The Company holds an estimated 6% unitized interest in the field. Major partners are ExxonMobil (the area operator) and Shell Canada Limited. The new valuation was undertaken in light of the sharp increase in natural gas prices since the last valuation was completed in January 2004 and reported in Sparton's long form prospectus filed in February 2004.
The updated valuation was provided by APA Petroleum Engineering Inc. of Calgary Alberta. This organization has extensive engineering and evaluation experience on the Canadian East Coast and has provided all previously reported valuations of this Company asset.
The new valuation is based on the same parameters as previous ones, assuming that Chebucto remains as a Tier 3 development prospect with first production taking place between mid-year 2008 and mid year 2012; and that the reservoir will be tied in for production via the existing North Triumph production platform which is only about 15 miles to the northwest of Chebucto. Proven and Probable gas reserves representing Sparton's unitized interest remain at approximately 20 billion standard cubic feet ("scf").
Changes in the valuation are based on a higher forecast Henry Hub gas price of US$5.39/MMscf as compared to US$4.00/MMscf used in 2004, and a Scotia Shelf condensate price of C$37.50/ standard barrel ("stb") compared to C$26.50/stb used in the earlier valuation. The new calculations also took into account an increase in gas transportation costs into the United States east coast market from $US0.30 to $US0.65/MMscf.
In the overall economic comparison of the forecast value of Chebucto future production, the current net present values ("NPV") of Sparton's working interest share vary from a high of C$88 million for a 2012 startup at a 0% discount rate to a low of C$3 million for a 2012 startup and a 30% discount rate. The NPV's of forecast cash flows, taking into account royalty and production taxes on the reserves, at a 10 % discount rate, and discounted at 15% per year for timing of startup from the 1-1-2005 reference date, are C$25 million ($0.62 per share) and C$31 million ($0.77 per share ) for 2012 and 2008 startup years respectively.
These values are significantly higher than the C$15-21 million or C$0.37 to C$0.52 per share reported in 2004.
It is notable that current Henry Hub spot natural gas prices are approximately US$6.25/MMscf, and that prices for light sweet crude, a product roughly equivalent to gas condensate, currently exceed UD$50.00/stb, both significantly higher than the values used in the new calculations.
Management believes this new valuation is relatively conservative based on current spot prices for natural gas and derivative products and that, considering the current state of the energy markets, the prices for these commodities are likely to be substantially higher in the years 2008 -2012.. Clearly the Company is receiving little value recognition for the Chebucto asset.
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