Pembina Cardium
Introduction
The Pembina Cardium field was discovered in 1953 and is now the largest conventional light oil field in Canada, currently covering 755,000 acres. This mature field has been historically exploited through infill drilling and waterflooding and has recently been further revitalized through the application of horizontal drilling and multi-stage frac technology.
As one of the largest, long-term players in the Pembina field, Bonterra has been on the forefront of successfully developing this play. The Company drilled the first successful Cardium Horizontal multi-stage fractured well in the Halo area of the Pembina field. The enormous resource potential, encouraging results and robust economics provide significant upside to the Company going forward.
Geology
The reservoir is a stratigraphic trap producing from the Cardium formation at a depth of 1,200 to 1,850 meters that contains neither bottom water nor a free gas cap. The Cardium formation consists of interbedded sandstone and shale which is capped in some areas with an effective higher permeability conglomerate. The Cardium sandstone is generally thicker, has higher porosity, lower permeability and therefore contains more of the original-oil-in-place than the conglomerate. The Cardium formation also exhibits a preferential southwest to northwest stress orientation that controls flow direction of fluids and hydraulic fracture orientation and therefore must be taken into account when selecting well locations in the Cardium.
Economic vertical well production has historically been obtained in the main part of the Pembina Cardium pool and consists of clean, well-sorted sandstones which may or may not have had an effective conglomerate cap. Bonterra focused its initial horizontal development in the area surrounding the main part of the reservoir in what is referred to as the “Halo” area – an area in which vertical wells have been uneconomic to drill.
The Halo area consists mainly of extensively bioturbated, interbedded sand units that may have a thinner upper component of well sorted sandstone and generally does not have more than a thin inactive veneer of conglomerate overlying the formation. The application of the multi-stage fracture technology in the Halo area has allowed a portion of the reservoir that was once considered uneconomic to be actively developed into producing reserves.
Land Base
Bonterra is the third largest land owner in the Pembina Cardium field with approximately 160 gross (117 net) sections of Cardium mineral rights. This includes 27.5 gross (23.0 net) sections in the Halo area and the adjacent Willesden Green field. The Halo area land holdings are particularly significant at this time as all Bonterra’s wells have been drilled in this area and have experienced virgin pressures with no water production from waterflood.
Bonterra’s lands in the main part of the Pembina Cardium reservoir are generally underdeveloped when compared to other operators in the field who have typically drilled the Cardium down to 40 acre spacing (16 wells per section). Bonterra has over 1,000 gross additional vertical locations on existing lands if drilled to this spacing and the Company is currently evaluating converting at least some of these potential vertical locations to horizontals.
Drilling and Completion
Bonterra has applied conventional horizontal drilling technology to maximize the amount of Cardium reservoir accessed in each lateral leg. Depending on the well location, surface locations are chosen which both minimize the environmental footprint as well as optimize the section of the well for the area spacing requirements and future pumping equipment. Intermediate casing is set one meter into the Cardium sand which allows the lateral to begin traversing the sand from the top to find the most optimal placement within the sand according to area geology and reservoir simulation. The utilization of best drilling practices including bit selection and hydraulics, mud system design and maintenance and directional drilling combined with experienced wellsite supervision are key factors in achieving operational success. In 2009, Bonterra drilled eight (gross) horizontal wells averaging 1,220 meters in horizontal length without operational failure. The ongoing drilling target is to achieve between 1,200 to 1,300 meters of lateral length in each well.
Reserves
The Pembina Cardium field represents Canada’s single largest conventional petroleum reservoir with an immense volume of original-oil-in-place estimated at over 7.8 billion barrels with an average recovery to date of approximately 17 percent. These original-oil-in-place and recovery numbers do not include the large Halo area.
Approximately 89.2 percent of the Company’s Proved plus Probable (P+P) reserves and 84.6 percent of
Total Proved (TP) reserves are assigned to the Cardium. Bonterra’s reserves are very stable and its reserve life index at 14.2 years on a TP basis and 20.1 years on a P+P basis is one of the longest in the Canadian energy sector.
A total of 2.2 million BOE on TP basis and 6.6 million BOE on a P+P basis of reserves net to the company have been assigned to 28.1 net (34 gross) horizontal Cardium wells in this year’s reserves report. Reserves as high as 145 MBOE on a TP basis and 250 MBOE on a P+P basis have been assigned in our independent engineering evaluation.
Reserves assigned varied for each well and was dependent upon the geology, development in the area and production history. Since there is minimal production history and the development in the Halo area is intentionally located beyond existing Cardium pool production to reduce the possibility of depletion and water production, reserves could only be assigned to a limited number of horizontal well locations at this time as per NI 51-101 standards. Once additional drilling is completed and additional production history is available, additional reserves could be assigned. Management believes that geological information indicates that the undeveloped lands that have not been assigned reserves have similar characteristics to currently producing lands to which reserves has been assigned.
A reserves simulation was conducted by Bonterra’s independent engineering firm as part of the 2009 reserve evaluation. The simulation was based on limited production history conducted on the east portion of the Company’s Halo area lands and indicated that lands could be developed at four wells per section without a reduction in reserves assigned for each well. Additional drilling density of up to seven wells per section was shown to result in a reduced recovery per well of 17.5 percent but still resulted in significant increased total reserves and an increased recovery factor.
Capital Development
Subject to commodity prices and regulatory and royalty policy, Bonterra is planning to drill approximately 20 to 30 gross horizontal Cardium wells in 2010. The majority of the horizontal wells will be in the Halo area. The Company has identified up to 65 gross (60 net) potential additional Cardium horizontal locations presently not included in the independent engineering evaluation based on drilling at four wells per section on Halo lands with no reserves currently assigned for a total of 99 gross wells (88 net wells).
Bonterra will also conduct some drilling in the main portion of the pool with the objective of converting some of the 1,000 gross potential vertical wells to horizontal locations.
