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BlackPearl Resources Drilling Production Wells at Onion Lake

Share Print Bookmark    |    Tuesday,August 05,2014

BlackPearl Resources Inc. has announced its financial and operating results for the three and six months ended June 30, 2014.

Second quarter highlights:

• Higher oil prices and narrower heavy oil differentials contributed to a 7% increase in revenues to $62.2 million compared to Q2 2013; for the first half of 2014 revenues increased 23% to $121.7 million;
• Funds flow from operations was $23.2 million, comparable to last year. For the first half of 2014 funds flow from operations was $46.2 million, a 41% increase from the first half of 2013;
• Oil and gas production for the quarter averaged 8,897 boe/day, an 11% decrease compared to the second quarter of 2013. With the recent completion of various infrastructure projects that temporarily impacted production our current production is now approximately 9,200 boe/day. New well completions during the summer are expected to further enhance our production growth;
• Net earnings increased 80% in the quarter to $4.7 million compared with $2.6 million in Q2 2013;
• Positive working capital of $21.9 million at June 30, 2014, no debt and an unutilized $150 million line of credit to finance our capital expenditure program;
• At Onion Lake, the first modules of the central processing facilities for the thermal EOR project were delivered to site. Construction will continue throughout the summer and is on schedule for a mid-2015 start-up;
• At Blackrod, the second pilot well pair was converted from steam circulation to production mode and is producing in excess of 270 barrels of oil per day and continues to ramp-up;
• At Mooney, infrastructure construction projects continued in the second quarter, which temporarily impacted oil production rates, but will provide necessary capacity expansion when we expand the ASP flood into the Phase 2 area early next year.

John Festival, President of BlackPearl,said: "We made good progress with the construction of our thermal project at Onion Lake. The first modules of the central processing facilities have been delivered to site and modules will continue to be delivered throughout the summer and fall. In August we will begin drilling the horizontal production wells. At this stage the 6,000 bopd project is on schedule for a mid-2015 start-up and capital costs remain in line with our budget. At Blackrod, the performance of the second pilot well pair is meeting or exceeding our expectations and the performance of the initial pilot well. We continue to believe that undertaking pilots is a key step to understanding the reservoir before committing significant capital for commercial development. The performance of our pilot at Blackrod continues to enhance our confidence that we will have a successful commercial project. Infrastructure construction delays due to an early break-up season have impacted our short-term production at Mooney; however, we are happy with the ASP flood response and when these infrastructure projects are complete we expect additional positive production response. With production improvements at Mooney together with additional primary drilling at Onion Lake we expect our corporate production to meet our guidance targets by the end of the year. We are focused on project execution with each of our projects. Financially, strong crude oil prices with moderate heavy oil differentials had a positive impact on our revenues and cash flow in the second quarter."

Property Review

Blackrod SAGD Pilot Project

At Blackrod, we converted the second pilot well pair to SAGD operation (production test phase) in March and oil production continues to ramp-up. Production in June averaged 253 barrels of oil per day and is currently in excess of 270 barrels of oil per day. The well pair is expected to reach peak production rates of between 500 and 600 barrels of oil per day in 9 to 12 months. The instantaneous steam oil ratio (iSOR) in the second well pair is 3.4 and is expected to continue to drop as production rates increase. Our planned commercial operation at Blackrod will target a steam oil ratio between 3.0 and 3.5.

The initial pilot well pair continues to perform well. To date, it has produced in excess of 240,000 barrels of oil and is still producing approximately 180 barrels of oil per day under restricted steam injection rates. We are continuing to test some different steaming strategies in this well to optimize production and steam injection efficiencies that, if successful, will be incorporated into the commercial development design.

The objective of the initial pilot well pair was to establish that the SAGD process works in the Blackrod reservoir, and we achieved that objective. The intent of the second well pair was to drill a commercial prototype by incorporating the learnings from the first well pair and refining the operating strategies and procedures. The modifications introduced in the second well pair design include drilling the horizontal section longer than the initial well pair (950 metres compared to 700 metres), modifying the start-up procedures and steaming strategies, utilization of a different sand control system and changes to the down-hole equipment configuration. We are also assessing the potential for enhancing performance utilizing other industry validated technologies in our commercial development design including drilling longer wells, utilizing infill wells, employing gas co-injection and using inflow control devices. We have included a production graph for our second pilot well pair on our website which we will update on a monthly basis.

BlackPearl is planning an 80,000 barrel per day commercial development project at Blackrod, which will be built in phases. The first phase of the project is expected to be designed for 20,000 barrels of oil per day. We filed the commercial development application for Blackrod in May 2012 with the Alberta Energy Regulator (AER) and are anticipating regulatory approval in 2014. We are continuing to consider funding alternatives for the development of the Blackrod project including potential joint venture opportunities.

Onion Lake

• Construction of the first phase of the Onion Lake thermal EOR project continued throughout the quarter. Site preparation was completed in early July and the first modules of the central processing facilities were delivered from the fabrication shop to site. Field construction will ramp-up throughout the summer and fall with a total of 97 modules to be delivered to site with a facility construction workforce that is expected to peak at approximately 135 people.
• Thermal development of the Onion Lake area will utilize a combination of the traditional SAGD process (two horizontal wells drilled approximately 5 metres apart) and a modified SAGD process (using existing and new vertical wells as steam injectors and horizontal producers). The initial 6,000 barrel phase of the project will utilize the modified SAGD process. Initially, we are planning to drill 12 horizontal producer wells and 19 new vertical steam injectors, as well as utilizing up to 16 existing vertical wells as steam injectors. These wells are expected to be drilled during the third and fourth quarters this year. Three water source wells have been drilled for the project and, in the second half of 2014, the remaining source water infrastructure will be built and three disposal wells will be drilled.
• Our estimated capital cost of the first phase of the project remains unchanged at $210 million and first steam is scheduled to commence in mid-2015.
• In addition, we commenced a 20 well primary drilling program in June at Onion Lake. Nine of these wells were drilled in the second quarter and the remaining 11 wells will be drilled in the third quarter. All of these wells are expected to be put on production during the third quarter. These wells are being drilled outside of the current thermal development area.

Mooney

At Mooney, no new drilling activity occurred during the second quarter due to wet ground conditions. During the second quarter we were able to continue with some infrastructure improvement projects that were not completed during the first quarter. This included expansion of the water treatment facilities to accommodate expansion of the ASP flood to our Phase 2 lands, construction of a booster station and upgrade and expansion of the pipeline infrastructure in the field in order to handle increased production from Phase 2 and Phase 3 wells. This work necessitated shutting-in nine wells on the Phase 1 ASP lands for most of the quarter. These wells were producing between 300 and 400 barrels of oil equivalent per day before they were shut-in. The wells were brought back on production in July. Completion of these infrastructure improvement projects will be finished in the fall or next winter when ground conditions permit.

We expect to expand the ASP flood to the Phase 2 lands early in 2015. We are planning to drill an additional six wells on the Phase 3 lands late this year and expand the ASP flood to these lands in the future.

Production

Oil and gas production averaged 8,897 boe per day in the second quarter of 2014 compared to 9,986 boe per day for the same period in 2013. The decrease in production in 2014 reflects natural production declines at Onion Lake, as well as production that was shut-in at Mooney during the quarter in order to undertake infrastructure improvements as described above. In addition, at Mooney, due to pipeline pressure restrictions imposed on a third party gas transporter, the amount of gas we were permitted to inject into their pipeline system was reduced, which restricted our gas sales in the area as well as oil production during the quarter.

Financial Results

• Oil and gas revenues increased 7% in the second quarter of 2014 to $62.2 million compared with $58.3 million in Q2 2013. The increase is attributable to a 20% improvement in our average oil price received, partially offset by an 11% decrease in oil sales volumes.
• The increase in our realized wellhead price reflects higher WTI reference oil prices in Q2 2014 compared with Q2 2013 (US$102.99/bbl vs US$94.29/bbl), and comparable heavy oil differentials (Cdn$20.08/bbl vs Cdn$19.36/bbl).
• Operating costs were $25.96 per boe in Q2 2014 compared with $20.90 per boe in Q2 2013. The increase in operating costs is primarily due to the expensing of all costs associated with the first phase of the ASP flood at Mooney. During the initial re-pressurization of the reservoir these costs were being capitalized.
• Funds flow from operations increased by 41% to $46.2 million in the first half of 2014 compared to $32.9 million in the same period in 2013. The increase is funds flow in 2014 is primarily a result of higher wellhead sales prices in 2014. For the six months ended June 30, 2014, the Company generated net income of $3.6 million compared to a net loss of $3.0 million in the same period in 2013. The increase in net income in 2014 compared to the same period in 2013 is primarily a result of a higher wellhead sales price in 2014, partially offset by higher production costs and the loss on risk management contracts.

Outlook

• We expect our oil and gas production to average between 9,000 and 9,500 boe/d for the year, unchanged from our Q1 update. Funds flow from operations for the year is anticipated to range between $80 and $85 million. This is slightly higher than our Q1 outlook as a result of using higher forecast oil prices in our Q2 update. 
• Capital spending is expected to be between $280 to $300 million for the year, unchanged from our Q1 update. 
• The second half of our 2014 capital budget continues to be focused on the construction of the first phase of the Onion Lake thermal project, including the drilling of over 30 producer, injector and disposal wells. 
• During the second half of 2014, we will also complete our conventional drilling program at Onion Lake (11 wells) and up to 10 additional horizontal wells at Mooney and other areas.