PetroBakken Ramps Reserves by 18%, Replaces 274% of Production in 2010

PetroBakken, a 59% owned subsidiary of Petrobank, announced the Company's year-end reserves and provide an operational update.

HIGHLIGHTS

(Annual comparisons are 2010 compared to 2009 and quarterly comparisons are fourth quarter 2010 compared to the fourth quarter of 2009 unless otherwise noted. All references to $ are Canadian dollars unless otherwise noted.)

  • 2010 average production of 41,688 barrels of oil equivalent per day ("boepd") increased 58% over 2009.
  • Proved plus probable ("2P") Company Interest reserves increased by 18% to 171.4 million barrels of oil equivalent ("MMboe") at December 31, 2010, replacing production by 274% (2P Company Gross reserves increased 18% to 169.2 MMboe).
  • Our new entry into the Cardium play in Alberta during 2010, through three corporate acquisitions and our initial drilling campaign, has yielded incremental 2P reserve additions of 43 MMboe. Our first 55 operated wells drilled in 2010 resulted in reserve recognition for 149 of our undeveloped Pembina Cardium locations (out of our current inventory of over 650). This drilling campaign has accelerated into 2011.
  • From July 2010 to mid-February 2011, we drilled 80 (65.9 net) PetroBakken-executed Cardium wells, of which:
    • 44 (39 net) wells are producing,
    • 16 (11.4 net) wells are completed but not yet producing, and
    • 20 (15.5 net) wells are waiting on completion.
  • Production results from single-leg horizontal multi-stage fracture stimulated Cardium wells continue to meet our expectations with:
    • seven day average rates of 423 barrels of oil per day ("bopd") from 40 wells,
    • thirty day average rates of 246 bopd from 38 wells, and
    • sixty day average rates of 176 bopd from 21 wells.
  • In our 2010 reserve report, producing Bakken bilateral horizontal wells received, on average, an incremental 35,000 barrels ("bbls") of oil over our 2009 reserve report assignments for 2P undeveloped bilateral horizontal locations.
  • Activity in the Bakken play continues to move forward with bilateral drilling and enhanced oil recovery ("EOR") projects.

RESERVES

Sproule Associates Limited ("Sproule") has completed their evaluation of PetroBakken's reserves, dated February 18, 2011, effective as at December 31, 2010 ("Sproule Evaluation"). All reserves are based on forecast prices and costs and are Company Gross reserves unless otherwise noted.

PetroBakken was very active in 2010, through both organic activity and acquisitions and divestitures. During the year we drilled 325 (239 net) wells, completed several corporate and property acquisitions to create our Cardium core area, and completed the sale of certain non-core properties. The Cardium acquisitions have added over 650 light oil locations to our drilling inventory to-date. The Sproule Evaluation reflects the impact of these acquisitions and divestitures.

In the Bakken, during 2010 we concentrated on drilling bilateral horizontal wells to improve capital efficiencies with primary recoveries. Performance of bilateral wells over this time frame has allowed Sproule to increase average reserve bookings for producing bilateral wells by 35,000 bbls of oil per well compared to expectations for 2P undeveloped bilateral locations in 2009. We continue to experiment with a number of new completion techniques in the Bakken to improve well performance (to obtain increased flow rates, reduced water cuts and reduced costs) and are encouraged by the initial results obtained.

PetroBakken had an active drilling program in 2010 and achieved 2P F&D costs of $26.11/boe (2009: $33.02/boe) on our operational capital expenditure program (including FDC and land acquisitions). Corporate acquisition and disposition transactions had a material impact on our FD&A costs for 2010, and resulted in 2P corporate FD&A costs of $39.31/boe (including FDC and land value) (2009: $32.48/boe). A significant portion of the acquisitions included land value associated with the Cardium light oil resource play, which generated 2P acquisition FD&A metrics of $41.82/boe, including land value (2009: $32.42/boe), and $25.25/boe excluding land value (2009: $29.96/boe). In addition, FDC represents $8.19/boe of our 2P acquisition FD&A ($4.22/boe on corporate 2P FD&A). The land value and FDC associated with the acquisitions represent potential future reserves additions and over time we expect the overall 2P FD&A for the Cardium area will not exceed $25.00/boe. Disposition activity has driven up corporate FD&A in 2010 by approximately 20%, as we sold gas weighted non-core properties at an average price of $11.52/boe. Overall, our non-core disposition program (including our December 2009 transaction) generated $312 million of net proceeds at an average 2P reserve value of of $18.38/boe.

OPERATIONAL UPDATE

PetroBakken's 2010 average production increased 58% to 41,688 boepd from 26,333 boepd in 2009. The increase is primarily due to acquisition activity in 2009 and early 2010. In the fourth quarter, PetroBakken production averaged 41,333 boepd, a decrease of 9% compared to the fourth quarter of 2009 due to dispositions, delayed operational activity and natural production declines from wells. Production increased 3% over third quarter 2010 levels of 40,095 due to increased completion activities in the Cardium area. Average January production is estimated at approximately 41,400 boepd and reflects a backlog of 36 Cardium wells that are drilled but still waiting to come on production.

PetroBakken drilled 239 net wells in 2010 (140 Bakken light oil wells and 42 conventional Mississippian light oil wells in southeast Saskatchewan, 53 Cardium light oil wells and 2 Notikewin gas wells in central Alberta, and 2 gas wells in northeast British Columbia). Of these wells, 3 net wells were dry & abandoned, for a 99% success rate. We had 15 net Bakken wells bought on production in 2010 where fracture stimulations were intentionally delayed until 2011 to test and improve completion techniques. Completion activities in the Cardium lagged drilling activities and at the end of the year we had 15 net Cardium wells waiting to be completed and/or brought on production. The results from the Cardium wells with slickwater completions continue to meet our expectations.

Pipelining activities within the Cardium fairway, which will conserve gas and the associated natural gas liquids and result in higher production rates, are ongoing and we expect to have a significant number of wells tied in by the end of March 2011. Currently, we have 36 (26.9 net) wells waiting to be completed and/or brought on production.

PetroBakken currently has eight rigs drilling in the Cardium play in central Alberta and eight rigs drilling in southeast Saskatchewan, with seven of those rigs working in the Bakken and one in our conventional Mississippian plays. Two major oil batteries are nearing completion in southeast Saskatchewan to tie-in more Bakken production and conserve solution gas and natural gas liquids. Our recently expanded Midale gas plant now has the technology to process slightly sour gas, increasing our ability to handle third party production.

On the EOR front, based on compelling results from our 2010 pilot, we have drilled two Bakken EOR gas injection wells that are currently on primary production and are expected to begin gas injection early in the second quarter and late in the third quarter, respectively. We expect preliminary results in offset wells later in 2011.

In northeast British Columbia, PetroBakken continues to undertake a limited 3 well drilling program to preserve our land position (and our inventory of more than 400 undeveloped drilling locations) in the extensive Montney and Horn River tight gas plays until the natural gas price improves. A drill rig continues to work in the Monias area to finish drilling the last of two horizontal locations, targeting liquids-rich Montney gas. We anticipate these wells will be completed prior to spring breakup.

PetroBakken's 2011 plan is predominantly focused on our large inventory of light oil locations and we intend to invest approximately $590 million to drill over 200 net wells, about half of which will be in the Cardium play in central Alberta and the other half in southeast Saskatchewan. Exit production for 2011 is forecast to be between 46,000 and 49,000 boepd, with most of the growth in production generated from our Cardium play. Our results to- date continue to support strong investment in the Cardium resource play. We also look forward to implementing a $20 million investment in five Bakken EOR projects that will continue to build understanding for expansion of this concept beyond primary recovery. The 2010 year-end reserve report began to recognize the strong results from both the Bakken bilateral wells and early drilling results in the Cardium play. Our 2011 capital program will continue to build on these successes while also benefiting from our 2010 pre-investment in a number of drilled horizontal wells that are waiting to be fraced and put on production.
 

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