2010 Key Initiatives

Alberta Plains

• Exploit primary recovery oil projects at Taber South, Bellshill Lake, Provost and Hamilton Lake. In particular, continue to develop the Taber South Mannville A pool with horizontal wells and improve reservoir vertical sweep efficiency at Bellshill Lake with vertical wells.
• Exploit secondary recovery oil projects at Taber South, Grand Forks and Hamilton Lake. In particular, rebalance and improve water injection schemes at the Grand Forks Glauconite E pool, the Taber South Mannville D and Glauconite C pools and the Hamilton Lake Viking pool. Subsequent to pool delineation, we plan to design and implement a secondary recovery scheme for the Taber South Mannville A pool.
• Finalize the Little Bow ASP tertiary recovery reservoir studies, project design and detailed cost estimates. Provided project authorization is justified, we will submit regulatory applications and prepare to award the facility construction contracts.
• Conclude the necessary completions, reservoir studies and pilot test expenditures required to evaluate the regional Viking and mid-Mannville channel gas-in-place opportunities at Jarrow and Hamilton Lake.
• Incorporate 3D seismic and material balance analyses to exploit our Jarrow Mannville gas-in-place opportunities.
• Maximize natural gas production volumes at existing properties with production optimizations, recompletions and workovers.

In 2009, Zargon spent $18.29 million of field-related capital in the Alberta Plains core area, which represented 51 percent of the $35.69 million of property cash flow generated by this area. With these expenditures, Zargon drilled 12.0 net wells, which resulted in 7.0 net natural gas wells and 5.0 net oil wells.

This core area’s field capital programs were augmented by $45.31 million of capital pertaining to the Masters and Churchill corporate acquisitions, taking the total capital program to $63.60 million, or 178 percent of the core area’s cash flow. With this expanded oil-focused capital program, Zargon increased the core area’s oil production to 1,852 barrels of oil equivalent per day, a 48 and 229 percent gain over the 2008 and 2007 production volumes, respectively. Similarly, the area’s proved and probable oil reserves increased by 49 and 161 percent over 2008 and 2007, respectively, to reach the year end reserves of 6.06 million barrels of oil.

In 2009, we continued to improve capital efficiencies in Alberta Plains by delivering a proved and probable finding, development and acquisition cost of $17.97 per barrel of oil equivalent. In particular, the Masters and Churchill corporate acquisitions and the Taber horizontal drilling program provided large gains in reserves and production.

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