Prior to the installation of the second compressor, the company’s Kaybob production was tempered throughout January as only its first compressor unit was operational. As a result, for the three months ended March 31, 2009, Orleans Energy’s corporate average daily production was 4,181 barrels of oil equivalent (boe) per day. However, the corporate average production yield for the two-month period of February and March 2009 approximated 4,600 boe per day, with a commodity weighting of 81% natural gas and 19% light gravity crude oil and natural gas liquids (NGLs). Orleans Energy’s Kaybob Montney production base contributed about 3,000 boe per day or 65% to this two-month period average daily output.
In the first quarter of 2009, the company successfully drilled two net horizontal Montney gas wells at Kaybob. The 100% working interest wells were drilled from a common lease pad on section 11-60-19W5M allowing for minimal surface lease disturbance and expedited tie-in subsequent to application of the Packers Plus completion technology. Multi-stage, sequential well bore fractures of 140 and 160 tonnes of total sand displacement over seven and eight stages were performed, respectively. The wells were placed on-stream on April 16 and 18, 2009 at strong rates. During the period between production start-up and the shut-down of the KA gas plant discussed hereafter, the wells average flush production rates, net shrinkage, were about 3.3 million cubic feet (mmcf) per day (624 boe per day including associated NGLs) and about 3.6 mmcf per day (690 boe per day including associated NGLs), respectively. Both wells are anticipated to receive substantial benefit from the March 3, 2009 announced government of Alberta new well incentive program, which provides for a maximum 5% royalty rate on new well production generated through to March 31, 2010.
At Kaybob, on April 24, 2009, Orleans Energy’ Montney production was temporarily disrupted as part of the previously disclosed, planned maintenance turnaround at the KA gas plant. This major maintenance turnaround is expected to curtail Orleans Energy’ Kaybob production for a period of up to four weeks.
The company is actively progressing with the installation of the strategic, Orleans Energy-owned Kaybob pipeline. Notwithstanding “spring break-up” weather conditions and the level of complexity associated with both river and creek boring operations, the company has made significant strides with the installation of the 18.2 kilometer pipeline project (“Kaybob K3 Pipeline Project”). To recap, the Kaybob K3 pipeline project is designed to transport up to 75 mmcf of natural gas per day directly from Orleans Energy’ 10-22-60-19W5M compression facility site to the midstream-operated Kaybob South #3 gas plant facility (K3 gas plant) located at 3-15-59-18W5M. The K3 gas plant is significantly underutilized with nameplate design of 675 mmcf per day and throughput of only about 240 mmcf per day.
Financially, the Kaybob K3 pipeline project provides Orleans Energy with significant operating cost savings as the processing fee structure at the K3 gas plant is presently lower than the current processing fees charged at the KA gas plant. Additionally, the pipeline would eliminate the current pipeline fee charged to the company by an area operator. Moreover, Orleans Energy expects to generate pipeline transportation revenue from partner working-interest owners and potential third-party utilization.
Operationally, the Kaybob K3 pipeline project provides access to a new pipeline system with lower operating pressures and an under-utilized gas plant functioning at lower inlet pressures, therefore providing for improved operating conditions. The company will also possess the ability to transport and process gas volumes to either the KA gas plant or the K3 gas plant, thereby minimizing downtime during plant turnarounds and unscheduled plant shutdowns.
Strategically, the Kaybob K3 pipeline project facilitates unimpeded, long-term development of Orleans Energy’s extensive Montney asset base through direct control and ownership of a strategic pipeline. Orleans Energy currently holds 28 sections (25.5 net) of Montney rights within the heart of the Kaybob Montney fairway. On March 16, 2009, the company received regulatory approval to drill five wells per section on 25 sections (22.5 net) with no interwell distance restrictions, thereby providing for enhanced reserves recoveries and economic development of the Triassic Montney formation. As a result, the company’s Kaybob multi-year drilling inventory is expected to expand to over 100 operated horizontal drilling locations. Incidentally, Orleans Energy has only five sections of land where it has production from three wells per section on reduced spacing.
