Core Property Overview
Zargon's activities are focused in three distinct core areas. The Williston Basin and the Alberta Plains core areas both provide the foundation for Zargon's oil exploitation business. The Alberta Plains and West Central Alberta core areas provide the base for Zargon's natural gas exploration and development businesses. Each of these businesses, while having common elements, also have distinct characteristics.
Oil Exploitation Business
Zargon's oil business is built on the exploitation of long-life oil properties that are characterized by large under-exploited volumes of oil-in-place. Zargon's oil properties are primarily located in the Williston Basin core area of southeastern Saskatchewan, southwestern Manitoba and immediately across the border in the northern counties of North Dakota. In recent years, Zargon's oil exploitation activities have expanded into the Alberta Plains core area with Taber exploitation drilling successes and with the January 2008 acquisition of the Rival Bellshill Lake property. Also, with the acquisition of the St. Anne and Morinville properties from the Newpact and Rival acquisitions, the West Central Alberta area provides some oil exploitation opportunities. The Trust utilizes reservoir engineering, three-dimensional ("3D") seismic, horizontal drilling and detailed geological mapping to identify opportunities to increase daily production volumes and to maximize the ultimate oil recoveries from this large oil-in-place resource base. The oil exploitation initiatives frequently include the implementation or modification of waterflood projects.
Natural Gas Exploration And Development Business
Zargon's natural gas exploration and development activities are concentrated in two core areas:
- The Alberta Plains core area consists of generally mature natural gas producing properties and provides the majority of the Trust's natural gas production and reserves. This existing production is predominantly operated with high working interest and produced into Zargon owned production infrastructure. This core area provides both seismically defined Mannville exploration prospects that are characterized by strong productivity but moderate reserves, and shallow decline natural gas (Viking and Mannville) down-spacing and commingling development projects that provide lower initial rates but longer reserve life indices.
- The West Central Alberta core area properties are more exploratory in nature and are located in three regions where Zargon has accumulated a considerable undeveloped land position. Capital costs for the West Central Alberta exploration wells tend to be much higher than the Alberta Plains wells, and in some circumstances, the natural gas reserves and production rates can be significant.
Zargon's natural gas exploration activities are based on geophysical and geological analysis to identify and pursue drilling opportunities on the Trust's substantial inventory of undeveloped lands. The natural gas development activities are based on lower production and more regional projects at the Jarrow, Hamilton Lake and Pembina properties and are developed when acceptable returns are available. These returns are dependent on both the commodity price and the capital cost of the development programs. Zargon's undeveloped lands are situated in large concentrated blocks and, for the most part, are accessible for all-season operations.
2008 CORE AREA STATISTICAL SUMMARY
| Alberta Plains |
West Central Alberta |
Williston Basin |
Total | |
|---|---|---|---|---|
| Production (boe/d) | 4,480 | 1,939 | 2,833 | 9,252 |
| Production growth/(decline) (percent) | 15 | 17 | (5) | 8 |
| Proved and probable reserves (mboe) (1) | 11,517 | 5,326 | 12,878 | 29,721 |
| Annual reserve growth/(decline) (percent) | 18 | 37 | 3 | 10 |
| Undeveloped land (thousand net acres) | 197.1 | 159.1 | 62.9 | 419.1 |
| Undeveloped land growth/(decline) (percent) | 54 | (3) | (8) | 16 |
| Core area cash flow ($ millions) (2) | 60.88 | 23.40 | 58.05 | 142.33 |
| Core area cash flow ($/boe) | 37.13 | 32.97 | 55.98 | 42.03 |
| Capital program ($ millions) | 65.99 | 39.58 | 13.82 | 119.39 |
| Drilling program (net wells) | 21.8 | 6.7 | 7.4 | 35.9 |
| Three-year FD&A costs ($/boe) (3) | 20.64 | 24.19 | 19.84 | 21.35 |
| Three-year core area recycle ratio (4) | 1.80 | 1.36 | 2.82 | 1.97 |
Notes:
- Proved and probable reserves are trust working interest reserves before royalties (6:1).
- The summation of the 2008 core area cash flows are $142.33 million, which compares to the Trust's 2008 funds flow from operating activities of $106.91 million. The term "core area cash flow" is defined as petroleum and natural gas revenue for a core area, net of royalties and production expenses. The term "funds flow from operating activities" is defined in the Management's Discussion and Analysis. The difference between the summation of the core area cash flows and the funds flow from operating activities is comprised of the corporate charges including general and administrative expenses, interest and financing costs, realized risk management gains/losses, corporate taxes and asset retirement expenditures.
- The reported proved and probable finding, development and acquisition ("FD&A") costs include an allowance for the change in future capital expenditures. This calculation also includes allowances for prior year reserve revisions.
- Three-year core area recycle ratio is defined as the 2008 core area cash flow per barrel of oil equivalent divided by the three-year proved and probable finding, development and acquisition costs per barrel of oil equivalent.