Corporate Divestiture
Northville/Chip Lake Area of Alberta
329 boe/d (53% liquids)
$3.3 million in annualized NOI
919.2 Mboe of PDP & TP Reserves, 1.24 MMboe of 2P Reserves
PDP RLI of 7.7 years and 2P RLI of 10.3 years
Long Life Sweet Light (37.8o API) Oil Under Waterflood
Bid Deadline: March 22, 2023 at 4:00 PM MST
West 5 Resources Inc. (“West 5”, or the “Company”) has retained Earth Horse Energy Advisors (“Earth Horse”) as its exclusive financial advisor and agent to assist with a corporate sales process. West 5’s assets are located in the Chip Lake/Northville area of Alberta (the “Property”).
Disposition Overview
- Focused company with no employees, no severance or office obligations
- 329 boe/d(1) (53% Liquids) of light (37.8o API) sweet oil producing from the Rock Creek Formation
- Operated, high working interests in the Chip Lake/Northville area of west-central Alberta
- Waterflood and well reactivations have improved production, cash flow and recovery of reserves
- Net Operating Income (“NOI”) of approximately $3.3 million per year(1)
- In November 2022, 30 e3m3/d of third-party production began being processed at West 5’s 10-29 gas plant, increasing its NOI to $441,000 in December or $5.3 million annualized
- 100% owned and operated infrastructure with a gas plant with NGL recovery
- 40 e3m3/d of firm service with TC Energy for natural gas delivery
- PDP and Total Proved reserves of 919.2 Mbbl and 2P reserves of 1.241MMboe with a RLI of 7.7 years and 10.3 years respectively
- LLR of 1.41
- Unbooked uphole potential in the Belly River and Horseshoe Canyon formations
(1) Based on the fourth quarter of 2022 Lease Operating Statements for the Property
(2) As of January 1, 2023 using Deloitte LLP’s Q1 2023 forecast pricing
(3) Based on the average of the fourth quarter of 2022
Land Summary
Northville/Chip Lake, Alberta
- West 5 holds mainly high (average 90%) working interests in a total of 30 sections (19,200 gross acres) of land in the Chip Lake/Northville area of west-central Alberta, 65 km to the east of Edson.
- 3,333 net acres of undeveloped land
- Township 52-54 Range 9-11W5
- West 5 holds working interests ranging from a 3.51% to 100% in a total of 59 wellbores. There are 18 producing unit and non-unit wells on the Property
- The majority of the production from the Property comes from vertical Rock Creek wells in the Rock Creek “T” and “V” Pools, which are under waterflood
- The Rock Creek “T” Pool has 6-12 meters of net pay
- The land has no expiry issues and is held through a section 15 continuation
Production Summary
During Q4 2022, the average net sales production from the Property was 329 boe/d, consisting of 144 barrels of oil and condensate, 31 barrels a day of natural gas liquids and 923 Mcf/d of natural gas. The oil is light, sweet at a 37.8o API.
Patriot Energy Marketing Inc. does all of the West 5 marketing based on a 30-day termination notice. West 5 has 40e3m3/d of firm service with TC Energy for natural gas delivery. There are no firm commitments on its liquids and West 5 does not have any hedges in place.
Production from the Property has increased since 2021 as West 5 has reactivated wells and the Property has responded well to the implementation of a waterflood.
West 5 has identified additional wells that are reactivation candidates.
In July 2022, some wells went down as shown in the graph below. The wells were brought back online, increasing production to previous levels.
The Property has cumulative oil production of 1.71 million barrels of oil and 38.7Bcf of natural gas.
Production from the Property peaked in September 2009 when it reached 5.1 MMcf/d of natural gas and 427 barrels of oil per day. The Property had stable production from 2018 to 2020 and started to increase in 2021 once West 5 implemented a workover program which included repairs to the water injection system, simple workovers and by performing work on its 05-13 and 10-29 gas plants.
Property Production Profile (1975 - Present)
Property Production Profile (2011 - Present)
Reserves Summary
Deloitte LLP provided an independent engineering report for the Property as at October 31, 2022, which was mechanically updated to a January 1, 2023, effective date. Deloitte estimated that the Property has remaining reserves of 919.2 Mboe on a PDP and Total Proved basis and 1.241MMboe in 2P reserves with net present values of $12.2 million on a PDP and TP basis and $13.2 million on a 2P basis at a 10% discount using the average price forecast of various consultants for Q1 2023. The probable reserves consist of probable developed producing reserves.
The Deloitte reports are available in the virtual data room to all parties that execute a confidentiality agreement.
Forecasted Production and Decline
The Property has forecasted 2022 PDP and TP production of 258 boe/d. The 2023 forecasted PDP production is less than the most recent net sales production from the Property of 318 boe/d in December 2022.
As shown in the graph below, the average forecasted annual decline from the Property is low at 8.6% on a PDP basis. The Property has a PDP RLI of 7.7 years.
West 5 has identified additional reactivation candidates and potential in the Belly River and Horseshoe Canyon formations which has not been factored in the reserves by Deloitte.
Net Operating Summary
During Q4 2022, the net operating income (“NOI”) from the Property averaged $277,020 ($3.3 million on an annualized basis). However, in November 2022, West 5 starting processing 30 e3m3/d of Sinopec Daylight Energy Ltd.’s Rock Creek natural gas and liquids production at West 5’s 10-29 gas plant via the 5-13 battery. In November 2022 and December 2022, the NOI was $421,000 and $441,000 respectively; In October 2022 the property had a loss of $31,000 due to various work overs. The Property had an annualized NOI of $3.65 million in 2022 and an operating netback of $28.43/boe.
During 2021 and 2022, West 5 completed a number of work overs on the Property. These work overs included repairs to the water injection system, pumpjack and failed bottom hole pump reactivations, and facility work relating to the 05-13 and 10-29 gas plants.
The average operating expenses of the Property in 2022 was $23.89/boe, ranging from $8.97/boe to $53.00/boe while the royalties averaged $17.77/boe or 35.78% of revenues. With the addition of the processing income the netbacks from the Property increased to an average of $27.16/boe for the last two months of 2022.
LLR Summary
As outlined in the chart below, the LLR ratio of the Property is 1.41 with deemed assets of $9,814,195 and deemed liabilities of $6,981,300 resulting in a net deemed value of $2,832,895. The property has a total of 59 wellbores.
As outlined below, the LLR of the Property has been increasing since West 5 acquired the Property. West 5 implemented a workover program which included the reactivation of wells and completed a full update of the site-specific liability assessment for the 10-29-053-10W5 gas plant which was submitted to AER at the end of January 2022 . These operations greatly increased the net deemed asset value of the Property from a negative value of 458,444 to the current net deemed value of $2.8 million, a change of approximately $3.3 million.
