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Chinook Energy Inc. Announces Its December 31, 2012 Reserves and Operations Update


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© Marketwire 2013
2013-02-27 00:06:26 -

CALGARY, ALBERTA -- (Marketwire) -- 02/26/13 -- Chinook Energy Inc. ("Chinook" or the "Company") (TSX:CKE) today announced the results of its year-end reserve evaluations effective December 31, 2012 as prepared by its independent evaluators. The Company has also provided certain unaudited year-end financial information and an operations update.


Chinook's audit of its 2012 annual consolidated financial statements is not yet complete and accordingly all financial amounts referred to in this news release are unaudited and represent management's estimates. Readers are advised that these financial estimates are subject to audit and may be subject to change as a result.


2012 Reserves Highlights


Two evaluators, which were largely responsible for the previous evaluations of the same assets, have evaluated all of Chinook's crude oil, NGL and natural gas reserves in accordance with National Instrument 51-101. Chinook's Reserves, Safety and Environmental Committee and Board of Directors have reviewed and approved the evaluations prepared by the evaluators. Highlights of such evaluations are as follows:


--  Proved reserves totaled 28.95 million barrels of oil equivalent. The
    proved reserve life index ("RLI") is 7.1 years using annualized December
    2012 production. 
--  Proved plus probable reserves totaled 51.65 million barrels of oil
    equivalent. The proved plus probable RLI is 12.7 years using annualized
    December 2012 production. 
--  Proved plus probable reserves are down 7.5% from 2011. Assets
    representing 11.7% of the 2011 reserves were sold during the year and
    Economic Factors and Technical Revisions represented a 0.6% increase
    from 2011 reserve levels. 
--  The proved finding and development cost, as per NI 51-101 requirements,
    was $39.27 per barrel of oil equivalent and the proved plus probable
    finding and development cost, as per NI 51-101 requirements, was $40.19
    per barrel of oil equivalent. The change in future development costs
    ("FDC") and revisions was included in the calculation and the effect of
    acquisitions and divestitures was excluded. 
--  Commodity price forecasts used in the independent evaluation, relative
    to the 2011 evaluation period, were down approximately 15% for natural
    gas in Canada, which represents 44% of the corporate proved plus
    probable reserve volumes and down approximately 3% (6% in Canada and 2%
    in Tunisia) for the oil, which represents 51% of the corporate proved
    plus probable reserve volumes. As a result of the reduction in the price
    forecast, Chinook recorded a 1.33 million barrels of oil equivalent loss
    of reserves due to economic factors. 
--  The after tax net asset value at December 31, 2012, is $3.11 per basic
    share (214.2 million shares) based on the net present value of proved
    and probable reserves, discounted at 10% after tax and after deducting
    year end total net debt and adding an estimated value of $100 per acre
    for its 357,745 acres of undeveloped land in Canada. On a before tax
    basis, with a similar 10% discount rate, the net asset value is $4.21
    per basic share. 
--  Gross Discovered Petroleum Initially in Place ("DPIIP") associated with
    the Bir Ben Tartar (TT) discovery on the Sud Remada permit in Tunisia,
    after the addition of five development wells in 2012, is estimated to be
    201.7 million barrels of oil. Proved and probable reserves net to the
    Company of 5.1 million barrels of oil represent the Company's 48%
    Contractor's share of the 10.7 million barrels of oil remaining
    recoverable. Proved and probable reserves have been assigned to areas
    representing 44% of the DPIIP up to a 13% recovery, or an average of 5%
    recovery for the entire structure. An additional 2.5 million barrels of
    oil of possible reserves and a Best Case Contingent Resource of 7.2
    million barrels net to the Company's interest is attributable to the
    DPIIP area to which proved and probable reserves have not been assigned
    up to the date of evaluation. Possible reserves are those additional
    reserves that are less certain to be recovered than probable reserves.
    There is a 10% probability that the quantities actually recovered will
    exceed the sum of proved plus probable reserves. On this basis, 44% of
    the reserve and resource potential recognized on the block is reflected
    in the Company's NI 51-101 reserves and net asset value. The net present
    value after tax discounted at 10% for the proved plus probable reserves
    is $163 million or $34.95 per barrel. 



2012 Operational Highlights and Unaudited Full Year Results


Chinook's average daily production for fiscal year 2012 was 12,197 barrels of oil equivalent per day. Production for the last half of 2012 was 11,826 barrels of oil equivalent per day and for the fourth quarter was 11,688 barrels of oil equivalent per day. Projected cash flow from operations (before changes in non-cash working capital) for 2012 is estimated at $78.2 million or $0.37 per weighted average basic common share outstanding (unaudited). Year end 2012 net debt is $72.1 million.


The Canadian business focused on crude oil project development in the core areas of Grande Prairie and the Peace River Arch along with the disposition of $107.4 million of non-strategic assets representing approximately 1,600 boe/d of production. The Tunisian business focused on further light oil development and delineation and increased production on the Bir Ben Tartar Concession ("BBT Concession"). The corporate drilling program consisted of 19 (10.05 net) wells of which 11 were operated and eight were non-operated wells. The results are outlined in the table below:


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Wells Drilled                                                               
Year ended December 31, 2012         Tunisia          Canada           Total
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                               Gross     Net   Gross     Net   Gross     Net
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Exploration                                                                 
 Oil                               -       -    4 00    1.86    4.00    1.86
 Gas                               -       -       -       -       -       -
 Dry                            2.00    0.96       -       -    2.00    0.96
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                                2.00    0.96    4.00    1.86    6.00    2.82
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Development                                                                 
 Oil                            6.00    4.35    6.00    1.88   12.00    6.23
 Gas                               -       -    1.00    1.00    1.00    1.00
 Dry                               -       -       -       -       -       -
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                                6.00    4.35    7.00    2.88   13.00    7.23
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Total                           8.00    5.31   11.00    4.74   19.00   10.05
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Revised 2013 Guidance


As a result of higher initial water cuts associated with the most recent horizontal wells drilled on the BBT Concession, coupled with delays in commencement of the 2013 BBT Concession drilling program, the Company has revised its guidance for 2013 as set forth below from the initial 2013 guidance which was provided on November 13, 2012. The Company has also reduced its capital program by $38 million to $102-107 million in 2013 as a result.

###PRECONTENT2###

Tunisia Security Update


The operating environment in Tunisia has become more complicated and the necessity to increase security at the Company's operations has risen since late last year. The number of local land use concerns continues to rise and the precedents to resolve them are nonexistent or ineffective in many cases. Stakeholder frustrations often manifest themselves as "sit ins" that disrupt Chinook's work or logistics. There are ongoing efforts to resolve the issues and streamline the process but until material commitments and progress are evident, the Company is unable to achieve the economies or timeline that had been planned. Although operations are impacted, production has not been impacted owing to storage capacity being well in excess of the duration of the stoppages to date. From a security perspective, Chinook has completed the planning phase of an audit and upgrade of its capabilities and systems and will be implementing the majority of the recommendations prior the commencement of its next program and all before the end of the year. This was in progress prior to the most recent events that continue to destabilize the political landscape but those recent events clearly reinforce the necessity that the Company minimizes risk by increasing its awareness and preparedness.



Canadian Non-Strategic Disposition Update


The Company's ongoing non-strategic asset sale process has resulted in executed letters of intent for the sale of approximately 580 boe/d and gross proceeds, before closing adjustments, of approximately $19.5 million to be closed in the first quarter. The disposition of non-core assets as a means to maintain a strong balance sheet and increase the per barrel profitability of the Company's core Canadian assets will be a continued priority for the Company.


2012 Independent Reserves Evaluation


The independent evaluators of the Company's year-end reserves are as follows:

###PRECONTENT3###

The independent reserve evaluations effective December 31, 2012 were prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and National Instrument 51-101 ("NI 51-101"). The reserve evaluation was based on McDaniel forecast pricing and foreign exchange rates at December 31, 2012.


Reserves included herein are stated on a Company gross basis (working interest before deduction of royalties without including any royalty interests) unless noted otherwise. This news release contains several cautionary statements that are specifically required by NI 51-101 under the heading "Reader Advisory" and throughout the release. In addition to the information contained in this news release more detailed information will be included in Chinook's Annual Information Form for the year ended December 31, 2012 ("AIF"), which will be filed on SEDAR at www.sedar.com : www.sedar.com on or about March 27, 2013.


Reserves Breakdown (Company interest before royalties) (1)


(December 31, 2012, escalated price forecast)

###PRECONTENT4###

Gross and Net Company Interest Reserves as at December 31, 2012


The following table summarizes the Company's gross and net interest reserve volumes utilizing McDaniel's forecast pricing and cost estimates at December 31, 2012.

###PRECONTENT5###

Gross Company Reserve Reconciliation for 2012 (1)


(Gross company interest reserves before deduction of royalties payable)

###PRECONTENT6###

Consolidated


Net Present Value ("NPV") Summary (before tax) as at December 31, 2012


(December 31, 2012, escalated price forecast)


Benchmark oil and NGL prices used are adjusted for quality of oil or NGL produced and for transportation costs. The calculated NPVs include a deduction for estimated future well abandonment but does not include a provision for interest, debt service charges and general and administrative expenses. It should not be assumed that the NPV estimated represents the fair market value of the reserves.

###PRECONTENT7###

Canada


Net Present Value Summary (before tax) as at December 31, 2012


(December 31, 2012, escalated price forecast)

###PRECONTENT8###

Tunisia


Net Present Value Summary (before tax) as at December 31, 2012


(December 31, 2012, escalated price forecast)

###PRECONTENT9###

Consolidated


Net Present Value Summary (after tax) as at December 31, 2012


(December 31, 2012, escalated price forecast)


The after-tax NPV of Chinook's oil and natural gas properties reflects the tax burden on the properties on a stand-alone basis and does not consider the business-entity-level tax situation, or tax planning. It does not provide an estimate of the value at the level of the business entity, which may be significantly different. The financial statements and the management's discussion and analysis ("MD&A") of Chinook should be consulted for information at the level of the business entity.

###PRECONTENT10###

Canada


Net Present Value Summary (after tax) as at December 31, 2012


(December 31, 2012, escalated price forecast)

###PRECONTENT11###

Tunisia


Net Present Value Summary (after tax) as at December 31, 2012


(December 31, 2012, escalated price forecast)

###PRECONTENT12###

McDaniel & Associates Consultants Ltd. Escalating Price Forecast as at December 31, 2012 (1)

###PRECONTENT13###

Future Development Costs ("FDC")


NI 51-101 requires that future development costs be calculated including changes in FDC. Changes in forecast FDC occur annually as a result of development activities, acquisition and disposition activities and capital cost estimates that reflect the independent evaluators' best estimate of what it will cost to bring the proved undeveloped and probable reserves on production.

###PRECONTENT14###

Chinook's approved 2013 budget includes the drilling of 13 wells (7.5 net) in Canada and 8.0 wells (6.1 net) in Tunisia.


NI 51-101 Finding and Development Costs ("F&D")

###PRECONTENT15###

Finding and Development Costs ("F&D")

###PRECONTENT16###

Total exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs, generally will not reflect the total cost of reserve additions in that year.


Recycle Ratio


The recycle ratio is calculated as the annual netback per barrel divided by the NI 51-101 calculated finding and development costs (excluding acquisitions and dispositions, abandonment and furniture and fixtures).

###PRECONTENT17###

Presented below is the recycle ratio as calculated by using the annual netback per barrel divided by the calculated finding and development costs (excluding acquisitions and dispositions, abandonment and furniture and fixtures) and excluding the effects of revisions and economic factors.

###PRECONTENT18###

Corporate Net Asset Value


The Company's net asset value as of December 31, 2012, is detailed in the following table. This net asset value determination is a "point-in-time" measurement and does not take into account the possibility of Chinook being able to recognize additional reserves through successful future capital investment in its existing properties beyond those included in the 2012 year-end reserve reports.

###PRECONTENT19###

Chinook's audited consolidated financial statements and its annual information form for the year ended December 31, 2012, which will include more detailed reserves information, are expected to be filed on SEDAR (www.sedar.com) on or about March 27, 2013.


Bir Ben Tartar - Discovered Petroleum Initially-in-Place


InSite assigned 201.7 million barrels of Discovered Petroleum Initially-In-Place ("DPIIP") to the Bir Ben Tartar (TT Field) discovery as at December 31, 2012.


DPIIP is the quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations prior to production. The recoverable portion of DPIIP is divided into commercial (reserves), and sub-commercial (Contingent Resources); the remainder is by definition unrecoverable. Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies.


Contingencies which must be overcome to enable the reclassification of Contingent Resources as reserves can be categorized as economic, non-technical and technical. The Canadian Oil and Gas Evaluation Handbook identifies non-technical contingencies as legal, environmental, political and regulatory matters or a lack of markets. There are several non-technical contingencies that prevent the classification of the Contingent Resources estimated below as being classified as reserves. Although certain areas of the blocks subject to the estimates are currently undergoing development under approved plans, these plans do not include the areas of the reservoirs with which all of the Contingent Resources summarized in the table below are associated. As of the effective date of the evaluation, information was not available concerning the regulatory status or, in certain instances, conceptual development plans under which such Contingent Resources could be brought on production, nor was information available regarding the likelihood of any such development plans being approved by Chinook, by its partners in the field, nor by ETAP. Other non-technical contingencies may include regulatory application submission with no major issues raised, access to markets and intent to proceed by the operator and other partners as evidenced by major capital expenditures planned. Technical contingencies that prevent the classification of the Contingent Resources as reserves include the early stage of development, the requirement for further delineation drilling and testing, lack of full field development plans and the associated facility design. While it is premature at this time to identify the economic viability of any of the Contingent Resources since evaluations are currently incomplete and as such, the economic status of the Contingent Resources is currently undetermined, Chinook is actively carrying out activities on the TT Field in order to enable it to complete the necessary economic assessment(s). Furthermore, certain of the reservoir areas evaluated in the Contingent Resources estimate cover extensive areas that will require considerable development activity and investment to fully exploit.


Estimates of DPIIP and Contingent Resources described herein are estimates only; the actual resources may be higher or lower than those calculated in InSite's report. There is no certainty that will be commercially viable to produce any portion of the resources described herein.


The most significant positive and negative factors with respect to the Contingent Resource estimates in respect of the Bir Ben Tartar (TT) discovery relate to fact that the field is currently at an evaluation/delineation stage.


The table below summarizes the DPIIP, Reserves, Cumulative Production, Contingent Resources and portion of the unrecoverable portion of DPIIP associated with the Bir Ben Tartar (TT) discovery.



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Category mbbls
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DPIIP



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