells.
I think if you asked most petroleum engineers for their definition on “stabilized test production rates” they will probably tell you that it refers to ability for the column of oil in the vertical well bore to remain at a constant height while producing oil at the identified rate and that the initial decline of production from the well has transpired. So if ROSE states that one of their wells had a stabilized test production rate of 154 boe/d, I think its safe to assume that the “IP Rate” of the well was higher; how much higher that depends on how long the stabilized test production rate has been at 154 boe/d.
If one of the wells was been production tested from their Nov. 7th, Press Release, and then announced a “stabilized production test rates” of 154 boe/d & 104 boe/d, then one could assume at lease one well has been producing for over 30 days. If this assumption is accurate then the IP rates of this well would have met or exceeded their “targeted assumptions for well commerciality IP rate of 250 boe/d.
Time will tell as we get more information on the existing production rates on these two wells and on their next five wells. As well, they continue to identify the testing the economic potential in the Banff; Bakken and Three Forks and so far they have only identified the Bakken.
Today our share price closed at a 12 month low of 39 cents and our enterprise value is approx. $40 million. We have a world class Major J.V Partner that provided us with $48.5 million dollars for a 32.5% W.I. in our 291,00 acres in the SAB in NW Montana, adjacent to the south of ROSE; NFX; FXEN and Anschutz acreage position on the Blackfeet Indian Reservation.
We received $7.5 million in cash and currently have over $20 million in the bank with no debt and our G&A is approx. $100k/mth. The JV Partner paid $41 million that is in escrow to fund 100% of the costs on 125 sq. miles. of 3D seismic; 6 vertical and 6 horizontal wells no ifs, ands or buts and will be spent by the end of 2012.
Our current vertical drilling program is underway, and Primary is very fortunate to have not only the expertise of Jim Ehrets, Director and U.S. Operations Advisor and Bill Paddock, Drilling and Completions consultant who have drilled over several hundred Bakken/Three Forks type wells, and also a J.V. Partner that is ver experienced working in this type of play.
There are similarities, geologically speaking to the Williston Basin Bakken, but lets be clear here, the SAB is not the Williston Basin. This means that we will not see the large IP rates (plus 1000 boe/d) or well EUR’s (500 to 750MBO’s) also the well depth will be about half of the Williston Basin, which means that wells in the SAB will not cost $9 – $13 million either (estimated at $4 million on a program basis).
Here are the targeted assumptions for well commerciality that Primary will hope to achieve and remember that Primary will be seeking commercial oil production from the Sunburst, Madison, Lodgepole, Bakken, Three Forks, Big Valley and Nisku formations.
IP Rates – 250 to 375 boe/d
Well EUR’s – 250 MBO based on 320 acre spacing
Well cost – $4 million (on a program basis)
75% IRR at $75/bbl WTI
The next data points that we all can look forward to in the near future are the production rate from the 3rd ROSE horizontal well and the production rate from the 1st horizontal well that FX Energy has stated is scheduled to be fracked this month.
From Primary, we hope to provide a drilling update after the 3rd vertical well which represents the half way mark on the vertical program; an overview once the vertical program has been completed and then as horizontal program gets underway. Please note that all information disseminated by Primary on our SAB project is subject to approval by our JV Partner prior to release.
I hope the above information provides some clarity during these uncertain and nervous times in the financial markets.
All of us at Primary Petroleum would like to thank you for your interest and confidence in our Company as well as wish you all,
“The Very Best This Holiday Season and a Prosperous 2012”
PRIMARY PETROLEUM CORPORATION