Husky Energy has reported on its upstream operations for the third quarter 2008.
White Rose Development and Delineation
At the North Amethyst tie-back development project, the Henry Goodrich semisubmersible rig completed drilling a delineation well in early October. The Henry Goodrich has moved to the West White Rose tie-back project to drill a further stratigraphic test well. The South White Rose extension, the smaller of the satellite tie-back developments, was approved by the federal and provincial governments in September 2007 and is expected to augment production following completion of the North Amethyst and West White Rose tie-back projects.
East Coast Exploration
In September 2008, we acquired two exploration blocks on the Labrador Shelf off the coast of Labrador. Parcel NL07-2-1 is 585,580 acres with a work commitment of $10.2 million (100% Husky working interest) and Parcel NL07-2-3 is 557,502 acres with a work commitment of $120.2 million (75% Husky working interest). The work commitment will be undertaken during the first six years of the nine-year term of the Exploration Licence. We also hold a 17.1% interest in the Bjarni and North Bjarni Significant Discovery Licenses ("SDL"), which are located adjacent to the NL07-2-3 parcel and the Gudrid SDL, which is located adjacent to the NL07-2-1 parcel.
Our 3D seismic program covering 2,150 square kilometers in the Jeanne d’Arc Basin was completed and the results are being evaluated.
Drilling of an exploration well (35% working interest) in the Flemish Pass Basin, Exploration License ("EL") 1049, is expected to commence in the fourth quarter of 2008 following completion of the West White Rose stratigraphic test well.
The acquisition of 7,000 kilometers of 2D seismic on Blocks 5 and 7 is now complete. Husky is the operator and holds an 87.5% interest in these two blocks. We also hold a 43.75% working interest in Block 6. The acquisition of 3,000 kilometers of 2D seismic on this block is now complete. The hiresolution aero-gravity and magnetic survey covering Husky's blocks has been postponed for the year due to weather issues. The survey was approximately 77% complete and is expected to resume in 2009.
Offshore China Exploration
The West Hercules deep water drilling rig, currently undergoing commissioning and acceptance trials is expected to be delivered by the end of October and is expected to commence drilling at the Liwan field on Block 29/26 in the South China Sea in November 2008. The initial drilling program will include four delineation wells and two exploration wells. Due to the late arrival of the West Hercules rig, previous plans to drill an exploration well on Block 39/05 have been rescheduled.
Processing of 3-D seismic data acquired on Block 29/26, including the Liwan vicinity, and Block 29/06, is expected to be completed in the fourth quarter. Front-end engineering design activity at Liwan is currently being tendered and we expect to commence work prior to year-end. We are working to secure a shallow water drilling rig for a multi-well program on Blocks 35/18 and 50/14, which are located west of Hainan Island in the Yingge Hai Basin.
In August 2008, we relinquished all but 58 square kilometers of Block 39/05, which surrounds the Wenchang oil fields, and secured an extension of Phase III exploration commitments. We are currently securing a semi-submersible drilling rig for this well and expect to commence drilling in December 2008. Subsequent to the evaluation of the Wushi 23-2-1 exploration well and fulfillment of our Phase II exploration commitments on Block 23/15 in the Beibu Wan Basin, we will not proceed with Phase III and have relinquished the remainder of this block.
Indonesia Exploration and Development
In April 2008, we completed an agreement with CNOOC Ltd. to jointly develop the Madura BD gas and natural gas liquids field located offshore East Java, Indonesia. Under the agreement, CNOOC Ltd. acquired a 50% equity interest and operatorship of Husky Oil (Madura) Limited, which holds a 100% interest in the Madura Strait Production Sharing Contract ("PSC"). The agreement covers the development and further exploration of the Madura Strait PSC. The Madura BD field development plan has been approved by the government of Indonesia and we expect the Madura PSC extension to be approved by the end of the fourth quarter.
In the East Bawean II PSC, in which we hold a 100% interest, the Transocean Adriatic XI jackup rig has been secured to drill two exploration wells in the second quarter of 2009.
Husky has been awarded a PSC from the government of Indonesia for a 100% interest in the North Sambawa II Block in the East Java Sea.
On September 30, 2008 we entered into a joint venture agreement to acquire a 50% working interest in 844,000 net acres of leasehold ownership and wells in the Columbia River Basin in southeast Washington and northeast Oregon for consideration of approximately U.S. $100 per acre for 422,000 acres. The basin is characterized by over-pressure, tight sand natural gas formations.
Tucker Oil Sands Project
Optimization strategies to enhance the ramp-up of production continued in the third quarter. Three wells on Pad A, modified to improve the effectiveness of steam heating of the reservoir, commenced steaming during the third quarter. Pad C commenced production from six of the eight new well pairs. Two of the pairs commenced production in July and four in September. Steaming on the two remaining well pairs on Pad C is continuing. Drilling on the new Pad D is planned in 2009 utilizing experience gained from work currently underway on Pads A and C.
Sunrise Oil Sands Project
The development of the Sunrise oil sands project (Husky 50%) will proceed in multiple phases. The first development phase will produce 60 mbbls/day of bitumen. Phase one production is expected to commence approximately four years following project sanction. The second and third phases are targeted to increase the production capacity to approximately 200 mbbls/day of bitumen by 2015 to 2020, subject to corporate sanction.
Planning for the development of the McMullen property located in the west central region of the Athabasca oil sands of northern Alberta is progressing. We received approval to drill 18 cold production wells and began drilling in October. In addition, we began drilling test wells in early October as part of a pilot project to test thermal recovery techniques.
Husky's Alkaline Surfactant Polymer ("ASP") enhanced oil recovery program, which currently includes ASP developments at Gull Lake and Fosterton, Saskatchewan and operating ASP applications at Warner and Crowsnest, Alberta, continues to move forward. Start up of the Gull Lake project is planned for the second quarter of 2009. The front-end engineering design for the Fosterton ASP project has been approved and sanctioned in the third quarter of 2008. Husky holds a 62.4% working interest.
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