BlackPearl Resources Inc.



Contingent Resources


Oil and Gas Contingent Resources

The following tables summarize certain information contained in the contingent resource evaluations prepared by Sproule as of December 31, 2017. The reports were independently prepared in accordance with definitions, standards and procedures contained in the COGE Handbook.

It should not be assumed that the estimates of recovery, production, and net revenue presented in the tables below represent the fair market value of the Company's contingent resources. There are certain contingencies which currently prevent the classification of these contingent resources as reserves. Information on these contingencies is provided in the footnotes to the tables below. There is no certainty that it will be commercially viable to produce any portion of the contingent resources. For additional reserve and contingent resources information see the Company's Annual Information Form on our website.

An estimate of risked net present value of contingent resources is preliminary in nature and is provided to assist the reader in reaching an opinion on the merit and likelihood of the Company proceeding with the required investment. It includes contingent resources that are considered too uncertain with respect to the chance of development to be classified as reserves. There is uncertainty that the risked net present value of future net revenue will be realized.

Summary of Best Estimate (P50) Risked and Unrisked Contingent Resource Volumes - By Property (1)(2)

      Risked Volumes (4) Unrisked Volumes
Heavy Crude Oil Bitumen Heavy Crude Oil Bitumen
Project Maturity
Subclass (3)
Chance of Development (4) Gross (5) Net Gross (5) Net Gross (5) Net Gross (5) Net
      (Mbbl) (Mbbl) (Mbbl) (Mbbl)
Blackrod (6)                    
First Phase Development/
pending
94% 0 0 168,536 133,453 0 0 179,294 141,971
Future Phases Development/
on hold
77% 0 0 435,924 355,246 0 0 566,135 461,358
Onion Lake (7)                    
Thermal Development/
pending
85% 22,980 18,153 0 0 27,035 21,356 0 0
Primary Development/
pending
90% 1,038 766 0 0 1,154 851 0 0
Mooney (8) Development/
on hold
71% 11,292 9,792 0 0 15,904 13,791 0 0

Summary of Best Estimate (P50) Risked and Unrisked Net Present Values of Future Net Revenue of Contingent Resources - Development Pending(9) Subclass Only - By Property

Project Net Present Values of Future Net Revenue Before Income Taxes
Discounted at (%/year)
0% 5% 10% 15% 20%
($M)
Risked Volumes (4)          
Blackrod (6)          
First Phase 4,110,612 1,470,349 554,602 200,879 53,197
Onion Lake (7)          
Thermal 746,710 322,153 151,364 76,040 39,853
Primary 13,247 9,349 6,643 4,762 3,446
Unrisked Volumes          
Blackrod (6)          
First Phase 4,372,992 1,564,201 590,002 213,701 56,593
Onion Lake (7)          
Thermal 878,482 379,004 178,076 89,459 46,886
Primary 14,719 10,388 7,381 5,291 3,829

Project Net Present Values of Future Net Revenue After Income Taxes (10)
Discounted at (%/year)
0% 5% 10% 15% 20%
($M)
Risked Volumes (4)  
Blackrod (6)          
First Phase 2,968,580 1,032,057 361,059 105,397 1,933
Onion Lake (7)          
Thermal 542,746 231,959 106,691 51,633 25,401
Primary 9,255 6,453 4,500 3,149 2,212
Unrisked Volumes  
Blackrod (6)          
First Phase 3,158,064 1,097,933 384,106 112,124 2,057
Onion Lake (7)          
Thermal 638,525 272,892 125,518 60,745 29,884
Primary 10,283 7,170 5,000 3,498 2,458
Notes:
  1. Contingent Resources are defined in the COGE Handbook as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political and regulatory matters or a lack of markets. It is also appropriate to classify as Contingent Resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage.
  2. There are three classifications of contingent resources: Low Estimate, Best Estimate and High Estimate. Best estimate (P50) is a classification of estimated resources described in the COGE Handbook as being considered to be the best estimate of the quantity that will be actually recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. If probabilistic methods are used, there should be at least a 50% probability that the quantities actually recovered will equal or exceed the best estimate.
  3. Contingent resources are further classified based on project maturity. The project maturity subclasses include development pending, development on hold, development unclarified and development not viable. All of the Company's contingent resources are classified as either development pending or development on hold:
    • Development pending is where resolution of the final conditions of development are being actively pursued, indicating there is a high chance of development.
    • Development on hold is where there is a reasonable chance of development, but there are major non-technical contingencies to be resolved that are usually beyond the control of the operator.
  4. Chance of Development is defined as the probability of a project being commercially viable. Sproule's estimate of unrisked contingent resources have been adjusted for risk based on the chance of development (risked amounts represent unrisked values multiplied by the Chance of Development).
  5. "Gross" means the Company's working interest share in the contingent resources before deducting royalties. "Net" means the Company's working interest share after the deduction of royalty obligations. The Company has a 100% working interest at Blackrod and Mooney and the Onion Lake thermal project, and a 50 to 100% working interest at Onion Lake Primary.
  6. The established recovery technology to be used to recover the contingent resources of the Blackrod project is the SAGD process, the same process that is being used in the successful pilot that is currently being conducted within the Blackrod reservoir.
    • The contingencies in the Sproule Report associated with the Company's contingent resources for the first phase of the Blackrod project are due to (a) the absence of corporate commitment related to the final investment decision and endorsement from the Board of Directors of the Company to move forward with commercial development and a final investment decision will not likely occur for several years and (b) the estimated timing of production and development may commence beyond the reasonable time periods described in the COGE Handbook to be classified as reserves. For the contingent resources associated with the first phase of the Blackrod project, the estimated timing of first commercial production is 2024 and the estimated capital to reach first commercial production is $0.8 billion (unrisked and escalated for inflation).
    • The contingencies in the Sproule Report associated with the Company's contingent resources for the future phases of the Blackrod project are due to the following: (a) the requirement for more evaluation drilling, as required by the regulatory process, to define the reservoir characteristics to assist in the implementation and operation of the SAGD process; (b) the absence of submission of an application to expand the commercial SAGD development beyond the phase 1 project area; (c) the absence of corporate commitment related to the final investment decision and endorsement from the Board of Directors of the Company to move forward with commercial development of future phases of the Blackrod project and a final investment decision will not likely occur for several years; and (d) the uncertainty of timing of production and development of future phases of the Blackrod project. For the contingent resources associated with future phases of the Blackrod project, the estimated timing of first commercial production is 2028 and the estimated capital to reach first commercial production is $1.2 billion (unrisked and escalated for inflation).
  7. The recovery of the Company's Onion Lake contingent resources will use a combination of production processes: the established modified SAGD process for future phases of the Onion Lake thermal project, the same process that is already utilized commercially in phase 1 of the Onion Lake thermal project; and the established cold heavy oil production with sand (CHOPS) process to extend the primary development area, the same CHOPS process that has already been extensively deployed throughout the field.
    • For the Onion Lake thermal project, the contingencies in the Sproule Report associated with the Company's Onion Lake contingent resources are due to the following: (a) the requirement for more evaluation drilling to define the reservoir characteristics to assist in the implementation and operation of the modified SAGD recovery process; and (b) approvals between the Company and OLCN/OLE and Saskatchewan Energy and Resources (SER) for thermal EOR development in the lands currently leased by the Company but outside the thermal EOR development area; and (c) the estimated timing of production and development is beyond the reasonable time periods described in the COGE Handbook to be classified as reserves. For the Onion Lake thermal project contingent resources, the estimated timing of first commercial production is 2022, while the estimated capital to reach first commercial production is $61.2 million (unrisked and escalated for inflation).
    • For the extension of the primary development area, the contingencies in the Sproule Report associated with the Company's Onion Lake contingent resources are due to the following: (a) the requirement for more evaluation drilling to confirm the geological continuity of the reservoir and reduce the distance from proven productivity; and (b) the potential for the current agreements with the Onion Lake Cree Nation (OLCN), which are subject to policies and approvals by Indian Oil and Gas Canada (IOGC), required to be renegotiated due to changes imposed by IOGC. First commercial production for the primary development area has already been achieved and, as a result, estimated capital to reach first commercial production is nil.
  8. The established recovery technology to be used for phases 3 and 4 of the Mooney project is the established ASP flood process, the same process that is already deployed commercially in phase 1 of the Mooney field. The contingencies in the Sproule Report associated with the Company's Mooney contingent resources are due to the following: (a) the requirement for more evaluation wells to confirm the reservoir characteristics needed for the ASP process; (b) the absence of regulatory approvals to expand the ASP development area beyond the phase 1 and phase 2 project areas; (c) the absence of a final investment decision from the Board of Directors of the Company to move forward with the ASP flood expansion to phases 3 and 4 of the Mooney project and (d) the uncertainty of timing of production and development of phases 3 and 4 of the Mooney project. First commercial production for the Mooney ASP flood has already been achieved and, as a result, estimated capital to reach first commercial production at the Mooney ASP flood is nil.
  9. The amounts included in the Risked and Unrisked NPV of Future Net Revenue of Contingent Resources tables does not include development on hold contingent resources.
  10. The after-tax net present value of the Company's contingent resources reflects the tax burden on the properties on a stand-alone basis. It does not consider the business-entity-level tax situation, or tax planning. It does not provide an estimate of the value at the level of the business entity, which may be significantly different. The financial statements and the management's discussion & analysis of the Company should be consulted for information at the level of the business entity.
  11. The amounts included in these tables do not include the volume or net present value of the Company's proved plus probable reserves previously assigned by Sproule to these properties.
  12. The pricing assumptions used by Sroule in the determination of the NPV of the "development pending" contingent resources were the same as those used to determine the NPV of the oil and gas reserves. See "Pricing Assumptions" on page 52 of the Company's Annual Information Form.
 



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