PROPERTY DISCUSSIONS
Bonterra has an excellent asset base consisting of long life, low risk and predictable reserves with upside, and management that has proven it can manage these high quality assets to generate long-term value. The Trust’s producing properties are located in the Pembina area of Alberta, the East Central area of Alberta, the Dodsland and Shaunavon areas in southwest Saskatchewan, and the southeast area of Saskatchewan. In 2005 Bonterra added quality properties in the Shaunavon area of southwest Saskatchewan and the Peck Lake area of west central Saskatchewan. Bonterra’s reserves and production growth will come primarily from internally generated exploitation and drilling programs with predictable results on existing properties. The Trust will continue to acquire exploration and development lands in the Pembina area of Alberta, and pursue other drilling opportunities in Alberta and Saskatchewan. The Trust will be reviewing and assessing strategic producing and non-producing properties for acquisitions on an ongoing basis in various areas in Western Canada.
Pembina Area, West Central Alberta
The Pembina field is the largest conventional oil field in Canada and contains the Trust’s most significant producing property. Pembina is Bonterra’s largest core area representing 77.8% of the Trust’s total reserves. This production is predominately predictable, long life, low decline, and high quality light oil from the Cardium formation that is located at a depth of approximately 1,550 meters.
Bonterra operates approximately 87 percent of its production which allows for significant operating efficiencies. The property contains approximately 360 gross (290 net) operated producing wells with an 80 percent average working interest and 145 gross (24 net) non-operated producing wells with an approximate 17 percent average working interest.
This large land holding and strong infrastructure position provides a strong base to exploit a range of low risk development and exploration opportunities. Even though the Pembina area is considered a mature field it is proving to be a significant area for multi-zone oil and natural gas exploration with predictable results. The Trust has managed to increase reserves in the area through optimization and drilling as well as through key acquisitions. As a result, Bonterra has one of the longest Reserve Life Index’s and a proven record of production and reserves replacement through drilling and revisions.
The Trust’s large drilling inventory has enabled it to increase production volumes. A Cardium infill drilling program was initiated on Bonterra’s non-operated properties in 2003 and has continued successfully through 2005. The Trust conducted a small operated Cardium infill program in late 2004 with results that exceeded expectations. An expanded Cardium drilling program was initiated in the fall of 2005 and will continue for a few years. The results of the expanded drilling program met expectations even though there has been a delay in getting a considerable number of wells on production because of weather and availability of services.
Bonterra has the potential to significantly increase the value of its Cardium oil from additional infill density drilling and CO2 flooding which will allow growth of its existing asset base. Most operators in the Pembina area have been reducing well spacing to 40 acres; whereas, Bonterra is generally reducing its spacing to 80 acres. There is significant uncertainty over the economic feasibility of enhanced oil recovery using CO2 to increase production from the Cardium formation; however, public information from ongoing pilots is encouraging. The Trust has a large land base that may be suitable for CO2 enhanced oil recovery and will continue to investigate its potential development.
Bonterra is also producing from the Belly River formation. The Belly River produces high quality light sweet oil from a depth of approximately 1,100 meters. There is potential to increase production from the Belly River formations through drilling in select areas of the field.
Bonterra has been able to increase natural gas production and reserves by drilling multi-zone shallow gas wells into the Edmonton and Paskapoo formations. The Trust is targeting several productive sands that range in depth from 275 to 850 meters. Bonterra has been able to significantly increase its shallow gas land base in 2005 and will capitalize on this in 2006 with an expanded drilling program. Bonterra expects to build on its previous exploration success and add to our reserve base by developing these low risk shallow gas reserves.
Bonterra has been assessing production of natural gas from coals (NGC) in the Pembina area for a period of four years with encouraging initial results. Based on these results, Bonterra had hoped to proceed with a program of re-entering existing wells and drilling new wells to further assess the NGC potential. Due to regulatory delays and uncertainty by regulators, Bonterra has delayed this project until all regulatory concerns are rectified. Bonterra has extensive prospective land holdings near existing operated infrastructure in the area. NGC has the potential to add significant low risk production and reserves and the Trust will continue to pursue this opportunity.
Dodsland Area, Southwest Saskatchewan
The Dodsland properties produce light sweet gravity oil and solution gas from the Viking formation at a depth of approximately 700 meters. Bonterra now operates approximately 425 gross (374 net) wells with an average working interest of 88 percent.
This is low rate stable production so cost control and hedge programs are important focuses of the operating strategy in this area. The Trust is continually reviewing different operating practices and improved technology that may improve the profitability of the property. Bonterra does not have an abandonment or reclamation liability for the majority of this property because under terms of an agreement Bonterra has an option to transfer uneconomic wells to the previous owner of the property.
Southeast Saskatchewan
The southeast properties produce slightly sour high gravity oil and solution gas primarily from the Midale formation. The Trust has an average working interest of approximately 98 percent in the area. Bonterra continues to evaluate this area to determine if further optimization programs may increase overall profitability of the properties. Some of these properties are located close to fields that have extensive CO2 flood programs; and therefore, in the future may be conducive to reserve and production increases from a CO2 flood program.
Shaunavon Area, Southwest Saskatchewan
Bonterra operates this major producing property which consists of 56 producing wells in the Shaunavon area of southwest Saskatchewan where the Trust’s working interest averages approximately 94 percent. The properties are located in the Whitemud and Chambery fields and produce 22 degree API crude oil from the upper Shaunavon formation located at a depth of approximately 1,500 meters. A portion of the property is being produced under waterflood with the majority of the properties still on primary production. The primary production areas are being monitored on an ongoing basis to determine if water flood programs should be initiated. The wells in the Shaunavon area generally have a very long life and stable low decline production profile after a short period of higher decline when a new well initially commences production.
The Trust is continuing to assess its undeveloped acreage to determine if there are potential exploration or development prospects in the area.
Peck Lake Area, West Central Saskatchewan
The Peck Lake property is a 100 percent owned and operated shallow gas property located in west central Saskatchewan with four producing gas wells. The property was brought on production in late November 2004, and is performing to expectations. The Trust will be looking to expand in this area to maximize the value of its operated infrastructure.
Other
Bonterra has varying interests in other producing and non-producing properties in various other areas of Alberta and Saskatchewan. Most of these properties are long term producers and may provide opportunities for increased interests in the future.
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