Dr. David Winter reports

HORIZON PETROLEUM ENTERS INTO DEFINITIVE AGREEMENTS TO ACQUIRE CONCESSIONS IN POLAND

Further to its press releases dated June 23, 2017, and July 26, 2017, Horizon Petroleum Ltd. has entered into a series of definitive agreements with Dublin-based San Leon Energy PLC (SLE) regarding the purchase, from wholly owned subsidiaries of SLE and other SLE-controlled entities, of 100-per-cent interests in two oil and gas concessions in the Republic of Poland, known as Cieszyn and Bielsko-Biala (the primary concessions), plus 100-per-cent working interests in two additional oil and gas concessions in Poland, known as Prusice and Kotlarka, and another concession that is under application (together, the secondary concessions). These concessions cover 3,030 square kilometres and lie within the prolific Rotliegendes basin and Carpathian fold belt, where Horizon intends to target undeveloped conventional natural gas discoveries. Gas infrastructure in these regions is quite extensive and gas pricing is attractive; prices on the Poland Power Exchange (TGE) during 2017 have been in the range of $4.50 (U.S.) to $5.50 (U.S.) per thousand cubic feet.

The acquisition of the five concessions in Poland is a further step in Horizon's strategy to target, acquire, develop and monetize conventional gas resources in Europe. The scale of the resources is such that they are highly material to junior independents such as Horizon which have the technical and operating expertise and experience to develop the geologically complex reservoirs.

Purchase price

Horizon previously paid a non-refundable deposit of $100,000 (U.S.) and advanced a loan of $100,000 (U.S.) as part of this transaction.

The consideration for the acquisition of the primary concessions is:

1. $1-million (U.S.) in cash, less the $100,000 (U.S.) Horizon loan, for a net cash payment of $900,000 (U.S.);
2. $1-million in common shares in the capital of Horizon, based on Horizon meeting specific issuance terms; the Horizon shares are to be issued at the lesser of: (a) 20 cents per share; (b) the lowest price per share at which Horizon completes an equity placement for a minimum of $1-million, up to but not including the date of closing of the acquisition; and (c) the volume-weighted average price per Horizon share for the period of 10 trading days immediately prior to the completion date; if Horizon is unable to meet the specific issuance terms by the completion date, it will be required to pay to SLE the equivalent value of the Horizon shares in cash;
3. A 6-per-cent net profit interest.

The consideration for the acquisition of the secondary concessions is 10,000 euros per concession, plus a 6-per-cent net profit interest.

Bielsko-Biala (Lachowice) concession

Located within the Carpathian thrust-fold belt in southern Poland, the Bielsko-Biala concession occupies an area of 805 square kilometres (approximately 200,000 acres). In 1984, the Polish Oil & Gas Company (POGC) drilled the Lachowice-1 well in the southern part of the concession and encountered 184 metres of Devonian gas-bearing carbonates (no water column). By the mid-1990s, a further seven wells had been drilled on the highly compartmentalized structure and of the five that penetrated the naturally fractured carbonates and sandstones of Devonian age, all encountered gas columns and gas shows.

The Lachowice field is at a late stage of the appraisal/early stage of the development life cycle. Lachowice-1, Lachowice-7 and Stryszawa-2K are the primary wells of interest on the field, and, despite being essentially vertical in their design, showed test rates of up to 5.8 million cubic feet per day in 1986, 8.9 million cubic feet per day in 1995, and 2.5 million cubic feet per day in 1997, respectively (90 per cent to 95 per cent methane); each of these wells was drilled and tested by POGC, with reservoir depths of 3,000 metres to 4,000 metres.

Some years after completion, the wells were retested, and, despite not being remediated or acidized, they still flowed economic rates even though through suboptimal completions (cemented and perforated liners) for a naturally fractured formation. These later-cased hole tests were on Lachowice-1 by Schlumberger in 1996 (approximately 2.6 million standard cubic feet per day) and on Lachowice-7 (approximately 3.0 million standard cubic feet per day) by Apache in 1999.

A range of scalable development options exist for Lachowice, from re-entry of the existing suspended well (Lachowice-7) through to a program of multiple highly inclined wells and/or sidetracks. Horizon is targeting first production from Lachowice by the second half of 2018. Pipeline infrastructure, with ample capacity, is situated within about 10 kilometres of the Lachowice gas discovery.

Cieszyn concession

Neighbouring the Bielsko-Biala concession, the Cieszyn concession occupies a 325-square-kilometre area (approximately 80,000 acres) of the Carpathian thrust-fold belt in southern Poland. This concession has seen significant historical exploration and whilst prospectivity exists at both Palaezoic and Tertiary levels, much of the activity has focused on the relatively shallow (400 metres to 800 metres) Miocene-aged sands trapped in thrust belt structures.

Numerous gas discoveries in the Miocene-aged reservoirs have been made in and around the concession (Debowiec-Slaski, Kowale and Pogorz gas fields) and along trend in the Czech Republic (Horni Zukov, Bruzovice-Frydek, Pribor, Choryne gas fields). The quality of seismic imaging and the low exploration well cost present an attractive opportunity to define a future work program to fully evaluate this concession.

The play fairway of Tertiary-aged reservoirs trends eastward into the northern part of the Bielsko-Biala concession. This is a significantly underexplored region, compared with Cieszyn, and can be the focus of future exploration programs on the identification and testing of seismic amplitude anomalies in the prolific shallow Miocene-aged formations.

Kotlarka and Prusice (plus new application) concessions

Occupying 1,900 square kilometres (470,000 acres) within the prolific and proven Permian-aged Rotliegendes basin in southwest Poland, these three concessions lie on trend with some of the biggest and most productive gas fields in Poland. Over three trillion cubic feet of natural gas have been developed in the sandstones of the Rotliegendes formation and the carbonates of the Zechstein formation. An extensive gas production and pipeline infrastructure network with ample capacity has been built in the basin. Nearby gas fields include the Zuchlow (850 billion cubic feet), Zalecze (760 billion cubic feet), Rawicz (92 billion cubic feet), Borzecin (188 billion cubic feet), Bogdaj-Uciechow (635 billion cubic feet) and Wierzchowice (422 billion cubic feet) fields.

These concessions offer Permian exploration potential with newer seismic surveys required to help delineate numerous undeveloped discoveries/abandoned fields on the concessions themselves (including the Radziadz West, Henrykowice West and Dobrzen natural gas discoveries). The opportunity to test and evaluate newer/revised drilling practices that are widely employed in the Rotliegendes basin in the Netherlands and Germany could assist in enhancing the reservoir productivity and improve ultimate recovery.

Closing conditions

Closing of the acquisition of the primary concessions plus the secondary concessions is subject to a number of conditions, including certain approvals by the government in Poland, as well as the approval of the TSX Venture Exchange. Acquisition of the secondary concessions is further subject to the closing of the acquisition of the primary concessions. In its due diligence process, Horizon has reviewed testing and drilling performed on or around the primary and secondary concessions; however, a formal resource report is not available at this time and Horizon intends to secure such a report as part of the TSX-V approval process.

About Horizon Petroleum Ltd.

Calgary-based Horizon is focused on the appraisal and development of oil and gas reserves internationally.

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