ASP Project Update. April 18, Advisory Forward-Looking Information

Transcription

1 ASP Project Update April 18, Advisory Forward-Looking Information Forward-Looking Statements -This presentation offers our assessment of Zargon's future plans and operations as at April 18, 2013, and contains forward-looking statements. Such statements are generally identified by the use of words such as "anticipate", "continue", "estimate", "expect","forecast", "may", "will", "project", "should", "plan", "intend", "believe" and similar expressions (including the negatives thereof). In particular, this presentation contains forward-looking information as to Zargon scorporate strategy and business plans, Zargon soil exploration project inventory and development plans, Zargon sdividend policy and the amount of future dividends, future commodity prices, Zargon sexpectation for uses of funds from financing, Zargon scapital expenditure program and the allocation and the sources of funding thereof, Zargon scash flow and dividend model and the assumptions contained therein and the results there from, anticipated payout rates, 2012 production and other guidance and the assumptions contained therein, estimated tax pools, Zargon sreserve estimates, Zargon shedging policies, Zargon sdrilling, development and exploitation plans and projects and the results there from and Zargon sasp project plans, capital expenditures, costs and the results therefrom. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond our control, including such as those relating to results of operations and financial condition, general economic conditions, industry conditions, changes in regulatory and taxation regimes, volatility of commodity prices, escalation of operating and capital costs, currency fluctuations, the availability of services, imprecision of reserve estimates, geological, technical, drilling and processing problems, environmental risks, weather, the lack of availability of qualified personnel or management, stock market volatility, the ability to access sufficient capital from internal and external sources and competition from other industry participants for, among other things, capital, services, acquisitions of reserves, undeveloped lands and skilled personnel. Risks are described in more detail in our Annual Information Form, which is available on our website. Forwardlooking statements are provided to allow investors to have a greater understanding of our business. You are cautioned that the assumptions, including, among other things, future oil and natural gas prices; future capital expenditure levels; future production levels; future exchange rates; the cost of developing and expanding our assets; our ability to obtain equipment in a timely manner to carry out development activities; our ability to market our oil and natural gas successfully to current and new customers; the impact of increasing competition; our ability to obtain financing on acceptable terms; and our ability to add production and reserves through our development and acquisition activities used in the preparationof such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed onforward-looking statements. Our actual results, performance, or achievement could differ materially from those expressed in, or implied by, these forward-looking statements. We can give no assurance that any of the events anticipated will transpire or occur, or if any of them do, what benefits we will derive from them. The forward-looking information contained in this presentation is expressly qualified by this cautionary statement. Our policy for updating forward-looking statements is that Zargon disclaims, except as required by law, any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Barrels of Oil Equivalent -Natural gas is converted to a barrel of oil equivalent ( Boe ) using six thousand cubic feet of gas to one barrel of oil. In certain circumstances, natural gas liquid volumes have been converted toa thousand cubic feet equivalent ( Mcfe ) on the basis of one barrel of natural gas liquids to six thousand cubic feet of gas. Boesand Mcfesmay be misleading, particularly if used in isolation. A conversion ratio of one barrel to six thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion ratio on a 6:1 basis may be misleading as an indication of value. The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation. Estimatedreserve values disclosed in this presentation do not represent fair market value. Discovered Petroleum Initially-In-Place ( DPIIP ) is that quantity of petroleum that is estimated, as of a givendate, to be contained in known accumulations prior to production. The recoverable portion of discovered petroleum initially in place includes production, reserves, and contingent resources; the remainder is unrecoverable. The aggregate of the 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 total finding and development costs related to reserves additions for that year. 1

2 Little Bow ASP Enhanced Oil Recovery Project Oil rate today: 400bpd ASP Capital (Non Chemical): $ 60Million Forecast Oil Rate in 2016: 1,500 bopd Forecast Oil Rate in 2018: 1,800 bopd Forecast Oil Recovery: 4.9 Million Barrels 2009 Little Bow assets acquired from Masters Energy Inc Reservoir Studies 2011 Lab Work, Facilities Scoping Studies 2012 Well workovers, Detailed Engineering, Key Equipment Orders; Reservoir Study Update 2013 Construction: Facilities and Pipelines, Chemical Supply 2014 Startup Project Evolution 2

3 Little Bow Mannville I and P Pools Little Bow ASP: Phase 1&2 Development Alberta 15-18W4 Little Bow Mannville P Pool Little Bow Little Bow Mannville I Pool Zargon Land Zargon Wells Phase 1 Area Phase 2 Area High Quality Upper Mannville Reservoir Zargon WI: 100 % First Production: 1974 Mature Waterflood (initiated 1983) Permeability (Avg): 1,500 md Depth: 3,600 ft Porosity (Avg.): 23% Phased ASP Development What is ASP? A dilute chemical blend (Alkali, Surfactant and Polymer) added to an existing waterflood to scrub out oil that waterflooding alone cannot recover Contact more reservoir, and get more oil from reservoir that is contacted. Water Injection Trapped Oil Rock Water Alkali & Surfactant Solution Rock Mobilized Oil Surfactants (Detergent): mobilizes trapped oil Alkali: Increases effectiveness of the surfactant Polymer: Thickener. Thickened water is able to contact more reservoir a) Water Injection: More than half of oil is trapped Injector Producer Injector b) Alkali / Surfactant Mobilizes trapped oil Alkali and Surfactant act together to mobilize oil trapped in the reservoir. The injected fluids must contact the trapped oil to be effective. Producer Water Polymer Solution Increased Contact Volume a) Water Injection b) Polymer Injection Polymer thickens the injected fluid to increase the volume of reservoir contacted. 3

4 ASP Chemical Flooding Injection Sequence Injection Sequence 1) ASP: A blend of Alkali, Surfactant and Polymer mobilizes trapped oil 2) Polymer Push : Polymer solution displaces mobilized oil to producing wells 3) Terminal Waterflood: Completes the displacement Phase 1 ASP Polymer Waterflood Phase 2 ASP Polymer Waterflood Canadian ASP Projects Grande Prairie Mooney (Black Pearl) 2011 Alberta Sask. In Progress Scheme Approved Edmonton Little Bow (Zargon) Taber (Husky) 2008 Strathmore (Terrex) Taber South (Husky) 2006 Calgary Lethbridge Suffield (Cenovus) 2007 Bone Creek (Husky) Medicine Hat Grand Forks (CNRL) Coleville (Penn West) 2011 Battrum (Hyak Energy) Fosterton (Husky) 2012 Gull Lake (Husky) 2009 Instow (Talisman) 2007/11 4

5 Husky Taber and Zargon Little Bow Mannville Pools Analogous Production History Zargon Little Bow Production History 100, % Little Bow Upper Mannville I and P Pool (Zargon) Oil Production & Water Injection (bpd) 10,000 1,000 Oil Cut Injection Oil Rate 10% 1% Oil Cut (%) % Taber Data to Jan ,000 Husky Taber Production History 100% Lethbridge Taber Mannville B Pool (Husky) 6 miles Oil Production & Water Injection (bpd) 10,000 1,000 Oil Rate Oil Cut Injection 10% 1% Oil Cut (%) 100 Data to Jan Husky ASP Flood Initiated 0% Husky Taber Mannville B ASP Flood Maintaining Strong Performance 100,000 ASP Injection Polymer Injection 100.0% Peak Oil Cut: 13% Oil Production (bpd) 10,000 1,000 Oil Cut Initial Oil Cut: 2% Peak Oil: 1814 bpd 10.0% 1.0% Oil Cut (%) Oil Rate Initial Oil: 300 bpd % Data to Jan

6 Husky Taber Mannville B ASP Flood 100% ASP Flood Reserves ASP Polymer Terminal Waterflood Oil Cut (%) 10% Oil Cut ASP Flood Decline Base Waterflood Decline 1% 20% 25% 30% 35% 40% 45% 50% 55% Data to Jan-2013 Cumulative Oil Produced ( % DPIIP ) 12% DPIIP ERCB Assigned DPIIP: 43.1 MMbbl Little Bow ASP Development Optimization Study Oil Recovery (%) 1,276 cases run ASP Recovery Factor 12% Zargon Evaluation 10% McDaniel Recognized Waterflood Simulation Recovery: 36 % ASP Incremental Oil Recovery (% DPIIP) Updated reservoir simulation model used to optimize Little Bow ASP Flood design Multiple development scenarios modeled based on: -ASP chemical concentration and injection volume - Drilling & workover locations - Pattern design Study nearing completion Runs predict up to 7 million barrels of incremental ASP recovery 6

7 Little Bow ASP Project Description ASP Facility Site Little Bow ASP: Phase 1&2 Development Areas Battery Travers Gas Plant Zargon Land Zargon Wells Phase 1 Area Phase 2 Area Little Bow ASP Facility 7

8 Phases 1&2 Capital and Chemical Phase 1 Phase 2 Total ($MM) ($MM) ($MM) ASP Facility Battery Pipelines Water Disposal/Source Subsurface/Surface/other ASP Chemical Total Phase 1 costs include: $ 6.5 million from 2012 Phase 2 costs occur in 2014 and Capital reported in as spent dollars. On a PV 10 basis: Capital = $ 58.0 MM, Chemical = $ 49.5 MM. Key Project Suppliers SURTEK Golden, Colorado ASP Formulation Weatherford Labs Calgary, Canada ASP Formulation CMG Calgary, Canada Reservoir Simulation Wood Group PSN Calgary, Canada Engineering, Procurement & Construction Management SNF, Ecodyne, Anderson Water Systems Various Polymer Injection and Water Treatment Equipment 8

9 Project Execution Q Project Highlights January 2013 ASP Development Optimization Study preliminary results ASP Facility 3D model Operability and Safety review February 2013 Class III cost estimate completed Civil Earthworks engineering package at Issued For Bid status Design frozen March 2013 ASP Chemical Supply proposals received and reviewed Utility Electrical: Fortis proposal accepted by Zargon Groupline Project Underway Civil Construction Packages prepared (Earthworks and Piling) 9

10 Upcoming Milestones April 2013 ERCB regulatory approval for construction Award Civil earthworks and piling contracts Civil earthworks commences Groupline project completed Positioned to award ASP chemical contracts Zargon Little Bow ASP Facility W4 May 2013 Award Mechanical/Electrical contact Piling commences Project Economics 10

11 Phases 1&2 Economics Production and Metrics (Before Tax) Phases 1&2 ROR (%) 18.5 PV 10 ($MM) 36.1 PI 10 * 0.34 F&D ($/bbl)* 25.9 Netback ($/bbl)* 52.2 Recycle Ratio 2.0 Payout (yr) 7.2 Reserves (mbbl) 4,874 BOPD Little Bow ASP: Phases 1&2 Production Base W.F. Phase 1 Phase % Recovery 1400 Phase mmbbl Phase Base Waterflood $85 Flat Edmonton Pricing * Chemical booked as Capital Chemical as Opex: PI 10 = 0.62 and Recycle Ratio = 3.2 Phases 1&2 Economics Price Sensitivity Little Bow ASP Phases 1&2 30 BTax IRR vs. Price 25 EOR Royalty Reform 20 IRR (%) Base Price 5 0 $65.00 $75.00 $85.00 $95.00 $ $ Edmonton Light ($/bbl) Little Bow Field Realization = Edmonton Light Less 17 $/bbl 11

12 Followup Development: Phases 3&4 Phases 1 & 2 LB I Pool LB P Pool ZAR W.I. (%) W.I. DPIIP * (mmbbl) 31 8 Followup U&W Unit MM Unit C8C / X8X Total * ERCB DPIIP Data Little Bow Phases 1-4 Injection Schedule Phase 1 ASP Polymer Waterflood Phase 2 ASP Polymer Waterflood Phase 3 ASP Polymer Waterflood Phase 4 ASP Polymer Phases 3&4 Benefit From Existing Facility Little Bow ASP: Phases 1&2 and 1-4 Phases 1&2 Phases 1-4 IRR (%) PV 10 ($MM) PI 10 * F&D ($/bbl)* Netback ($/bbl)* Recycle Ratio* Payout (yr) Reserves (mbbl) 4,874 8,189 BOPD ASP Development Forecast - Phases 1-4 Base W.F. Phase 1 Phase 2 Phase 3 Phase 4 Zargon W.I. Production Phases 3&4 Phases 1&2 11% Recovery 12% Recovery * Injectant booked as Capital EDM Flat 85 Pricing Zargon Net W.I Working Interest Capital and Chemical Costs ($ Millions) Phases 1&2 Phases 3&4 Capital Chemical

13 Upside Potential Millions of Dollars Little Bow ASP Undiscounted Cash Flow (Net Zargon WI - Before Tax) Little Bow ASP Upside Phases 3&4 Development +2% DPIIP Recovery +10$/bbl Edmonton Price EOR Royalty Reform Little Bow ASP Phases 1& Conclusions The number of commercial ASP projects, and industry s experience with the technology is increasing Construction of Phase 1 of the Little Bow ASP Project is proceeding for 2014 startup Oil Recovery: 4.9 mmbbl (Phases 1&2) This will be the central facility in a development program encompassing multiple oil pools and providing a decade of development opportunity to Zargon 13

14 ASP Project Update April 18,