Pearl Exploration and Production Ltd. has provided the following operational and financial update.
During the first half of 2008 Pearl drilled four net horizontal wells in our Mooney area. Three of the new wells will form the basis of a polymer pilot which has been accelerated to be initiated in Q4 2008. Preliminary results from the pilot are expected by Q1 2009. Plans for a field wide polymer flood implementation are expected to be finalized by Q2 2009 with implementation targeted as early as the end of 2009. The implementation of the waterflood continues with its initiation expected in Q4 2008 and continuing into the first half of 2009. In addition, plans are underway to commence a development drilling program by year end to extend the productive area to the west with the goals of increasing production and proven and probable reserves.
In Onion Lake the Cyclic Steam Stimulation (CSS) thermal pilot commenced steam injection on May 15th over a month ahead of schedule. The first steam cycle on the first well was completed on June 19th and the well is currently producing between 90 and 100 barrels of oil per day which is within expected modeling parameters. Steam injection on the second well began on June 20th and first production is expected to commence before the end of July.
At San Miguel, Pearl and its 50% partner TXCO have finished construction of its Steam-Assisted Gravity Drainage (SAGD) pilot located within the Chittim "B" Field. Steam injection commenced on June 1, 2008 with preliminary results expected by Q1 2009. Temperature monitoring of the well pair indicates that the steam chamber is building as anticipated. At the Saner Ranch Field, construction is continuing on the second production pilot. The Saner Ranch pilot includes both a vertical inverted five spot well pattern and a horizontal three well pattern utilizing a modified Fracture Assisted Steamflood Technology (FAST) process. The three horizontal wells were drilled and completed successfully in Q2 2008. All major long lead time items for the pilot are on site with assembly of facilities and infrastructure installation proceeding on schedule. The pilot is expected to be operational in the third quarter of 2008 and preliminary results are expected during the first half of 2009. By the end of the second quarter of 2009, Pearl and its partner expect to select which of the three recovery techniques will use be used to form the basis of a commercial development project.
At Blackrod, as previously announced, the Company has entered into an agreement to acquire an additional 30% working interest in 3,886 contiguous hectares of oil sands leases in the project area. In addition, Pearl is continuing with its plans to drill a 10 to 15 core well program in the 2008/2009 winter to further delineate this deposit and gather additional petrophysical data. Pearl remains on track to initiate steaming at its Steam-Assisted Gravity Drainage (SAGD) pilot, comprised of single well pair pilot and related facilities, during the first half of 2009. The application for the required governmental approvals of the thermal SAGD pilot project was submitted in May of 2008.
Production for the second quarter averaged approximately 8,200 Boe/d, down from the previous quarter due to the sale of a portion of the Company's non-core assets and natural decline. Current production is approximately 5,600 barrels a day due to a temporary curtailment of 600 Boe/d of production in our Mooney area while we install some in-field infrastructure and approximately 300 Boe/d of shut-in production awaiting workovers in other areas. Pearl anticipates having all of this shut-in production back on-line by mid-August.
As a result of both substantially higher oil and gas prices realized in the second quarter and Pearl's previously announced sale of non-core assets, the Company is in a very strong financial position with over $55 million in positive working capital at the end of Q2. Second quarter realized well-head pricing averaged approximately $84.50 per barrel for our heavy oil and 9.75/Mcf for gas resulting in wellhead netbacks in the $40/Boe range Despite a recent pullback in both light oil and natural gas prices, average pricing for heavy oil and natural gas sales have continued to strengthen into July with wellhead pricing currently averaging approximately $100 per barrel for heavy oil and approximately $10.50/Mcf for natural gas production. In comparison, the well head price utilized by Pearl to establish its 2008 budget was approximately $43 per Boe.
Pearl President and CEO, Keith Hill stated, "We are very pleased to report our significant progress in all of our core projects including operating steam flood pilots in both Onion Lake, Saskatchewan and San Miguel, Texas and the acceleration of our polymer pilot in the Mooney area of Alberta. Due to very favourable commodity prices and our recent disposition of some non-core properties, Pearl is in a very strong financial position to continue to work these projects through to development decision points expected in the first half of 2009. We strongly believe that we are now in a position to start to realize the substantial imbedded resource value in our core areas and it is our intention to pursue this value without incurring any unnecessary dilution to our shareholders. In addition, we continue to look for opportunities to divest our remaining portfolio of non-core assets as we focus our technical and financial resources exclusively on our large resource conversion projects."
Pearl also reports that it has granted an aggregate of 440,000 incentive stock options to certain officers of the Company. The options are exercisable, subject to vesting provisions, over a period of five years at a price of Cdn $1.75 per share.
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