In accordance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities and the Canadian Oil and Gas Evaluation Handbook, McDaniel & Associates Consultants Ltd. ("McDaniel"), independent petroleum engineering consultants, prepared an evaluation (the "McDaniel Report") dated 24 February 2005. The McDaniel Report evaluated, as at 31 December 2004, the Company's oil, NGL and natural gas reserves. In August 2004, the Company distributed its Tanzania natural gas assets to shareholders, and in so doing reduced the Company's proved and proved plus probable ("2P") natural gas reserves by 85 billion cubic feet ("bcf") and 260 bcf respectively to nil. This reduction was, however, substantially offset by the success of the onshore Gabon exploration drilling program during the year. PanOcean reported 29.4 million barrels ("mmbbl") of proved crude oil reserves, an increase of 54% over 2003 net of 3.0 mmbbl of crude oil produced during the year. 2P oil reserves were 59.3 mmbbl, an increase of 106% over 2003.
Five successful wells drilled onshore and offshore Gabon during the year resulted in adding 13.4 mmbbl and 33.7 mmbbl of proved and 2P oil reserves respectively net of revisions. Net reserve additions replaced production 4.5 times and 11.2 times at a cost of $9.49/bbl proved and $2.89/bbl 2P respectively. Three-year average oil F&D costs were $7.98/bbl proved and $4.11/bbl 2P. Onshore Gabon, a successful drilling program resulted in reserve additions net of revisions of 10.9 mmbbl proved and 31.2 mmbbl 2P reserves. Offshore Gabon, successful exploration at Avouma and the completion of the ET- 5H development well resulted in net reserve additions of 2.5 mmbbl proved and 2.5 mmbbl 2P.
Additional production data from the Obangue field over the course of 2004 resulted in a 1.9 mmbbl and 1.7 mmbbl reduction in proved and 2P reserves respectively at Obangue after production of 0.7 mmbbl. Etame reserves were essentially unchanged in proved and 2P categories after 2.0 mmbbl production during the year. Additional field production data and information from ET-5H added to the Company's understanding of the reservoir. Better than anticipated performance at Remboue, and a strong commodity price environment contributed to increasing proved and 2P reserves by 0.5 mmbbl and 0.8 mmbbl to 0.9 mmbbl and 1.2 mmbbl respectively after production during the year of 0.4 mmbbl.
The following tables summarise the Company's reserves as evaluated by McDaniel. These reserves reflect the Company's working interest prior to royalties. All estimates of future net cash flow in these tables are calculated without any provision for corporate general and administrative costs but include all government participation, including royalties, burdens and the government's share of cost oil and profit oil, and as such are considered as an after-tax estimate of reserves value. Provisions for future well abandonment liabilities have also been included.
Summary of Remaining Reserves(1)
The net present value of future net revenue attributable to the Company's reserves above is stated without provision for interest costs and general and administrative costs, but after providing for estimated royalties, production costs, development costs, other income, future capital expenditures, and well abandonment costs for only those wells assigned reserves by McDaniel. It should not be assumed that the undiscounted or discounted net present value of future net revenue attributable to the Company's reserves estimated by McDaniel represent the fair market value of those reserves. Other assumptions and qualifications relating to costs, prices for future production and other matters are summarized herein. The recovery and reserve estimates of the Company's oil, NGL and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates provided herein.
The McDaniel Report is based on certain factual data supplied by the Company and McDaniel's opinion of reasonable practice in the industry. The extent and character of ownership and all factual data pertaining to the Company's petroleum properties and contracts (except for certain information residing in the public domain) were supplied by the Company to McDaniel and accepted without any further investigation. McDaniel accepted this data as presented. A field inspection was conducted by McDaniel in the course of preparing its report.
With its significant increase in assets, the Company has embarked upon an aggressive development plan for its onshore operated properties. In connection with this increased level of activity, PanOcean announced the appointment of Hollis L. Keene as Vice President, Operations. Mr. Keene will be based in the U.K. and will divide his time between PanOcean's corporate offices and the Company's field operations in Gabon. Mr. Keene brings 35 years of U.S. and international oil and gas production and drilling operations expertise to the Company. Within PanOcean, the Gabon operations office will report through him and he will also oversee an operations cost management program to meet Company objectives. Mr. Keene will be part of the management team reporting to President and CEO Paul L. Keyes.
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