Trafina Energy has approved a $6.6 million capital budget for 2010. This year's capital program will focus on developing Trafina's newly acquired oil and natural gas assets in southwest Saskatchewan and the drilling of as many as four horizontal wells targeting the Cardium zone in the Pembina area of Alberta.
Trafina's strategy is to grow by acquiring undervalued assets that can be efficiently optimized and exploited. As announced on January 21, 2010, the Company took a significant step in this direction in November 2009 with the completion of the purchase from a Canadian chartered bank of all the outstanding indebtedness and liabilities of a private oil and gas corporation. The assets exchanged for the liabilities include a 100% working interest in more than 41 sections (26,240 net acres) of land in southwest Saskatchewan, including total proved plus probable reserves estimated by GLJ Petroleum Consultants Ltd. of approximately 1.3 million barrels of oil equivalent (effective December 31, 2007). After assigning a 20% interest in the acquired assets to a private Alberta company, Trafina now has an 80% interest in all the lands and production.
When the acquired properties were shut-in in February 2009, production averaged approximately 160 boe per day. Trafina's 2010 capital budget includes $300,000 to restore suspended production by the end of January. An additional $240,000 has been allotted to the potential replacement of down-hole pumping equipment. In the second half of 2010, Trafina expects to spend $1.9 million drilling several new wells on the acquired properties targeting Upper Shaunavon and Madison oil production. To date, Trafina has identified six initial Upper Shaunavon and Madison locations. Other potential zones of interest include the Belly River and Lower Shaunavon.
In addition to Trafina's development program on its acquired properties in Saskatchewan, the Company is preparing to continue its high-impact Cardium development in the Pembina area of Alberta. On October 29, 2009 Trafina announced that it had agreed to farm-in on a multi-zone exploration well in the Pembina area. The Company paid 50% of the drilling and completion costs to earn a 32.5% interest in the test well. This well is currently being completed, and subject to completion results, the farmor may back-in for an additional 8.125% net interest such that Trafina will end up with a 24.375% interest in one section of land. Prospective zones encountered include the Notikewin, Ellerslie, Viking and Cardium. Trafina's 2010 capital program includes $2.1 million to jointly drill up to four (1.0 net) Cardium wells. Completion of the existing well may result in gas production and sales from one or more of the aforementioned zones.
In order to minimize the impact of commodity price volatility, Trafina has entered into two physical forward contracts to ensure stable cash flow from its natural gas production. The Company has agreements in place to deliver 500 gigajoules (GJ) per day at $5.15/GJ for November 2009 to October 2010 and the additional delivery of 250 GJ/day at $5.30/GJ for April 2010 to October 2010. Trafina's hedging program remains a key component of a disciplined financial strategy. These contracts are designed to enable Trafina to execute its capital program and continue to grow.
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