CALGARY, ALBERTA — (Marketwire) — 08/14/12 — Sure Energy Inc. (“Sure Energy” or the “Company”) (TSX: SHR) today announced its financial and operating results for the quarter ended June 30, 2012.
The Company–s MD&A, Financial Statements and AIF can be viewed or downloaded at or .
During the second quarter of 2012, Sure Energy accomplished the following:
Areas of Activity
Plains (Redwater)
Sure Energy produced 473 BOE/d from its main core area at Redwater in the second quarter of 2012, 428 BOE/d of which was oil (90 percent). The Company drilled two 40 percent working interest horizontal wells in the area in the second quarter. These two wells, plus four other 40 percent horizontal wells and one 100 percent horizontal well that were drilled in the first quarter, did not come on production in the period. The seven wells have all now been completed and are in various stages of equipping and tie-in. Their production will impact third and fourth quarter production volumes.
The Company owns 15,885 net acres of land at Redwater. The primary target zone is the Lower Viking sand at 700 to 750 metres which produces light oil. The reservoir has relatively low permeability and is heterogeneous but produces very well when drilled horizontally and fracture stimulated. Only approximately 25 percent of the Company–s land base has been developed to date.
SE Saskatchewan
In the Queensdale area Sure Energy produced 58 barrels of oil per day (100% oil) in the quarter. This was down from the total capacity of 150 barrels of oil per day as all the Company–s wells in the area were shut-in from late March to late May because of road bans associated with spring break-up.
A characteristic of production in the area is high watercuts and management of the water is critical to the economics of the play. In the first quarter of 2012 the Company drilled a salt water disposal well at its Queensdale battery site. This well became operational in July so did not impact volumes or operating costs in the second quarter but its impact will be apparent in the third quarter. The Company is now trucking almost clean oil and injecting the produced salt water so will save around $70,000 per month on emulsion trucking costs. This will effectively half the operating costs for the area. Sure Energy has also drilled a fifth horizontal well into the property in the third quarter which it anticipates will come on production in mid August.
Sure Energy has a 100 percent owned proprietary 3D seismic program at Queensdale on which it has identified a potential new pool in the Mississippian Alida formation. A vertical exploration well to evaluate this prospect will cost approximately $450,000 and if successful would prove up a pool of similar size to the one the Company is currently developing.
Virginia Hills
Sure Energy produced 225 BOE/d from its Virginia Hills property in the second quarter of 2012. On June 28, 2012 the Company sold all its Beaverhill Lake rights and associated production in the area for $9 million. The Beaverhill Lake play was deemed by management to be too expensive at $5 to $6 million per well and too risky for a company of Sure Energy–s size. The Company established a position in the Virginia Hills area in early 2011 to evaluate the potential of the regional Viking in the area, and included no Viking rights in the sale.
The regional Viking section at Virginia Hills is oil bearing and depositionally analogous to that at Redwater but is up to twice as thick. It has never been drilled horizontally. Sure Energy believes that a horizontally drilled well fractured multiple times would produce at economic rates similar to its project at Redwater. The Company is currently in the process of applying for approval to drill a well to evaluate the play, but has had to apply “non-routine” due to an objection from one of the native bands in the area. This could result in the well being delayed to late fourth quarter or first quarter 2013. The Company owns 9.5 sections of approximately 50 percent working interest land and three sections of 100 percent working interest land in the core area of the play.
Hatton (SW Saskatchewan)
The Company produced 46 barrels of oil per day from its heavy oil discovery well at Hatton in the quarter. This well has produced approximately 12,200 barrels of oil since it came on production in November of 2011 and realized an operating netback of $36.76 in the second quarter of 2012, despite depressed heavy oil prices in the period.
The Company purchased 6,400 acres of additional acreage on the play at Crown landsales in the second quarter based on the interpretation of a 2D seismic grid, some of which is proprietary data. The Company plans to drill one development well and two exploration wells, which will evaluate some of the newly acquired acreage, prior to the end of the year.
Other Properties
The Company produced 399 BOE/d from its properties in the Peace River Arch, Southern Plains (Chinook), Tweedie and West Central Alberta in the quarter. Most of this production is gas. The Company shut-in approximately 90 BOE/d of higher cost gas from these areas in the second quarter of 2012.
Production
Production for the period by major property is as follows:
OUTLOOK
Sure Energy is currently producing 1,250 to 1,300 BOE/d with 5 (2.6 net) wells at Redwater and one new horizontal well at Queensdale yet to come on production. The Queensdale well, which was drilled in July, produced 352 barrels of oil and 19 barrels of water over the last two days of completion operations. The well, which was swabbed approximately nine hours each day, flowed intermittently during the completion. It is currently awaiting tie-in at the Company–s Queensdale battery and is anticipated to come on production August 15, 2012. Even programming in a steep decline on the well–s initial production it is expected to materially add to the Company–s third and fourth quarter production.
At Hatton the Company has now expanded its land position and will begin the process of evaluating the project. The interpretation of a rudimentary seismic grid has identified four potential separate pools on the play and Sure Energy will begin to drill an exploration and step out drilling program to validate this interpretation. The first two wells are programmed to be drilled in late August and early September and a third well for late fourth quarter. The next step, assuming drilling success, would be to shoot a 3D seismic program to more completely image the pool. Hatton represents a significant potential upside wedge to the Company–s growth profile.
As the Company–s oil production has risen so have the associated operating and transportation costs. The Company is taking significant steps to reduce these costs as the oil production operations mature. The drilling of the salt water disposal well at Queensdale, for instance, is calculated to reduce combined corporate operating and transportation costs by $1.50/BOE or approximately 9 percent going forward.
The Company also took a pro-active step in reducing its debt by selling its Beaverhill Lake properties at Virginia Hills in the second quarter. Although the Beaverhill Lake prospect represented upside for the Company it was upside that was never likely to be realized without putting considerable stress on the Company–s bank lines. Sure Energy exited the second quarter with debt of $27.2 million and available capacity on bank and note facilities of $29.8 million.
In summary Sure Energy is progressing as an oil producer with a production base that is stabilizing with maturity. The Company has an extensive inventory of low risk development wells to drill at Redwater, with upside oil projects at Hatton and Virginia Hills Viking.
Forward-looking Information
Certain statements contained in this press release constitute forward-looking information. These statements relate to future events or Sure Energy–s future performance. The use of any of the words “could”, “expect”, “believe”, “will”, “projected”, “estimated” and similar expressions and statements relating to matters that are not historical facts are intended to identify forward-looking information and are based on Sure Energy–s current belief or assumptions as to the outcome and timing of such future events. Actual future results may differ materially. In particular, statements with respect to the Company–s Redwater property for seven wells drilled in the first and second quarters to come on stream in the third and fourth quarters. Expected timing of impact of the salt water disposal well drilled on the Company–s Queensdale property and the amount of emulsion trucking fees that will be saved and impact to operating costs for the area; the timing for a fifth horizontal well on the Queensdale property to come on production; expected impact of a successful exploration well in the Mississippian Alida formation at Queensdale; the Company–s belief that horizontally drilled and frac–d wells at its Virginia Hills property will produce at economic rates; plans and expected timing for drilling a “non-routine” horizontal well at Virginia Hills; planned drilling of one development well and two exploration wells at the Company–s Hatton property; statements in the section “Outlook” related to the timing for the horizontal well drilled in July at Queensdale to come on production and impact to third and fourth quarter production; the timing for drilling three wells at Hatton and impact of the area to the Company–s growth profile and the combined operating and transportation costs savings from the salt water disposal well at Queensdale are forward looking information. Sure Energy–s Annual Information Form and other documents filed with securities regulatory authorities (accessible through the SEDAR website ) describe the risks, material assumptions and other factors that could influence actual results and which are incorporated herein by reference. Sure disclaims any intention or obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws.
Use of BOEs
In this press release the calculation of barrels of oil equivalent (BOE) is calculated at a conversion rate of 6,000 cubic feet (Mcf) of natural gas for one barrel (bbl) of oil based on an energy equivalency conversion method. BOEs may be misleading particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Sure Energy Inc. is a publicly traded oil and gas exploration and development company listed on the Toronto Stock Exchange under the symbol “SHR”.
Contacts:
Sure Energy Inc.
Mr. Jeff Boyce
Chairman and CEO
(403) 410-3100
(403) 410-3111 (FAX)
Sure Energy Inc.
Mr. Chris Baker
President and COO
(403) 410-3100
(403) 410-3111 (FAX)
Sure Energy Inc.
Mr. Lance Wirth
Vice President, Finance and CFO
(403) 410-3100
(403) 410-3111 (FAX)