Duvernay Oil Corp. reports the discovery of a significant new gas pool and gas exploration trend in the company's core Sunset-Groundbirch-Saturn area of northeast British Columbia. During the past 18 months, the company has drilled 20 new gas wells delineating the Triassic Doig trend, establishing first production in early 2003. The gas trend delineated through drilling and seismic mapping thus far is estimated to be 50 miles long and 2 miles wide. The Triassic Doig reservoir is a 'tight' gas sand requiring fracture stimulation to achieve commercial gas production rates. The gas play thus far consists of the initial Groundbirch discovery delineated by 13 gas wells, along with a series of successful exploration new pool wildcats both north and south of Groundbirch along the mapped, 50 mile fairway. Duvernay has a 100% working interest in the majority of these wells. Duvernay controls an estimated 115 additional potential drilling locations along the trend with potential net recoverable gas reserves exceeding 250 bcf. Current production from the discovery is 10 mmcf/d, and through continued successful development activity is anticipated to increase to 30 mmcf/d by the second half of 2005. With further development drilling success in 2005-2006, additional production and reserve upside is possible. The Sunset-Groundbirch-Saturn area is one of Duvernay Oil Corp.'s four main operated complexes.
Groundbirch Discovery History
The initial discovery at Groundbirch was made in late 2002, targeting a new, untested gas horizon in the Basin.
Initial development of the Groundbirch pool was completed by year-end 2003, with a new 10 mmcf/d processing facility completed during the fourth quarter of 2003. The facility was operating at full capacity by the end of Q1 2004, and there are currently additional shut-in gas volumes to be brought on-stream.
This gas pay zone is in a classic 'tight' gas sand requiring fracture stimulation to achieve commercial production.
The gas pay zone is 10-15 m thick with initial post stimulation production rates between 1.0 and 8.0 mmcf/d observed to date. As is typical of tighter gas sand reservoirs, production performance is characterized by relatively steep initial decline to approximately 40% of initial test rate within three to six months of first production followed by a long life lower decline rate production profile.
Duvernay attained downspacing approval from the Oil and Gas Commission of British Columbia in December 2003, allowing for the drilling of up to four wells per section in the initial seven-section pool area at Groundbirch. The approved area was subsequently increased in April of 2004. The first two wells drilled at reduced spacing, 7-9-79-19W6 and 10-3-79-19W6, production tested and produced at initial rates of 8.0 and 5.5 mmcf/d, respectively.
The company has developed a geophysical mapping method to delineate the porous Triassic Doig sandstone reservoir trend, and thus far has had a 100% drilling success rate utilizing this method.
Duvernay had recognized working interest remaining proved reserves of 28 bcf and proved-plus probable reserves of 31 bcf at Groundbirch at January 1, 2004. This included reserves for 11 gross existing wells and 8 yet to be drilled downspaced locations. Not included in the reserve report are a further 13 downspaced locations at Groundbirch within the currently approved area and an additional 10 locations on adjacent sections in the pool that will subsequently be added to the downspaced area.
The 2003 year-end Gilbert Laustsen Jung Associates Ltd. report recognized average proved reserves of 1.7 bcf per well-bore and 1.9 bcf proved plus probable reserves per well-bore in the initial Groundbirch pool. The high deliverability infill/downspaced well at 7-9-79-19W6 is recognized with 3.6 bcf of proved reserves. With ultimate development spacing of four wells per section, reserves per section of 8.0 bcf are possible.
Drill case and complete costs at Groundbirch are approximately $1.5-1.6 M per well. The company believes that these costs could be reduced by up to 20% when larger development drilling and completion programs are undertaken. The company is currently evaluating a number of cost reduction options including the drilling of smaller diameter holes and conducting well stimulations down production casing.
Gas production from the Groundbirch discovery is processed at a new sour gas treating facility, constructed by Duvernay in the fourth quarter of 2003. The plant utilizes an amine system to sweeten the 0.3 to 0.5% H2S gas to pipeline sales quality. The Duvernay 4-15 Groundbirch gas plant is tied directly into the Duke sales system, south of the McMahon plant. The capacity of the plant is approximately 10 mmcf/d of sales gas allowing the plant to remain within existing emission guidelines for new gas plants in British Columbia. Additional raw gas volumes will be processed at both under-capacity plants in the area and a new plant or plants to be constructed by Duvernay during 2005.
Regional Exploration Play
After the initial Groundbirch discovery, a regional Doig gas reservoir exploration fairway was mapped utilizing existing wells, new Duvernay operated wells and over 1650 km of 2D seismic data.
The mapping and the initial exploration drilling indicate a trend that Duvernay estimates to be approximately 50 miles long and two miles wide.
Duvernay drilled a number of regional exploration appraisal wells in 2003-2004. The Brassey 10-3-78-19W6 well, 7.5 miles south of the Groundbirch discovery, production tested gas from the Doig at 1.1 mmcf/d. The Sundown b-37-B well, 23 miles south of the Groundbirch pool, production tested gas from the Doig at rates of 3.5 mmcf/d. The Saturn 16-4-81-20W6 well, 13.5 miles northwest of the Groundbirch discovery, is cased awaiting production testing after Spring break-up. The Sundown b-17-B well will be production tested at a later date having encountered a Doig pay section similar to that in b-37-B.
Duvernay controls 67 sections of land along the mapped trend, representing 134 locations at two gas wells per section and 268 potential drilling locations at 4 wells per section (including the 20 wells already drilled). Using average proved plus probable reserves of 1.9 bcf per location, Duvernay's net potential reserves from two gas wells per section is in excess of 250 bcf.
Duvernay plans to drill approximately eight to ten widely spaced delineation wells along the trend in the next 12 months in an effort to further refine the ultimate development drilling, reserve and production potential.
The Triassic Doig gas wells qualify for numerous facets of the unconventional gas royalty reduction program announced by the British Columbia government in May of 2003. Royalty reductions are realized for wells producing at less than 880 mcf/d on a calendar basis, for wells drilled between April 1 and November 30, for wells drilled deeper than 2500m and for facilities constructed to produce gas from these tighter reservoirs. Certain portions of the royalty reduction program are gas price dependent, currently Duvernay is paying royalties of approximately 80% of the levels that would be paid without the program.
Duvernay has also been successful in discovering oil and gas in other objectives along the Triassic Doig exploration trend. Of the 20 Exploration and Development wells drilled for the Doig play, ten have found hydrocarbons in other horizons. These include the Triassic Montney, Halfway, Cecil, Artex and North Pine formations as well as the Cretaceous Paddy, Gething and Cadomin formations. These pools will be evaluated by further drilling and if justified will be brought on-stream as well.
Given the relatively recent discovery in late 2002, there is limited production performance data from the Triassic Doig reservoir. Hence there is risk regarding the long-term production performance and ultimate per well recoverable gas reserves from this new reservoir. The well with the longest production life at 15 months, 14-10-79-19W6, is currently producing at approximately 700 mcf/d with a cumulative recovery to date of 0.33 bcf. The 11-3 well, currently producing at 1.1 mmcf/d, has produced 0.35 bcf in the first 7.5 months of production.
There is risk regarding the reservoir extent and continuity due to the relatively small number of regional exploration wells to date. The company does however have a 100% drilling success rate for the first 20 wells, including both Groundbirch delineation wells and regional exploration tests.
It will take two to three years of continued successful exploration and development drilling to realize the upper end of the reserve potential for the play.
The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation.
The reserves reported above relate to the Sunset-Groundbirch-Saturn area of northeast British Columbia, total reserves for all Duvernay properties are disclosed below:
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