AltaCanada Commences Montana Pipeline Construction

AltaCanada reports that its wholly owned subsidiary, Montana Land & Exploration, Inc., has commenced construction of a new 18-mile 6" steel gas pipeline with an expected on-stream date of October 1, 2004. The decision to proceed with the pipeline followed a successful 16 well Spring drilling program on a small portion of the company's Montana acreage, setting up a program of future development and exploration. Financing for the estimated $2.4 million pipeline and current drilling and development has been secured through a $1.7 million "Bridge" facility with the Canadian Imperial Bank of Commerce and the proceeds of sale of AltaCanada properties at Drumheller, Alberta.

In conjunction with the commercialization of its Montana property, AltaCanada is pleased to announce that Don Foulkes, presently the President of AltaCanada, has also been appointed Chief Executive Officer replacing Josef Hodel who resigned on August 16th, 2004 but will remain as Vice Chairman and a Director. Josef Hodel has provided valuable service to the company as CEO since its inception in 1998 and the transition reflects the company's strategy of focusing resources and expertise on its Montana prospects. Mr. Foulkes has more than 34 years of experience in the oil and natural gas business and has participated successfully through several corporations in various plays in Montana and Canada.

ML&E has entered into an agreement with a Montana partner to construct the gathering line:

  • ML&E will equalize with respect to an existing 10-mile lateral to own 50% of a total 28-mile Montana gathering system to tie in with existing compression and the Chinook Export Pipeline at Battle Creek, Montana;
  • ML&E's production will be subject to the following tariff structure:
  • Gathering tariffs (to be split 50/50): $0.10 per mmbtu
  • Compression, dehydration and fuel gas: $0.40 per mmbtu
  • Tariff in Chinook Export Pipeline: $0.10 per mmbtu.

  • The Chinook Pipeline, which crosses the U.S./Canada border and ties in to the TransCanada pipeline system, has a capacity of 15 mmcf per day with only 2.5 mmcf per day presently utilized.

    An initial production rate of more than three million cubic feet per day net to ML&E is anticipated from the company's Cherry Patch play, which encompasses less than one third of the company's total Montana acreage. Additional drilling locations (to date 70 have been identified) will be drilled up aggressively thereafter.

    AltaCanada's first Montana production occurred when a non-operated well came on stream on July 23, 2004 at 400 mcf per day (145 mcf per day net to AltaCanada).

    Drilling Results

    ML&E's spring drilling program was directed to the Eagle formation (analogous to the Milk River formation in Alberta) targeting both pop-up features (faulted blocks pushed up above the regional sands and characterized by natural fracturing) with high initial deliverability and regional wells (with long life reserves to support long term pipeline deliverability). Fifteen (13.6 net) of the sixteen (14.6 net) operated wells drilled encountered Eagle formation gas in commercial quantities at depths from 1,200 feet to 1,780 feet. Upon completion of fracture stimulations, the pop-up wells produced at initial flush production rates of between 500 mcf per day and 1,200 mcf per day following one to two hour flow tests. The first series of 10 regional wells exhibited flush production rates following fracturing of between 60 mcf per day and 400 mcf per day. Based upon experience by members of management in the nearby Battle Creek field and analogies in Canada, it is conservatively anticipated that stabilized long-term rates of the pop-up features will be between 200 mcf per day and 400 mcf per day. The regional wells will be between 50 mcf per day and 100 mcf per day. Two regional wells completed and frac'd in August, 2004 exhibited initial flush production rates of between 324 mcf per day and 422 mcf per day, considerably exceeding expectations.

    Further drilling and testing will be required to define the deliverability. One of the first areas of closure on the Cherry Patch play was defined by the company's spring drilling program and encompasses a minimum 9-section pool. Three additional infill wells have been identified on each of the nine sections and ML&E has made application for 160-acre down spacing with the Montana Board of Oil and Gas Conservation. Eight similar exploration leads have been identified for new regional wells and 35 pop-up leads are recognized on less than one third of ML&E's 182,000 net acre Montana block.

    AltaCanada expects to drill 15 to 25 operated wells in November and December, 2004 and to participate in five to 10 non-operated wells on adjacent areas.

    AltaCanada has completed further sales of Canadian non-core properties located at Drumheller, and Bellshill, Alberta to fund Montana exploration and development activities, representing 87 BOEPD for $3.2 million. Production additions are underway in Canada in accordance with the company's objective to maintain Canadian production while supporting Montana exploration and development. Five (1.6 net) wells are also scheduled to be drilled by AltaCanada in Canada during the third quarter of 2004.

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