North Peace Announces Strategic Alternatives Review; Independent Contingent
Resources Evaluation and Operations Update
TSX-V: NPE
Review of Strategic Alternatives
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North Peace's Board of Directors has initiated a process to explore strategic alternatives with a view to enhancing shareholder value. The Company has engaged CIBC World Markets Inc. ("CIBC") to provide financial advisory services to assist in this strategic review. Strategic alternatives may include, but are not limited to, a corporate sale, merger or other business combination, joint venturing with an interested party, a major financing or any other combination that will result in unlocking additional value for shareholders. The Board has established a Special Committee of independent directors to work with management and the Company's external advisors and to supervise the strategic review process.
North Peace does not intend to disclose developments with respect to the strategic review process until the Board of Directors have approved a definitive transaction or strategic option, unless otherwise required by law. The Company cautions that there are no guarantees that the strategic alternative review will result in a transaction or, if a transaction is undertaken, as to its terms or timing.
Independent Resource Evaluation
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North Peace engaged Sproule Associates Ltd.("Sproule") to prepare an evaluation of the Company's bitumen resources at its Red Earth property as of
Contingent Resources and the associated net present values were determined based on exploitation using conventional CSS followed by a Steam Drive component. Certain well pads of Shell
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Discovered Bitumen Initially-In-Place(1)(6)
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(MMbbl)
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Block A 210
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Block B North 186
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Block B South 1,252
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Block C 351
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Block D 70
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Total Red Earth (all lands) 2,069
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Block B South
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Total 1,252
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Inside 6 m contour 1,112
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Inside 8 m contour 974
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Inside 10 m contour 610
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Inside 10 m contour (area
with top gas excluded) 583
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Contingent Resources(2)(6)
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High(3) Best(3) Low(3)
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Contingent Resource (MMbbl)(2) 146 105 64
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Recovery Factor(4) 25% 18% 11%
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Net Present Value of Future Cash Flow(5)(6) (MM$)
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0% 5% 8% 10%
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High Estimate(3) $3,272 $945 $495 $327
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Best Estimate(3) $1,688 $414 $171 $81
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Low Estimate(3) -$184 -$260 -$266 -$263
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Notes:
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1. "Discovered Bitumen Initially-In-Place" (equivalent to Discovered
Bitumen Resources) is that quantity of bitumen that is estimated, as
of a given date, to be contained in known accumulations prior to
production. The recoverable portion of Discovered Bitumen Initially-
In-Place includes production, reserves, and contingent resources; the
remainder is unrecoverable.
2. "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 may include factors such as economic, legal,
environmental, political and regulatory matters or a lack of markets.
Sproule has identified the following as contingencies which currently
prevent the classification of the Contingent Resources at the
Company's Red Earth Block B South as reserves: current CSS pilot
results not yet demonstrated commerciality, lack of regulatory
approval, absence of a firm development plan, or the uncertainty of
funding approval for development. It is also appropriate to classify
as Contingent Resources the estimated discovered recoverable
quantities associated with a project in the early evaluation stage.
Contingent Resources are further classified in accordance with the
level of certainty associated with the estimates and may be sub
classified based on project maturity and/or characterized by their
economic status. All figures reflect the Company's gross Contingent
Resources, which are the Company's working interest share of the
Contingent Resources, before deduction of any royalties.
3. A low estimate is considered to be a conservative estimate of the
quantity that will actually be recovered from the accumulation (90
percent probability), a best estimate is considered to be the best
estimate of the quantity that will actually be recovered from the
accumulation (50 percent probability) and a high estimate is
considered to be an optimistic estimate of the quantity that will
actually be recovered from the accumulation (10 percent probability).
4. Recovery factors are based on certain well pads of Shell's Peace
River Project and applied to 583 million barrels inside the 10 metre
contour and excluding the south east gas cap area of Block B South.
5. Net present value ("NPV") represents the Company's share of future
net revenue before the deduction of income taxes. The calculation
considers such items as revenues, royalties, operating costs,
abandonment costs and capital expenditures. The calculation does not
consider financing costs and general and administrative costs. All
NPVs are calculated assuming natural gas is used as a fuel for steam
generation. Revenues and expenditures were calculated based on
Sproule's forecast prices and costs as of December 31, 2009.
6. It should not be assumed that the estimates of recovery, production
and net revenue presented in the tables above represent the fair
market value of the Company's bitumen resources. There is no
assurance that the forecast prices and cost assumptions will be
realized and variances could be material. The recovery and production
estimates of the Company's bitumen resources are only estimates and
there is no guarantee that the estimated resources will be recovered
or produced. Actual resources may be greater than or less than the
estimates provided herein. There is no certainty that it will be
commercially viable to produce any portion of the resources.
Operations and Drilling Update
The second cycle of the L1 well has now been on production for nine weeks. It is very encouraging that the current Steam-to-oil Ratio ("SOR") is already better than the end of cycle SOR on the first cycle. Full cycle results will be provided at the end of the cycle.
The L2 well has now been on production for five months. Oil rates peaked at 150 bbl/d then declined to approximately 10 bbl/day with low oil cuts for the majority of the cycle. Unlike L1, the steam injected into the L2 well did not pressure-up the reservoir as expected. The prolonged low rate production period coupled with a temperature log showing heating effects concentrated at the toe of the well suggests potential fracturing into a volumetrically limited thief zone. In a commercial project undergoing pad steaming strategies, this anomaly may not be material or discernable.
At this early stage of operations, the piloting efforts have not yet demonstrated the production rates and SORs required for commercial development. Although initial results are encouraging, as expected, several cycles will be required to demonstrate commerciality. In order to maximize production rates and reduce SORs, the Company is currently optimizing steaming strategies and is also investigating the use of alternate well types and configurations.
The winter drilling program consisted of 10 delineation wells in Block B South at Red Earth and five conventional oil exploration wells in the Peace River arch. Results from the 10 delineation wells were consistent with prior delineation work and the data gathered from these latest wells was incorporated into the Sproule Report. Three wells (1.6 wells net to North Peace) of the exploration program were successful and are expected to provide the Company with approximately 40 boe/day average production for 2010. These areas have been assigned 177,800 barrels of Proved plus Probable reserves and NPV10 value before tax of
Subsequent to funding the drilling program outlined above, working capital is estimated to be
About North Peace
North Peace has an early stage in-situ oil sands play in northern Alberta with an estimated 2.1 billion barrels of Discovered Bitumen Initially-In-Place. The Company has a 100% working interest in 86,400 acres of Crown oil sands leases in the Peace River area. The lands have the benefit of over 300 legacy wells and are surrounded by accessible oil and natural gas production infrastructure. The target Bluesky zone is a regional sand, deposited in a near shore marine environment at approximately 400 metres in depth. The initial area of focus has approximately 22 sections with 10 to 16 metres of oil-bearing thickness, technically sufficient to advance a 10,000 bbl/d commercial project with ultimate potential of 30,000 bbl/d. North Peace is currently advancing the development of its resource using CSS, a robust and proven in-situ thermal recovery process. The Company is currently operating a two well CSS pilot on its lands.
Forward-Looking Statements
Certain statements contained in this news release constitute forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. No assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this release should not be unduly relied upon. Information and statements in this news release relating to "reserves or resources" are deemed to be forward looking information and statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated, and that the reserves and resources described can be profitably produced in the future. Actual results could differ materially as a result of changes in North Peace's plans, changes in commodity prices, regulatory changes, general economic, market and business conditions as well as production, development and operating performance and other risks associated with oil and gas operations including anticipated success of resource prospects and the expected characteristics of resource prospects; uncertainties inherent in estimating quantities of reserves and resources; anticipated capital requirements, project rates of return and estimated project life; estimates of original discovered resource; estimates of recovery factors; lack of diversification; and overall technical and economic feasibility of the Company's project. These statements speak only as of the date of this release or as of the date specified in the documents accompanying this release, as the case may be. The Company undertakes no obligation to publicly update or revise any forward-looking statements except as expressly required by applicable securities laws.
Disclosure provided herein in respect of boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf to 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in this press release are derived by converting gas to oil according to this 6 mcf to 1 bbl ratio.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as the term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
The TSX Venture Exchange has neither approved nor disapproved the contents of this press release.
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For further information: Louis Dufresne, President and CEO, James Glessing, Vice President, Finance & CFO, North Peace Energy Corp., 630, 505 - 3rd Street SW, Calgary, Alberta, T2P 3E6, Telephone (403) 262-6024, Facsimile: (403) 262-6072, E-mail: [email protected], www.northpec.com
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