The Kaybob area accounted for approximately 93 percent of Trilogy’s production and 88 percent of its capital expenditures in 2010 and will continue to be the focus of 2011 spending plans and forecasted growth. Trilogy’s large portfolio of tight gas assets in this area lend themselves to continued exploitation and development using horizontal drilling and completion technology. Its large inventory of high quality drilling prospects provide Trilogy’s best opportunities to grow annual production and replace produced reserves at the lowest cost, especially given the Company’s success in applying existing drilling and completion technologies to new formations in this area. In addition the increased capital spending and production growth in the Kaybob area will be able leverage off of the substantial investment in production infrastructure that the Company has made over the years to ensure that the production is optimized at the lowest costs.
For the year, Trilogy produced 21,120 Boe/d in the Kaybob area as compared to 17,837 Boe/d in 2009. The 3,282 Boe/d increase in production can be attributed to the significant amount of capital the Company has invested in the Presley area of Kaybob and to the success of the drilling program in the rest of the area. Field operations were successful in ensuring that Trilogy volumes were not materially impacted by operational issues at the processing facilities and in minimizing production outages due to adverse weather conditions throughout the year.
Trilogy’s 2010 capital spending in the Kaybob area totaled $130.5 million for the year, excluding drilling credits and $31.5 million for completion of the Presley Pipeline and North Kaybob Sour Gas Plant expansion projects. Trilogy drilled 46 (31.4 net) wells in the Kaybob area in 2010, of which 29 (17.7 net) wells were drilled horizontally. The significant increase in capital spent during the year was due to the drilling of more horizontal wells, which were drilled both deeper and with longer horizontal wellbore segments than those in previous years. Increasing the number of stages in fracture stimulations has incrementally increased completion costs. Offsetting these additional costs was a reduction in tie-in costs and was more than offset by an 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, Bluesky, Wilrich, Spirit River and Cardium formations. In 2011 Trilogy will continue to evaluate these formations to determine which formations provide the best economic rate of return and largest development potential for the Company. Trilogy will continue to monitor horizontal drilling activity and evaluate additional formations for further exploitation.
Kaybob
Q1 2011 Update
Trilogy's drilling operations during the quarter were primarily focused in the Kaybob area, where Trilogy participated in the drilling of 18 (13.6 net) wells. Of these wells, fifteen (11.5 net) wells were successfully drilled horizontally for oil and gas production in the Spirit River (1 well), Wilrich (2 wells), Bluesky (1 well), Montney (10 wells) and Duvernay (1 well) formations. Trilogy intends to evaluate the productivity and reserve potential of these wells in order to assess the additional development and exploitation potential of its existing acreage in addition to the previously reported Montney potential. In addition to these horizontal wells, Trilogy participated in the drilling of 3 (2.1 net) vertical wells into conventional reservoirs in the Kaybob area. The well results have further supported Trilogy’s development strategy of exploiting some of its assets with vertical wells, resulting in significant production and reserve additions at lower capital costs.
Through the balance of the year, Trilogy will be performing additional technical work to evaluate the Cardium, Second White Specks, Dunvegan and Nordegg formations for development potential using horizontal and vertical wells. Trilogy believes there is significant value in understanding the resource potential of each formation, providing Trilogy with the opportunity to exploit formations that provide the greatest return for its shareholders. Trilogy’s large land base and producing infrastructure in the Kaybob area has generated a significant asset base that we believe will afford development opportunities for the next decade.
Q2 2011 Update
During the quarter, Trilogy focused drilling and completion operations on its Montney oil and gas plays in the Kaybob area, where Trilogy participated in the drilling of 8 (4.6 net) wells. Of these 8 wells, Trilogy operated the drilling of 5 (4.5 net) wells, which were all successfully drilled horizontally, resulting in 2 (2.0 net) Montney oil wells and 3 (2.5 net) Montney gas wells. Trilogy participated in 1 (0.1 net) non-operated drilling operation, resulting in a Swan Hills gas well. Trilogy farmed out its working interest for a non convertible gross over-riding royalty interest in two horizontal wells targeting Cardium and Wilrich sands. Trilogy will continue to monitor and evaluate how horizontal drilling and completion technology can be applied towards the successful development of new formations in the greater Kaybob area. Drilling and completion results from its second quarter operations have further supported Trilogy’s development strategy of exploiting crude oil and natural gas liquids rich gas plays in the area.
Through the balance of the year, Trilogy will be performing technical work to evaluate shale and tight-sand plays in the Kaybob area. Trilogy believes there is significant value in understanding the resource potential of each formation, providing an opportunity to exploit formations that yield the greatest return for Trilogy’s shareholders. Trilogy’s large land base and producing infrastructure in the Kaybob area has generated a significant asset base that we believe will afford development opportunities for the next decade.