The Kaybob area accounted for approximately 90 percent of Trilogy’s production and capital expenditures in 2009 and will continue to be the focus of its 2010 spending plans. Trilogy has a large portfolio of tight-gas assets in this area that we expect will lend themselves to further exploitation through ongoing development using horizontal drilling and completion technology. These high quality drilling prospects will provide Trilogy with continued opportunities to grow annual production and replace produced reserves at lower costs.
For the year, Trilogy produced 17,838 Boe/d in the Kaybob area as compared to 18,570 Boe/d of production in 2008. The 732 Boe/d decline in reported annual production can be partly attributed to the plant turnarounds at the SemCAMS operated KA Plant in May and the Trilogy operated Kaybob North Plant in June, reducing second quarter volumes by 1,000 Boe/d (250 Boe/d for 2009). Production volumes were also reduced when the lean oil extraction unit at the SemCAMS K3 Plant was offline. The lean oil unit and related pipelines were out of service from late May until the end of August. The lean oil unit shutdown resulted in a greater heat content in the natural gas being processed through the plant, given that the liquids were left in the gas stream, and as a result, Trilogy realized a slightly higher price for the inherently liquids rich gas produced during the period.
Trilogy’s 2009 capital spending in the Kaybob area totaled $89.7 million (before drilling credits) for the year, including $15.3 million used to plan, design and procure equipment for the proposed Presley Pipeline and Kaybob North Plant projects. Trilogy drilled 25 (18.6 net) wells in the Kaybob area in 2009, of which 17 (11.4 net) wells were drilled horizontally. This increase in capital is mainly due to the added costs of drilling deeper, directional and horizontal wellbores. The additional costs incurred in drilling directional wells were partially offset by reduced tie in costs, and the incremental costs to drill horizontal wells were offset by an increase in production and reserve assignment.
Most of the horizontal drilling in the Kaybob area has been focused on the Montney formation; however we believe strongly that there are numerous other tight gas reservoirs in the area that may benefit from horizontal drilling. In 2010 Trilogy will apply horizontal drilling technology to the Bluesky, Wilrich and Spirit River formations. These tight gas reservoirs may provide opportunities for further exploitation through drilling horizontal wells on Trilogy’s existing land base. Trilogy will continue to monitor industry-wide horizontal drilling activity and evaluate additional formations for further exploitation.