Areas of Activity:
Tweedie:
Sure Energy now produces 1MMcf/d (171 BOE/d) of sweet gas from shallow Cretaceous reservoirs in this area, situated 180 kilometers northeast of Edmonton. Sure Energy holds interest in 20,600 acres of undeveloped land, a 25% working interest in the main gas plant and a working interest in the pipeline infrastructure in the area.
To maintain production at Tweedie the company intends to drill three to four wells a year in this winter only accessible area. The company anticipates its inventory of 17 gas prospects will sustain production levels from this property for the next four to five years.
Sure Energy took part in a 2D seismic shoot this winter which it hopes will firm up two more drilling sites, but did not drill any additional wells because of unfavorable gas prices.
Valhalla:
The company has produced 77 BOE/d of production from this area on the Peace River Arch during this quarter. The production is from various members of the Charlie Lake formation and is a mix of liquids rich gas and gassy oil. Sure Energy has five producing wells in the area with working interests varying from 27 to 75%.
Boundary Lake:
Sure Energy’s 10-19 Halfway well came on production in September 2008, producing into a new gas plant jointly owned by the company. The gas plant is now running at full capacity processing around 1.8 MMcf/d gross, contributing 53 BOE/d net to Sure Energy’s production levels for the existing quarter. This well is producing from a proved plus probable reserve base of 4 BCF and should show only minor declines in the early stages of production.
The company has an inventory of three higher risk/high reward prospects in the Boundary Lake area and is now actively seeking a partner to assess these prospects, in order to manage Sure Energy’s cost exposure.
Chinook:
During the quarter, the company has produced 1.8 MMcf/d (310 BOE/d) from three wells in the Chinook area. The company has one additional prospect to drill in the immediate Chinook area. This well is planned to be drilled in mid 2009.
Redwater:
Sure Energy has some minor shallow gas production in the Redwater area, but its focus has shifted to an emerging horizontal light oil play in the area. The company owns 7 3/4 sections of 100% land instantly on trend with new production in the Viking formation. This new production is from multi-leg horizontal wells, which are revealing early rates of up to 150 BOE/d.
The company’s land is counterbalanced by a short lateral horizontal well which has been producing at around 10 BOE/d since 1993 pointing out that it is accessing an indefinable large oil reserve. Sure Energy drilled its first multi-leg horizontal well adjacent to this producer late in 2008 but encountered problems whereas drilling the well. The resultant horizontal well is at present producing at 10 BOE/d from an open hole section of around 850 meters. Recent horizontal activity adjacent to Sure Energy’s land will help evaluate the upside potential of the company’s land block.
Southeast Saskatchewan:
Sure Energy owns two 3/4 sections of land on a prospective light oil fairway in Saskatchewan. After shooting a 2D line in the second quarter of 2008 to define the trajectory for a horizontal well the company became aware of major complexities in the prospect and has decided to shoot 3D prior to testing it by drilling. The prospect is nearby to prolific horizontal production in the Mississippian formation, and if it is successful could yield an inventory of seven follow-up locations.
Production:
Outlook:
Sure Energy limited its capital spending in the first quarter due to low commodity pricing, especially in natural gas. The company maintained positive working capital of CAD1.7 million at the end of the quarter and this capital along with an undrawn line of credit of CAD8.5 million gives Sure Energy the ability to act in the acquisition market. The company is at present assessing various acquisition opportunities and anticipates many more to be coming onto the market in the near future.
In spite of lower commodity pricing and much higher royalties Sure Energy is maintaining a positive cash flow. However, it does expect further softening of gas prices before any major recovery, which is not expected until later in the year.
The company views this as a time of opportunity for a small oil and gas company. Land sale prices have dropped considerably allowing the company to be more aggressive in its land acquisition strategy. Farm-in opportunities are also more available. Decreasing drilling and service company costs are allowing Sure Energy to deem more and varied drilling opportunities.
Sure Energy has CAD960,000 of flow through funds to spend on exploration prospects by year end and would like to use this capital to earn into project-based prospects, with associated land and seismic.
In summary Sure Energy will preserve its current prospect inventory, while attempting to add new prospects/projects in a cost effective manner. If the right acquisition becomes available the company is in a position to act, thereby further increasing the upside potential to be exploited when commodity prices improve.
