The Kaybob area accounted for approximately 88 percent of Trilogy’s production and 80 percent of capital expenditures in 2007. This area will continue to be the focus of 2008 spending plans given Trilogy has amassed a large portfolio of high quality drilling prospects which it believes will enable the Trust to replace annual production declines and produced reserves.
Trilogy has developed a strategy of exploiting reserves throughout the Kaybob area in order to utilize the entire gathering system to reduce the potential back-out of existing production that can be caused when the new high pressure gas wells being drilled in the Mannville and Triassic formations are tied in to the existing gathering systems. Integration of technical disciplines has allowed Trilogy to carefully plan the development of the existing pools to reduce the risk of over-developing areas by drilling more wells than required to capture the reserves in a reasonable time frame. Having a large drilling inventory will allow Trilogy to drill premium projects to maximize production and reserves and also minimize back–out, thereby generating a higher rate of return, and ultimately increasing the value of its assets.
Kaybob 2007 drilling activity exploited the tight gas sands in the Montney and Gething formations with additional success in the Nordegg, Bluesky and Spirit River formations. In 2008, Trilogy will continue to pursue these same play types as well as accelerate the development of its oil plays in order to capture additional value before the change in Alberta’s royalty structure in 2009, which may adversely impact the Trust’s high rate wells. The development of oil plays in the current oil price environment will also assist the Trust in realizing a higher price on a per barrel of oil equivalent basis.
Trilogy has initiated the construction of a sweet gas plant in the Waskahigan area. The plant is slated to have up to 20 MMcf/d of processing capacity with 10 MMcf/d of compression initially installed. There is currently 5 MMcf/d of shut-in gas that will benefit from the new plant as well as 4 MMcf/d of existing production which will be redirected to the new plant to realize lower operating costs for the remaining reserves. Trilogy plans to offer unused compression and processing capacity to third-party producers in the area, and any fee revenue will reduce unit operating costs for the Trilogy gas.
The Presley development project has realized significant production and reserve gains in 2007 and as a result the Trust plans to install additional compression in this area to handle new Trilogy and third-party volumes. Trilogy will evaluate the economics of upgrading these compression facilities to a gas processing plant in order to reduce operating fees currently paid to custom processors in the area.