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Pan Orient Energy Corp
Symbol POE
Shares Issued 55,084,407
Close 2019-12-02 C$ 2.52
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Pan Orient releases NI 43-101 Alta. bitumen report

2019-12-02 12:10 ET - News Release

Mr. Jeff Chisholm reports

PAN ORIENT ANNOUNCES SEPTEMBER 30, 2019 CONTINGENT BITUMEN RESOURCES FOR SAWN LAKE, ALBERTA SAGD PROJECT OF ANDORA ENERGY CORPORATION

Pan Orient Energy Corp., on behalf of its 71.8-per-cent-owned subsidiary, Andora Energy Corp., has released the Sept. 30, 2019, contingent bitumen resources report, which is a National Instrument 51-101-compliant resources evaluation for Andora's oil sands interests at Sawn Lake, Alberta, Canada, as evaluated by independent qualified reserves evaluator Sproule Associates Ltd. The evaluation included all of Andora's oil sands leases at Sawn Lake based on exploitation using steam-assisted gravity drainage (SAGD).

Highlights of Sawn Lake, Alberta, contingent resources report as at Sept. 30, 2019:

  • The resources report reflects the development plan for Sawn Lake Central and Sawn Lake South of staged development with five standardized battery-scale SAGD facilities where growth is primarily financed by cash flow generated by the project. The SAGD batteries are 5,000 to 6,000 barrels of bitumen per day (BOPD) each and utilize Andora's proprietary produced water boiler (PWB) technology which uses water from SAGD production to generate steam and meet water recycle requirements in Alberta. This strategy significantly reduces financial, reservoir and operating risk.
  • Contingent resources have been assigned to the Sawn Lake Central and Sawn Lake South blocks of Sawn Lake. The unrisked best estimate contingent resources for Andora are 227.8 million barrels of bitumen recoverable (163.6 million barrels net to Pan Orient's 71.8-per-cent interest in Andora).
  • Andora is the operator of both these blocks and holds a 50-per-cent working interest in the 11 sections of the central block, which have been assigned 149.6 million barrels of unrisked recoverable bitumen recoverable (net to Andora's interests), and holds a 100-per-cent working interest in the 16 sections of the south block, which have been assigned 78.2 million barrels of unrisked recoverable bitumen.
  • The unrisked best estimate net present value, discounted at 10 per cent, for Andora's interests are $311-million on a before-tax basis and $232-million on an after-tax basis ($223-million and $167-million net to Pan Orient's 71.8-per-cent interest in Andora respectively).
  • The resources report assigned an 85-per-cent chance of development for Sawn Lake and the risked best estimate contingent resources for Andora are 193.6 million barrels of bitumen recoverable (139.0 million barrels net to Pan Orient's 71.8-per-cent interest in Andora). The risked best estimate net present value, discounted at 10 per cent, for Andora's interests is $265-million on a before-tax basis and $199-million on an after-tax basis ($190-million and $143-million net to Pan Orient's 71.8-per-cent interest in Andora respectively).
  • The resources report forecasts bitumen production from 2022 to 2097, with maximum unrisked best estimate production net to Andora of 15,313 BOPD in 2034. The unrisked best estimate evaluation indicates that the maximum cumulative year-end financing requirement, being cumulative cash flow of operating income less capital expenditures and income tax, is $31-million in year 5 and the estimated after-tax rate of return is 33.4 per cent.
  • The first stage of Sawn Lake commercial development is reactivation of the existing SAGD facility and wellpair at Sawn Lake Central (Andora operator with 50-per-cent working interest), and expansion to install the first PWB and drill an additional wellpair at an estimated cost of $11-million net to Andora. A further expansion in the second year is for drilling of an additional three wellpairs, plus facilities work at an estimated cost of $16-million to increase Andora's share of production from 620 BOPD to 1,547 BOPD. Regulatory approval for this commercial operation was received in December, 2017.

Resources report:

  • The update of the evaluation of the contingent bitumen resources in the Sawn Lake area of Alberta of Andora Energy as of Sept. 30, 2019, by Sproule, evaluated Andora's interests at the Sawn Lake, Alberta, oil sands project. Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development for SAGD, but which are not currently considered to be commercially recoverable due to one or more contingencies. The contingent resources volumes estimated in the Sproule report are considered contingent until such time as there are additional delineation wells confirming reservoir quality and continuity, refinement of the commercial development plan, regulatory approval for full field development, corporate commitment to move forward, and financing for commercial development. Contingent resources are further classified as high, best and low in accordance with the level of certainty.
  • Sproule classifies the project evaluation status of the contingent resource volumes to be at the development studies level. The contingent resource volumes are classified as development pending with respect to project maturity. Sproule evaluated the company's development plan for the contingent resources to be economically viable in the aggregate, although there may be individual locations within the project which may be uneconomic.
  • Contingent resource volumes in the resources report have been assigned an 85-per-cent chance of development by Sproule. This chance of development risk factor is an aggregation of risk factors attributable to the identified contingencies. There is uncertainty that it will be commercially viable to produce any portion of the reported contingent resources volumes.
  • The resources report identified key positive and negative factors for development of the Bluesky formation in the Sawn Lake area. Key positive factors include the abundance of well data available from penetrations on and surrounding the company lands (petrophysical, geophysical and production history); the presence of successful analog SAGD projects; and the successful pilot project at the 16-30-91-12W5M location. Key negative factors include access to the financing required to develop the resource base; sensitivity to low commodity pricing, which will impact the economics of development; environmental and regulatory approval for approval of bitumen development, pipelines and other infrastructure; higher Alberta or federal carbon tax, income tax or royalties; and market egress.
  • The Sept. 30, 2019, contingent resources report represents an update of a June 30, 2016, contingent resources report, which was also prepared by Sproule. There is no change to the geology, the well type curves or the assigned development risk. The Sept. 30, 2019, report has been updated for:
    • The Sawn Lake development plan utilizing five SAGD batteries (instead of an industry standard central processing facility) and the resulting longer period for development and production;
    • Revised date of 2022 for the estimated commencement of commercial production;
    • Sept. 30, 2019, price forecasts for crude oil, bitumen, natural gas and exchange rates;
    • Revised estimates for capital expenditures and operating costs based on the development plan instead of industry standard costs for a central processing facility used in the June 30, 2016, contingent resources report;
    • Changes to income tax rates, carbon tax legislation and other factors;
    • The Sept. 30, 2019, contingent resources report does not assign any contingent resources to Sawn Lake North lands (where Andora is a non-operator with a 10-per-cent working interest), which had been assigned 1.6 million barrels of best estimate contingent resources in the June 30, 2016, contingent resources report.

Sawn Lake SAGD development

Andora holds interests in 78 sections (34.7 net sections) of heavy oil sands leases in Sawn Lake, within the central Alberta Peace River oil sands region. Andora is focused on developing the bitumen resources at Sawn Lake using SAGD development. Contingent resources have been assigned to the Sawn Lake Central and Sawn Lake South where Andora is the operator.

A SAGD demonstration project at the Sawn Lake Central block commenced in 2013 and consisted of one SAGD wellpair drilled to a depth of 650 metres and a horizontal length of 780 metres and a SAGD facility for steam generation, water handling and bitumen treating. Steam injection commenced in May, 2014, and produced bitumen from September, 2014, to February, 2016. The demonstration project reached a steady state production level in February, 2016, of 620 BOPD with an instantaneous steam-oil ratio (ISOR) of 2.1. The demonstration project successfully captured the key data associated with the objectives of the demonstration project and operations were suspended at the end of February, 2016. The demonstration project proved that the SAGD process works in the Bluesky formation at Sawn Lake, established characteristics of ramp-up through stabilization of SAGD performance, indicated the productive capability, ISOR, and provided critical information required for well and facility design associated with future commercial development. Production results to date are not necessarily indicative of long-term performance or of ultimate recovery and the Sawn Lake demonstration project has not yet proven that it is commercially viable.

The development plan for Sawn Lake Central and Sawn Lake South is for development in stages with five standardized battery-scale SAGD facilities where growth is primarily financed by net operating income generated by the project. After-tax cash flow in the Sproule evaluation is Andora's share of revenue less royalty burden, operating expenses, abandonments, capital expenditures and income tax. The first stage is commercial expansion of the demonstration project SAGD facility to 1,600 BOPD (3,200 BOPD gross) with reactivation of the existing facility and wellpair, installation and testing of Andora's PWB, and drilling of an additional four wellpairs. Regulatory approval was received in December, 2017, for commercial expansion of the existing Sawn Lake Central demonstration project to 1,600 BOPD (3,200 BOPD on a gross basis) using Andora's PWB. The lead time to acquiring the necessary equipment and commencing operations would be approximately 18 months and another six months is required until the start of bitumen production (after development of the steam chamber). Further stages of development include expansion to 5,000 BOPD of the first SAGD battery and then an additional four SAGD batteries which are located in the best parts of the reservoir. The timing of individual batteries is dependent on regulatory approval and after-tax cash flow from existing operations for financing of new investment.

It is recognized that stable crude oil prices, and specifically Western Canada Select benchmark prices, will have a significant impact on project economics and financing and on decisions regarding the timing and extent of future development.

About Pan Orient Energy Corp.

Pan Orient is a Calgary-based oil and gas exploration and production company with operations currently located onshore Thailand, Indonesia and in Western Canada.

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