The Kaybob area accounted for approximately 95 percent of Trilogy’s production and 94 percent of its capital expenditures in 2012 and will continue to be the focus of its 2013 spending plans and forecasted growth. Trilogy’s large portfolio of tight oil and gas assets in Kaybob lend themselves to continued exploitation and development using horizontal drilling and multi-stage completion technology. Activity in this area provides Trilogy with the opportunity to grow annual production and replace produced reserves on economic plays that have a low risk profile. Given the Company’s success in applying drilling and completion technologies to new areas and formations, Trilogy has a large prospect inventory that will be further exploited when natural gas prices improve. Trilogy also expects that it will be able to leverage off of its substantial investment in production infrastructure to minimize production disruptions and reduce costs.
Trilogy produced 31,743 Boe/d in the Kaybob area in 2012 as compared to 26,479 Boe/d in 2011. This 5,264 Boe/d increase in production can be attributed to the significant amount of capital that Trilogy has invested into the Kaybob Montney oil pool in 2012. Field operations have been faced with variable operating conditions from these high productivity oil wells, while at the same time, the production infrastructure and weather have created numerous additional challenges. It is expected that the increase in base production from this area will minimize the impact on the infrastructure for new, high productivity wells and that the operational challenges will be reduced in the future.
In Kaybob, Trilogy’s 2012 capital expenditures totaled $325 million. Trilogy drilled 70 (45.2 net) wells in this area during the year, of which 68 (44.2 net) wells were drilled horizontally. The increase in the number, depth, length of horizontal sections and the number of fracture stimulations in these wells resulted in a significant increase in capital expenditures as compared to previous years. Offsetting these additional costs were reductions in tie-in costs, reduced drilling times and, more importantly, a substantial increase in Trilogy’s production levels and reserve assignment.
Most of the horizontal drilling in the Kaybob area has been focused on the Montney formation. However, horizontal wells were also used to evaluate the development potential of the Duvernay, Notikewin, Dunvegan and Cardium formations. In 2013, Trilogy will continue to evaluate prospective formations to ensure that capital is allocated to drilling opportunities which are expected to provide the best economic rate of return and the largest development potential for the Company. Trilogy will also continue to monitor horizontal drilling activity and evaluate additional formations for further exploitation.