Leucrotta Announces a Significant Increase in Production and a Material Extension to the Boundaries of Company's Lower Montney Turbidite Light Oil Resource Play
Leucrotta Exploration Inc. ("Leucrotta" or the "Company") (TSX VENTURE:LXE) is pleased to announce it has completed its infrastructure project to tie-in 4 previously drilled delineation wells and has drilled 3 additional step-out /delineation wells that materially further extend the productive boundaries of the Company's Lower Montney Turbidite Light Oil Resource Play.
As a result of the tie-in of four wells, Leucrotta has increased production to over 3,000 boepd (25% oil and ngls).This excludes two new Montney wells (8-4 and 12-06) that are tested but not tied-in and one well (13-07) that is temporarily shut-in due to third party restrictions.
Leucrotta completed the main gathering lines to connect 3 Lower Montney Turbidite wells to its plant in Q117. The Lower Montney wells are comprised of 2 wells in the oil window (8-22 and 8-18) and one in the liquids-rich gas window (13-19).
The 8-22 well was drilled and completed in early 2016 as a high GOR light oil well in the Lower Montney Turbidite Light Oil Pool and had a previously released test rate of 713 boepd (49% liquids).(1) The well was placed on production in February 2017 and had an IP30 of 671 boepd (244 boepd light oil and condensate, 2.3 mmcf/d gas and 41 boepd of ngls) (42% oil and liquids). Leucrotta's independent reserve evaluator, GLJ Petroleum consultants ("GLJ"), assigned 671 mboe of reserves to this well.
The 8-18 well was drilled and completed in Q4 2014 as a Lower Montney Turbidite well and had a previously released test rate of 371 boepd (25 % oil and liquids).(1) The well was placed on production in February 2017 and had an IP30 of 401 boepd (157 boepd light oil and condensate, 1.3 mmcf/d gas and 24 boepd of ngls) (45% oil and liquids). The material increase in oil production on the IP30 versus the initial test rates is a phenomenon that has been observed in all of Leucrotta's Lower Montney Turbidite oil wells drilled to date.
Leucrotta had originally mapped this well in the liquids-rich gas window due to the low ratio of oil /condensate in the original test but the quality of the oil (42 API) and well performance clearly places this well in the light oil window. GLJ assigned 450 mboe of reserves to this well.
The 13-07 Lower Montney Turbidite Light Oil well was put on production in 2015 and has now produced over 16 months. This well had a previously released test rate of 472 boepd (49% oil and liquids)(1), had an IP30 of 495 boepd (322 boepd light oil and condensate, 0.96 mmcf/d gas and 13 boepd of ngls), and was still producing 255 boepd (24% oil and liquids) after 16 months of production prior to being shut -in. GLJ assigned an ultimate recovery of 705 mboe to this well.
The A4-19 Upper Montney liquids-rich gas well (1% sour content) was placed on production in February 2017 through a third party facility and since that date had an IP30 of 793 boepd (12% liquids). GLJ assigned 780 mboes ultimate recovery to this well.
DRILLING EXTENSIONS AND DELINEATION OF THE MONTNEY LOWER TURBIDITE LIGHT OIL POOL
Leucrotta has recently drilled three wells that have materially extended and delineated the boundaries of the Lower Montney Turbidite Light Oil Resource Play.
The 8-4 well was drilled 5.2 km north and west of the 8-22 well noted above. The well encountered light oil in the Lower Montney turbidite zone. The well was tested over a 7 day period with an average production of 1060 boepd (524 boepd light oil and condensate, 2.9 mmcf/d gas and 52 boepd of ngls) (54% oil and liquids).(4) Given the magnitude of the step-out from the 8-22, this well materially extends the known productive boundary of the light oil field through a significant portion of Leucrotta-owned Montney acreage to the north.
A vertical stratigraphic test was drilled at 4-30 north of the Peace River. Located 7.4 km northwest of the 8-4 well, the well was logged and cored in the Upper, Middle and Lower Montney. Also high resolution logs and mud gas isotopes were collected from the complete Montney section. The well encountered 55 metres of pay in the Lower Montney with core porosities on par with the core porosities in the 13-7 well. All three northern wells (8-04, 13-07, and 4-30 have similar log characteristics with estimated average porosity of 5.5%. The 4-30 vertical well confirms the geological mapping and oil charge of a major northern extension of the Lower Montney Turbidite Light Oil Resource Play. Analysis of Upper and Middle Montney in the 4-30 wellbore are more fully described in the following section titled "Stacked Montney Zones Provide Additional Exploration and Development".
The 12-06 well was drilled 11.7 kms south of the 13-07 oil well and 4.4 kms north of the 13-19 liquids-rich gas well. The well encountered oil pay and was tested over a 7 day period with average production of 550 boepd (221 boepd light oil and condensate, 1.8 mmcf/d gas and 32 boepd of ngls, 46% oil and liquids).(4) This well confirms the mapped boundaries of the light oil window to be further south than Leucrotta had originally mapped.
The extension of the productive boundaries of the Lower Montney Turbidite Light Oil Resource Play are viewed as materially positive by Leucrotta for various reasons including:
LOWER MONTNEY RESERVES AND NET PRESENT VALUES PER WELL
GLJ recently reviewed all of Leucrotta's Lower Montney Turbidite wells in conjunction with assigning reserves for the 2016 year-end Reserve Report previously released. While there is variation of reserves assigned across the pool, given different well test rates and gas oil ratios, the average economics are compelling.
For Lower Montney light oil wells, GLJ assigned, on average, 669 mboes (32% oil and ngls) of ultimate recovery per well. Using Leucrotta's current estimated drill and complete costs (before pad development) of $3.8 million, GLJ's average production curve, and GLJ's January 2017 Price Forecast, the average Lower Montney Turbidite light oil well will generate a rate of return of 91% and a net present value (NPV10) of $7.1 million.
For Lower Montney liquids-rich gas wells, GLJ assigned, on average, 1055 mboes (21% oil and ngls) of ultimate recovery per well. Using Leucrotta's current estimated drill and complete costs (before pad development) of $3.8 million, GLJ's average production curve, and GLJ's January 2017 Price Forecast, the average Lower Montney Turbidite liquids-rich gas well will generate a rate of return of 223% and a net present value (NPV10) of $8.7 million.
Leucrotta currently owns approximately 105 net sections of land within its mapped boundaries of the Lower Montney Turbidite play. Current data suggests there are approximately 80 net sections in the oil window and 25 net sections in the liquids-rich gas window. Based on up to 8 wells per section in the oil window and 4 wells per section in the liquids-rich window, Leucrotta has a potential drilling inventory of 640 Lower Montney Turbidite oil wells and 100 Lower Montney Turbidite liquids-rich gas wells.
LOWER MONTNEY TURBIDITE ESTIMATED OOIP AND OGIP
Leucrotta has internally estimated each section in the "oil window" of the Lower Montney to contain approximately 31 million barrels of OOIP and 25 bcf of OGIP. In the "liquids-rich gas window", Leucrotta estimates there is approximately 46 bcf of OGIP per section with a liquids yield of approximately 45 bbls/mmcf.
Based on Leucrotta working interest ownership in approximately 80 net sections in the oil window and 25 net sections in the liquids-rich gas window, there is approximately 2.5 billion barrels of OOIP and 3.1 tcf of OGIP on Leucrotta's land base. This excludes condensate and ngls yields.
STACKED MONTNEY ZONES PROVIDE ADDITIONAL EXPLORATION AND DEVELOPMENT
While Leucrotta has focused its delineation drilling in the Lower Montney Turbidite, there is incremental exploration and development potential in both the Upper and Middle Montney zones on Leucrotta lands.
At Doe, Leucrotta had previously drilled the A4-19 Upper Montney well for liquids-rich gas that had a recent IP30 of 793 boepd as noted earlier. Other operators immediately offsetting Leucrotta's Doe acreage have recently drilled and tested liquids-rich gas wells in the Upper Montney with test rates exceeding 2,000 boepd.
In addition to Leucrotta's Doe acreage that is already proved productive in the Upper Montney, Leucrotta has been evaluating both the Upper and Middle Montney zones with cores, logs, and geochemical data being collected while drilling its deeper Lower Montney delineation programs. Although the Upper Montney reservoir is thinner than that found to the southwest at Tower, where it produces light sweet oil, hydrocarbon charged quality reservoir is present across Leucrotta's acreage. This reservoir has been confirmed in the cores from the 16-30 and 4-30 wells with an average core porosity of 5.4%. Logs and mud gas geochemistry collected in the Upper Montney while drilling for the Lower Montney zone, also demonstrates this additional potential for liquids-rich gas and light oil across Leucrotta's acreage.
Leucrotta believes an Upper Montney horizontal multi-frac well on its lands outside of the immediate Doe area may be economic to drill and would be a significant addition to its Lower Montney Play. Leucrotta does not have plans to drill a test well in 2017.
Leucrotta cored the middle Montney in its 4-30 vertical well. Average core porosity is 6.1% and the core fluid saturations and mud gas geochemistry indicates that it is potentially oil charged. The closest core data or production test on the Middle Montney is at Pouce Coupe, approximately 30 km away. The data is encouraging and Leucrotta's mapping indicates that the zone is present across a large portion of its acreage. A horizontal well would be considered exploratory at this point and Leucrotta has no plans to drill the Middle Montney in 2017.
COMPLETION TECHNOLOGY AND PAD DEVELOPMENT
Leucrotta has, to date, employed a consistent completion program to allow for comparison of reservoir characteristics in wells over a large geographic area. The typical well has been drilled with a horizontal leg of approximately 1,500 metres and completed with a 28-stage, 55m stage spacing, 60 tonne slickwater frac.
Leucrotta has now completed the initial delineation of the Lower Montney Turbidite and will look to optimize future completions to maximize rates and recoveries particularly in the oil window. The industry trend has been to increase the frac intensity and, in particular, increase the number of stages and the amount of sand placed per metre of wellbore to enhance well productivity. Leucrotta is currently drilling an offset to its 8-22 well and will increase to a 41 stage, 37m stage spacing 60 tonne slickwater frac. This well is expected to be completed and on-stream in early May. If successful, Leucrotta will adopt the increased frac intensity on a go-forward basis.
Leucrotta has not yet moved to pad development, but will be in a position to do so in 2017 and 2018. Pad wells have the advantage of significantly reduced capital costs per well (and increased rate of return) and there is some evidence to support a theory that pad wells in general perform better than individual wells. Leucrotta will look to drill a three-well pad in the oil window sometime in 2017 or 2018.
TAKEAWAY AND PLANT PROCESSING CAPACITY
Leucrotta currently owns and operates a 25 mmcf/d sweet gas plant at Doe and a new refrigeration unit that would allow Leucrotta to expand the sweet plant capacity to approximately 85 mmcf/d for an estimated cost of approximately $15 million. Leucrotta anticipates expanding the plant as necessary in conjunction with increased capital activity expected in 2018.
The Leucrotta plant is currently connected to the Alliance Pipeline with current firm capacity of 15 mmcf/d for 2017 and increasing to 23 mmcf/d for 2018 and 33 mmcf/d for 2019-20.
Oil and condensate are currently trucked to area terminals but growing volumes may warrant connection to pipeline in the future.
Leucrotta's gas plant and land base are also located in close proximity to the NGTL and Pembina pipeline systems, providing easier access for both gas and liquids egress.
Leucrotta had approximately $14 million of net positive working capital and no debt as at the end of February 2017 (approximately $26 million at December 31, 2016). Based on cash position and estimated cash flow, Leucrotta will be able to carry out its plans to further delineate and develop the Montney in its core area of Doe / Mica in Northeast BC and Northwest Alberta. Leucrotta estimates capital expenditures of approximately $30 million for the remainder of 2017 to continue its development of the Lower Montney. Given current commodity prices, Leucrotta estimates it will exit 2017 with annualized cash flow of approximately $25 million and net debt of approximately $5 million.
Leucrotta's Lower Montney Turbidite play has several notable characteristics that distinguish it:
SOURCE: Leucrotta Exploration Inc.
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