Results for the Trilogy operated horizontal well program in the Presley area of South Kaybob in 2010 were very encouraging. Since Trilogy began developing the Montney pool at Presley using horizontal drilling techniques in 2008, Trilogy has continuously improved its knowledge and expertise in this area, increasing the length of its horizontal wellbores and the number of fracture stimulations per well. Total measured depth of the wells drilled has increased from 3,500 m to up to 4,500 m, while the horizontal section has increased from 700 m to 1,700 m. The number of fracture stimulations per well has increased along with the lateral length of the wellbore, from 7 fracture stimulations in the early wells to as many as 22 fracture stimulations in recent wells. Spacing between fractures has decreased from 150 m to approximately 75 m. These developments are expected to increase the recovery factor and accelerate production, ultimately increasing the recoverable reserves per well and potentially reducing Trilogy’s overall capital spending by reducing the number of wells per section required to effectively recover all of the reserves. Montney horizontal wells currently cost approximately $4.0 million to drill and complete.
As each additional horizontal Montney well is drilled, the risks associated with locations on undeveloped lands are further reduced. Trilogy holds approximately 50 net sections of land in the Presley area, and given an estimate of 10 to 15 Bcf of gas per section, Trilogy estimates there to be 500 - 750 Bcf of gas in place on Trilogy lands in the Montney formation. The Company has developed a plan to exploit the Montney tight gas pools at Presley over the next 10 to 15 years, which could increase natural gas production to as much as 150 MMcf/d from this area. To date, well results have been better than forecasted and Trilogy is anticipating reserve bookings of approximately 3 Bcf of natural gas plus 30 Bbl per MMcf of natural gas liquids per well. If recoverable reserves exceed this estimate, Trilogy would reduce the number of wells per section to exploit the reserves, resulting in reduced capital spending and providing better economics for the project. Reserve bookings for the Montney have been limited to the 26 wells drilled and completed as of December 31, 2010. Based on the nature of the pool and the low risk development opportunities associated with infill drilling, each horizontal Montney well could add 600 MBoe of reserves. Assuming capital costs of $4 million to drill, complete and tie-in each well, the unrisked cost of finding and development per well is a very attractive $6.67 per Boe. In addition to attractive finding and development costs, the Presley gas production will be transported and processed through Trilogy-operated facilities and will show a significant reduction in operating costs to approximately $5.00 per Boe. Given the high initial production and lower operating costs, these wells have an estimated payout that is approximately six months at current commodity prices.
Regulatory approval to produce up to five horizontal wells per section has been granted for certain Montney lands within the Kaybob area. Trilogy estimates that it has an interest in 50 (43.6 net) contiguous sections of prospective land in the Presley area. The number of drilling locations Trilogy has available will be determined, in part, by the drilling density to maximize economic recovery. Trilogy will continue to evaluate the economics of increasing downspacing from 3 to 5 wells per section over the next few years, while at the same time trying to maximize return by drilling longer reach horizontals and increasing fracture density on each well. Subject to receiving regulatory approval for further downspacing, these parameters would suggest 150 - 250 locations specifically for the Montney formation in the Presley area, of which 26 have been drilled prior to the end of 2010 and approximately 15 of which will be drilled in 2011.
Trilogy completed construction of the Presley Pipeline and Kaybob North Sour Gas Plant expansion projects in the third quarter 2010. Operational and safety checks were conducted and the projects were commissioned during the first week of October, allowing for Presley natural gas production to flow through the new Pipeline to the expanded Plant during the first week of the fourth quarter.