Stratic Updates on West Don Reserves, Field Operations
Stratic has provided an update on reserves and operating performance of its West Don field in the Don Area of the North Sea. In view of the importance of West Don as Stratic's main producing asset, the Company has commissioned an independent reserves review by Ryder Scott, the results of which indicate that ultimate recoverable reserves from the field will be approximately 9% lower than previously anticipated. However, as a result of low production levels in 2009, net remaining recoverable reserves at December 31, 2009 are now estimated to be 1.72 million barrels at the proved level and 2.84 million barrels at the proved and probable level, respectively 33% and 16% higher than estimated previously.
Stratic believes that first indications of pressure support from water injection are now evident in both West Don wells and production levels are beginning to improve. At present, water injection capability at the field is restricted by injection pump pressure limits, with ongoing trials to increase these limits over the next two months. In addition, work to improve the reliability of gas lift equipment ahead of the planned tie in to the Thistle facilities continues, and the tie in remains on schedule for the first quarter of 2010.
Once connected to the Thistle facilities, offshore tanker loading will be discontinued, weather downtime should be significantly reduced and more consistent production levels achieved. In addition, Stratic now considers that a third production well will be required in the southern part of the field, as identified in the approved Field Development Plan ("FDP") and included in Ryder Scott's review. Stratic and its partners are in the process of evaluating this well, expected to be drilled in the summer of 2010, with production from the well expected to commence in late 2010.
The pre-tax cost of the well to Stratic is estimated at $11 million. All of these factors -- increased water injection rate, improved gas lift reliability, reduced weather downtime and the effects of a third production well -- are expected to provide the potential for higher production levels in 2010 and beyond.
As a result of the reduced water injection levels to date and continuing equipment issues during 2009, reservoir pressures are lower than originally anticipated in the FDP and therefore shortterm peak production levels will also be lower. However, as a consequence of these features, future production levels are now expected to decline more gradually, with production rates beyond 2010 expected to be substantially higher than originally planned. The effect on the future net present value of the field increases slightly despite the reduction in ultimate reserves.
Commenting on West Don performance, Mark Bilsland, Chief Operating Officer, said, "We have observed the beginning of pressure support in the West Don reservoir from water injection, which we view as a very positive event. The field operator is taking the necessary steps to increase the injection pump pressure levels and to resolve the issues on gas lift equipment, and we look forward to more consistent field performance once the tie-in to Thistle is complete. At current Brent oil prices of around $75 a barrel, the production levels indicated in Ryder Scott's recent report would yield pre-tax operating cash flows totaling over $80 million net to the Company in 2010 and 2011. Furthermore, it is clear that the future value of the field to the Company remains materially unchanged."
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