BlackPearl Resources Inc.



Blackrod, Alberta


KEY FACTS

 

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Working interest100%
Land 40,960 net acres
2P reserves 182 MMbbl (Dec. 31, 2013)
2C resources 566 MMbbl (Dec. 31, 2013)
API 9° API
Pilot Production 211 barrels per day (Q1 2014)
Depth 300 metres
Formations Lower Grand Rapids
Production Potential     80,000 barrels per day



Blackrod is a 100% owned in situ (SAGD) oil sands project located south of Fort McMurray, in the Athabasca oil sands region of northern Alberta. BlackPearl initially acquired, through Crown land sales, a 35% working interest in the Blackrod lands in 2007. In 2008 and 2009, the Company increased its working interest to 80% as a result of acquiring interests from its arms-length partners. In 2010, BlackPearl acquired the remaining 20% interest in the Blackrod lands and became the operator of the project. In 2013, BlackPearl acquired 10 sections (6,400 acres) of oil sands leases and permits contiguous to its existing oil sands leases. BlackPearl holds oil sands leases and permits on approximately 64 sections (49,060 acres) of land in the Blackrod area.

The geological formation of interest is the Cretaceous Lower Grand Rapids at a depth of approximately 300 metres. The Lower Grand Rapids formation is a shoreface sand which was deposited in a broad coastline setting. This depositional setting allowed for a large, regionally consistent reservoir. The Lower Grand Rapids reservoir sand ranges in thickness from 8 to 28 metres. Bitumen saturation is between 50% and 75%. The Lower Grand Rapids is stratigraphically equivalent to known producing reservoirs in the Sparky, General Petroleum and Rex intervals within the Manville Group.

In 2009, the Company filed an application with regulatory authorities to undertake a single well pair SAGD pilot on the property. The purpose of the pilot was to demonstrate the use of SAGD technology to produce bitumen from the Lower Grand Rapids on the Blackrod lands. The pilot data was used to better understand the reservoir deliverability and optimum operating methods. The Company's SAGD recovery scheme was approved by the ERCB in late 2010. The horizontal well pair was drilled in the fourth quarter of 2010 and construction of facilities commenced shortly thereafter and was completed in the spring of 2011. Steam injection was initiated in June 2011 and following a warm-up period, the well was converted to SAGD operation in September 2011. The pilot consisted of a single SAGD horizontal well pair, water source and disposal wells, observation wells, water monitoring wells and a central facility consisting of water treatment and steam generation equipment and other associated facilities. In order to access the lands, BlackPearl acquired an existing logging road in the area and upgraded the road to facilitate oil and gas operations. The road is approximately 31 kilometres and runs from Highway 63 to the central facility site. Non-potable water to generate steam comes from the Grosmont formation. Emulsion (raw crude bitumen and water) produced from the pilot is trucked from the central facility location to third party oil processing facilities and pipeline terminals.

In 2012, production from the 700 metre long pilot well reached 400 Bbls/d with a steam oil ratio (SOR) of approximately 3. The pilot was shut-down in May 2012 for facility inspection and well-servicing. When the well was brought back on production in June 2012 we began testing alternate operating strategies in an effort to better understand the optimal way to operate these wells and to potentially incorporate these strategies in the final commercial development design. During 2013, the pilot well produced an average of 236 Bbls/d.

In 2012 we applied for and received approval from the ERCB to expand the pilot. In 2013, we drilled a second pilot well pair, two observations wells and modified the existing processing facilities. The second well pair was drilled slightly deeper in the reservoir and was drilled longer than the original pilot well pair, with the horizontal section of the well reaching approximately 950 metres. We commenced steam injection in the second well pair during the fourth quarter 2013 and we expect to convert the well pair to SAGD operation during the first half of 2014. The objective of the second well pair is to continue to refine some of our operating strategies, including well start-up procedures, steam distribution and sand control methods.

In May 2012, BlackPearl filed an 80,000 Bbls/d commercial development application with the ERCB and Alberta Environment for its Blackrod SAGD Project in northern Alberta. In 2013, BlackPearl responded to two rounds of supplemental information requests from the ERCB and Alberta Environment. Regulatory approval for similar types of projects by other companies has typically taken 18 to 24 months. The project is expected to be developed in phases. The first phase of this project is planned for 20,000 Bbls/d. The Company completed a front end engineering design ("FEED") for the first phase of the project and commenced detailed engineering design before the Company made the decision to develop the Onion Lake thermal project prior to commercially developing Blackrod. BlackPearl expects to commence the first phase of commercial development at Blackrod within the next five years. Timing is dependent upon, among other things, oil and natural gas prices, anticipated capital and operating costs and the Company's ability to finance the construction of the project. The timing of the development of future phases has not been established.

The bitumen quality at Blackrod ranges from 8° to 10° API. The viscosity of the bitumen ranges from approximately 150,000 centipoise at the top of the reservoir, increasing with depth to greater than 1,000,000 centipoise. Two major sales oil and diluent pipeline systems are in close proximity to the Blackrod lands.

Blackrod is located in a designated oil sands region and BlackPearl has received approval for oil sands royalty treatment for the Blackrod pilot. The Government of Alberta's royalty share from oil sands production is price-sensitive. The royalty range applicable to price sensitivities changes depending on whether the project's status is pre-payout or post-payout. "Payout" is generally defined as the point in time when a project has generated enough net revenue to recover its costs and provide a designated return allowance. The base pre-payout royalty rate starts at 1% of gross revenue and increases for every dollar that the world oil price, as reflected by the WTI crude oil price in Canadian dollars, is priced above $55 per barrel, to a maximum of 9% when the WTI crude oil price is $120 per barrel or higher. The post-payout royalty rate is based on net revenue -- it starts at 25% and increases for every dollar the WTI crude oil price is above $55 per barrel to a maximum of 40% when the WTI crude oil price is $120 per barrel or higher. Specified capital and operating costs may be deducted to arrive at net revenue for this calculation. Additional regulatory approvals will be required when we initiate commercial development of Blackrod.

As at December 31, 2013, Sproule assigned 182 million Bbls of proved plus probable reserves (BlackPearl's working interest, before royalties) to the pilot operations and the first phase of commercial development of the project. In addition, Sproule has assigned 566 million Bbls of contingent resources (best estimate) to the remainder of the Blackrod SAGD Project.  



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