Kaybob Montney Oil Pool Development

Through 2013 Trilogy built on the success it achieved in the previous two years with the continued development drilling of the Kaybob Montney oil pool. In 2010 through 2012, Trilogy drilled a total of 47 wells into the pool, followed by an additional 31 wells in 2013, with plans to drill and complete an additional 30 wells within the existing pool boundary in 2014. The success of the pool development is based on the application of horizontal drilling and multi-stage fracture completion techniques in a pool that had been partially delineated over the previous 10 to 15 years using vertical drilling and completion technology.

In 2013, Trilogy spent approximately $141.5 million to drill, complete and tie-in 31 wells to find 8.1 MMBoe of proved reserves and 10.0 MMBoe of proved plus probable reserves. On average, the year’s drilling and completion program added 269 MBoe of proved reserves per well (68 percent oil reserves) and 334 MBoe per well of proved plus probable reserves (67 percent oil reserves). This represents a finding and development cost of $17.47/Boe for proved reserves and $14.15/Boe for proved plus probable reserves. Over the past three years, Trilogy has only booked reserves to the 77 wells that have been drilled and competed within the Kaybob Montney oil pool, with average proved reserves per well of 310 MBoe (66 percent oil reserves) and average proved plus probable reserves per well of 388 MBoe (65 percent oil reserves).

In 2013, production from the pool averaged 11,653 Boe/d (69 percent oil and natural gas liquids production), with operating costs of $7.12/Boe and operating netback of $46.86/Boe. As of year end 2013, the pool has produced approximately 6.3 MMBbls of oil from the horizontal oil wells drilled into the pool. Under the current royalty regime, each well qualifies for royalty relief, where Crown royalties are reduced to 5 percent on the initial 80 to 90 MBoe of production. Historically, the costs of approximately $4 million to drill, complete and tie-in are usually paid out in less than one year
of production.

Production in 2013 was less than expected due to infrastructure issues at the Kaybob North Gas Plant and some issues related to the completion technique used in the wells drilled in the first half of the year. As the pool gets further developed, Trilogy anticipates that wells towards the pool boundary will have lower productivity and reserves than the initial wells drilled in the center of the pool; however such wells are expected to have rates of return in excess of 100 percent.

Trilogy has endeavoured to remove operating bottle necks and reduce downtime in the pool to ensure that production flows more consistently for 2014 and beyond. Trilogy is becoming increasingly more confident in its ability to forecast production and reduce operational issues as the base pool production grows and stabilizes with time. Trilogy has budgeted $135 million to be spent on the pool in 2014 to drill 30 additional wells and grow production to an estimated 12,000 Boe/d for the year.

 

Q1 2014 Update

During the first quarter, Trilogy drilled 16 wells to further develop the Kaybob Montney oil pool, bringing the total number of wells drilled into the pool to 96. Trilogy has completed drilling operations on 4 additional wells subsequent to the end of the first quarter and plans to drill approximately 10 additional wells into the pool following break-up, when surface conditions permit land access.  During the second quarter, weather permitting, Trilogy will endeavor to fracture stimulate and tie-in wells that were drilled earlier in the year. These wells will provide for continued production growth through the second quarter.  Production from the pool averaged 9,647 Boe/d for the first quarter (5,938 Bbl/d of crude oil and natural gas liquids and 22.2 MMcf/d of natural gas).

For the quarter, Trilogy’s operating income for the Kaybob Montney oil pool was $46.33/Boe and accounted for approximately 29 percent of the Company’s quarterly production and 39 percent of the Company’s quarterly sales revenue.  Production declined through most of the first quarter as a result of reduced capital spending in the fourth quarter of 2013, however many of the wells that were drilled in the first quarter started to come on production in March and will add to second quarter production growth.

Through 2014 Trilogy will capitalize on the investments it has made in its producing oil infrastructure over the previous three years.  Trilogy believes that these investments have provided an opportunity for the Company to grow crude oil production from this development to as much as 12,000 Bbl/d of crude oil and 30 MMcf/d of natural gas, with the production infrastructure that is in place.  

 

 

 

 

 

 

 

 

 

 

 

 

 

Q2 2014 Update                      

During the second quarter, Trilogy drilled 3 wells to further develop the Kaybob Montney oil pool prior to spring break up, bringing the total number of wells drilled into the pool to 99. Trilogy has begun its summer drilling operations and plans to drill approximately 10 additional wells into the pool in the second half of the year. Production from the pool averaged approximately 11,550 Boe/d for the second quarter (7,290 Bbl/d of crude oil and natural gas liquids and 25.6 MMcf/d of natural gas).

For the second quarter of 2014, Trilogy’s operating income for the Kaybob Montney oil pool was $55.53/Boe and accounted for approximately 32 percent of the Company’s quarterly production and 49 percent of the Company’s quarterly sales revenue.  Production declined through most of the first quarter as a result of reduced capital spending in the fourth quarter of 2013; however, many of the wells that were drilled in the first quarter started to come on production in March and added to second quarter production growth.

Throughout 2014, Trilogy will capitalize on the investments it has made in its producing oil infrastructure over the previous three years.  Trilogy believes that these investments provide an opportunity for the Company to grow Montney crude oil production from this development to as much as 12,000 Bbl/d of crude oil and 30 MMcf/d of natural gas, with the production infrastructure that is currently in place.  

Q3 2014 Update         

During the third quarter, Trilogy drilled 7 (7.0 net) wells to further develop the Kaybob Montney oil pool, bringing the total number of wells drilled for the year to 26 and the total number of wells drilled into the pool to 106. Production from the pool averaged approximately 9,690 Boe/d for the third quarter (6,138 Bbl/d of crude oil and natural gas liquids and 21.3 MMcf/d of natural gas).

For the third quarter of 2014, Trilogy’s operating income for the Kaybob Montney oil pool was $52.44/Boe as compared to $55.53/Boe in the prior quarter. Quarter over quarter production declined as there were fewer wells drilled in the second quarter to add to third quarter production volumes. Three wells drilled into the pool during the third quarter will be completed in the fourth quarter.  Three additional wells are expected to be drilled and completed in the fourth quarter and placed on production before the end of the year to partly offset production declines in the first quarter of 2015.

Production results across the pool have varied depending on Montney net pay thickness. The early performance of recent wells in the southwestern and northern areas of the pool has been encouraging and will be the focus of further development drilling in 2015.