1 WWW.ZARGON.CA ASP Project Update April 18, 2013 Advisory – Forward-Looking Information Forward-Looking Statements -This presentation offers our assessment of Zargon's future plans and operations as at April 18, 2013, and contains forward-looking statements. Such statements are generally identified by the use of words such as "anticipate", "continue", "estimate", "expect","forecast", "may", "will", "project", "should", "plan", "intend", "believe" and similar expressions (including the negatives thereof). In particular, this presentation contains forward-looking information as to Zargon’scorporate strategy and business plans, Zargon’soil exploration project inventory and development plans, Zargon’sdividend policy and the amount of future dividends, future commodity prices, Zargon’sexpectation for uses of funds from financing, Zargon’scapital expenditure program and the allocation and the sources of funding thereof, Zargon’scash flow and dividend model and the assumptions contained therein and the results there from, anticipated payout rates, 2012 production and other guidance and the assumptions contained therein, estimated tax pools, Zargon’sreserve estimates, Zargon’shedging policies, Zargon’sdrilling, development and exploitation plans and projects and the results there from and Zargon’sASP project plans, capital expenditures, costs and the results therefrom. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond our control, including such as those relating to results of operations and financial condition, general economic conditions, industry conditions, changes in regulatory and taxation regimes, volatility of commodity prices, escalation of operating and capital costs, currency fluctuations, the availability of services, imprecision of reserve estimates, geological, technical, drilling and processing problems, environmental risks, weather, the lack of availability of qualified personnel or management, stock market volatility, the ability to access sufficient capital from internal and external sources and competition from other industry participants for, among other things, capital, services, acquisitions of reserves, undeveloped lands and skilled personnel. Risks are described in more detail in our Annual Information Form, which is available on our website. Forward- looking statements are provided to allow investors to have a greater understanding of our business. You are cautioned that the assumptions, including, among other things, future oil and natural gas prices; future capital expenditure levels; future production levels; future exchange rates; the cost of developing and expanding our assets; our ability to obtain equipment in a timely manner to carry out development activities; our ability to market our oil and natural gas successfully to current and new customers; the impact of increasing competition; our ability to obtain financing on acceptable terms; and our ability to add production and reserves through our development and acquisition activities used in the preparationof such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed onforward-looking statements. Our actual results, performance, or achievement could differ materially from those expressed in, or implied by, these forward-looking statements. We can give no assurance that any of the events anticipated will transpire or occur, or if any of them do, what benefits we will derive from them. The forward-looking information contained in this presentation is expressly qualified by this cautionary statement. Our policy for updating forward-looking statements is that Zargon disclaims, except as required by law, any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Barrels of Oil Equivalent -Natural gas is converted to a barrel of oil equivalent (“Boe”) using six thousand cubic feet of gas to one barrel of oil. In certain circumstances, natural gas liquid volumes have been converted toa thousand cubic feet equivalent (“Mcfe”) on the basis of one barrel of natural gas liquids to six thousand cubic feet of gas. Boesand Mcfesmay be misleading, particularly if used in isolation. A conversion ratio of one barrel to six thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion ratio on a 6:1 basis may be misleading as an indication of value. The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation. Estimatedreserve values disclosed in this presentation do not represent fair market value. Discovered Petroleum Initially-In-Place (“DPIIP”) is that quantity of petroleum that is estimated, as of a givendate, to be contained in known accumulations prior to production. The recoverable portion of discovered petroleum initially in place includes production, reserves, and contingent resources; the remainder is unrecoverable. The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year.
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1
WWW.ZARGON.CA
ASP Project Update
April 18, 2013
Advisory – Forward-Looking Information
Forward-Looking Statements - This presentation offers our assessment of Zargon's future plans and operations as at April 18, 2013, and contains forward-looking statements. Such statements are generally identified by the use of words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "should", "plan", "intend", "believe" and similar expressions (including the negatives thereof). In particular, this presentation contains forward-looking information as to Zargon’s corporate strategy and business plans, Zargon’s oil exploration project inventory and development plans, Zargon’s dividend policy and the amount of future dividends, future commodity prices, Zargon’s expectation for uses of funds from financing, Zargon’s capital expenditure program and the allocation and the sources of funding thereof, Zargon’s cash flow and dividend model and the assumptions contained therein and the results there from, anticipated payout rates, 2012 production and other guidance and the assumptions contained therein, estimated tax pools, Zargon’s reserve estimates, Zargon’s hedging policies, Zargon’s drilling, development and exploitation plans and projects and the results there from and Zargon’s ASP project plans, capital expenditures, costs and the results therefrom. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond our control, including such as those relating to results of operations and financial condition, general economic conditions, industry conditions, changes in regulatory and taxation regimes, volatility of commodity prices, escalation of operating and capital costs, currency fluctuations, the availability of services, imprecision of reserve estimates, geological, technical, drilling and processing problems, environmental risks, weather, the lack of availability of qualified personnel or management, stock market volatility, the ability to access sufficient capital from internal and external sources and competition from other industry participants for, among other things, capital, services, acquisitions of reserves, undeveloped lands and skilled personnel. Risks are described in more detail in our Annual Information Form, which is available on our website. Forward-looking statements are provided to allow investors to have a greater understanding of our business.
You are cautioned that the assumptions, including, among other things, future oil and natural gas prices; future capital expenditure levels; future production levels; future exchange rates; the cost of developing and expanding our assets; our ability to obtain equipment in a timely manner to carry out development activities; our ability to market our oil and natural gas successfully to current and new customers; the impact of increasing competition; our ability to obtain financing on acceptable terms; and our ability to add production and reserves through our development and acquisition activities used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Our actual results, performance, or achievement could differ materially from those expressed in, or implied by, these forward-looking statements. We can give no assurance that any of the events anticipated will transpire or occur, or if any of them do, what benefits we will derive from them. The forward-looking information contained in this presentation is expressly qualified by this cautionary statement. Our policy for updating forward-looking statements is that Zargon disclaims, except as required by law, any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Barrels of Oil Equivalent - Natural gas is converted to a barrel of oil equivalent (“Boe”) using six thousand cubic feet of gas to one barrel of oil. In certain circumstances, natural gas liquid volumes have been converted to a thousand cubic feet equivalent (“Mcfe”) on the basis of one barrel of natural gas liquids to six thousand cubic feet of gas. Boes and Mcfes may be misleading, particularly if used in isolation. A conversion ratio of one barrel to six thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion ratio on a 6:1 basis may be misleading as an indication of value.
The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation. Estimated reserve values disclosed in this presentation do not represent fair market value. Discovered Petroleum Initially-In-Place (“DPIIP”) is that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations prior to production. The recoverable portion of discovered petroleum initially in place includes production, reserves, and contingent resources; the remainder is unrecoverable.
The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year.
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Little Bow ASP
Enhanced Oil Recovery Project
Oil rate today: 400 bpd
ASP Capital (Non Chemical): $ 60 Million
Forecast Oil Rate in 2016: 1,500 bopd
Forecast Oil Rate in 2018: 1,800 bopd
Forecast Oil Recovery: 4.9 Million Barrels
2009 Little Bow assets acquired from Masters Energy Inc.
2010 Reservoir Studies
2011 Lab Work, Facilities Scoping Studies
2012 Well workovers, Detailed Engineering,Key Equipment Orders; Reservoir Study Update
2013 Construction: Facilities and Pipelines, Chemical Supply
2014 Startup
Project Evolution
3
Little Bow Mannville “I” and “P” Pools
Little Bow ASP: Phase 1&2 Development
Little Bow
Alberta 15-18W4
Zargon Land
Zargon Wells
Zargon Land
Zargon Wells
Phase 1 Area
Phase 2 Area
Phase 1 Area
Phase 2 Area
Little Bow Mannville “P” Pool
Little Bow Mannville “I” Pool
• High Quality Upper Mannville Reservoir
• Zargon WI: 100 %
• First Production: 1974
• Mature Waterflood (initiated 1983)
• Permeability (Avg): 1,500 mD
• Depth: 3,600 ft
• Porosity (Avg.): 23%
• Phased ASP Development
What is ASP?
Contact more reservoir, and get more oil from reservoir that is contacted.
• Surfactants (Detergent): mobilizes trapped oil
• Alkali: Increases effectiveness of the surfactant
• Polymer: Thickener. Thickened water is able to contact more reservoir
Polymer “thickens” the injected fluid to increase the volume of reservoir contacted.
Injector Producer
WaterWater
Injector Producer
Polymer
Solution
IncreasedContactVolume
Polymer
Solution
IncreasedContactVolume
a) Water Injection b) Polymer Injection
RockRock
a) Water Injection:More than half of oil is “trapped”
b) Alkali / SurfactantMobilizes trapped oil
Alkali and Surfactant act together to mobilize oil trapped in the reservoir. The injected fluids must contact the trapped oil to be effective.
Water Injection
TrappedOil
Water
RockRock
Mobilized Oil
Alkali & SurfactantSolution
A dilute chemical blend (Alkali, Surfactant and Polymer) added to an existing waterflood to “scrub” out oil that waterflooding alone cannot recover
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ASP Chemical Flooding – Injection Sequence
Injection Sequence
1) ASP: A blend of Alkali, Surfactant and Polymer mobilizes trapped oil
Working Interest Capital and Chemical Costs ($ Millions)
Phases 1&2 Phases 3&4
Capital 59.8 15.6
Chemical 66.6 53.4
Little Bow ASP: Phases 1&2 and 1-4
Phases 1&2 Phases 1-4
IRR (%) 18.5 21.1
PV10 ($MM) 36.1 67.0
PI10* 0.34 0.46
F&D ($/bbl)* 25.9 23.8
Netback ($/bbl)* 52.2 53.0
Recycle Ratio* 2.0 2.2
Payout (yr) 7.2 7.9
Reserves (mbbl) 4,874 8,189
* Injectant booked as Capital
EDM Flat 85 Pricing
Zargon Net W.I.
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Upside Potential
Little Bow ASP
Undiscounted Cash Flow (Net Zargon WI - Before Tax)
-100
-50
0
50
100
150
200
250
300
350
400
450
500
550
600
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Mil
lio
ns
of
Do
lla
rs
Little Bow ASP Phases 1&2
Little Bow ASP Upside
Phases 3&4 Development
+2% DPIIP Recovery
+10$/bbl Edmonton Price
EOR Royalty Reform
Conclusions
• The number of commercial ASP projects, and industry’s experience with the technology is increasing
• Construction of Phase 1 of the Little Bow ASP Project is proceeding for 2014 startup
• Oil Recovery: 4.9 mmbbl (Phases 1&2)
• This will be the central facility in a development program encompassing multiple oil pools and providing a decade of development opportunity to Zargon