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CALGARY, ALBERTA- Pearl Exploration and Production Ltd. ("Pearl" or the "Company") (TSX:PXX)(FIRST NORTH:PXXS) is pleased to provide the following operational and financial update.
Heavy oil is becoming an increasingly important component of world oil supply and Pearl has positioned itself strategically to take advantage of this shift. With a diverse portfolio of projects in heavy oil basins ranging from south-western Texas to northern Alberta, Pearl has taken advantage of low entry costs to acquire significant heavy oil resources. The use of enhanced and unconventional recovery techniques such as cyclic steam stimulation (CSS) and Steam-Assisted Gravity Drainage (SAGD), and water and polymer flooding are seen as keys to unlocking the value of these resources. Pearl is currently in the early stages of enhanced recovery pilot programs at several of the Company's fields. Successful pilots and ultimately initial development programs will prove the technical and commercial viability of our heavy oil assets and create substantial value for Pearl by converting significant portions of our large resource base into reserves.
Work continues on the advancement of the polymer flood pilot at Mooney with preliminary results from the pilot are still expected by Q1 2009. Plans for a field wide polymer flood implementation are expected to be finalized by Q2 2009 with implementation targeted as early as the end of 2009. The implementation of the waterflood continues with its initiation expected in Q4 2008 and continuing into the first half of 2009. In addition, work is underway on an increased delineation and development drilling program to extend the productive area to the west of the main field with the goals of increasing production and proven and probable reserves. We have recently installed an amine plant in Mooney to remove excess CO2 from our gas stream to allow us to ship to market without interruption to service due to non-spec gas. Due to this non-spec gas, production at Mooney was cut back for nine weeks beginning at the end of June by approximately 700 Boe/d, the majority of which is now back on
production at this time. In September, Pearl also acquired a further six sections of prospective land to the east of the Mooney main field.
In Onion Lake our Cyclic Steam Stimulation (CSS) thermal pilot continues to show promising results. We completed the first production cycle on the first well earlier this month and results were significantly above our modeled expectations. Our second well began its first steam cycle on June 20th and its first production cycle on August 11th. Production from the second well experienced some operational issues and as such we are making adjustments to our operating procedures to optimize the pilot as we progress through the second and third cycles of the pilot. The first well is expected to begin its second steam cycle later this week.
At San Miguel, steam injection at the Steam Assisted Gravity Drainage (SAGD) pilot located within the Chittim "B" Field continues as expected. Temperature and pressure monitoring of the well pair indicates that the wells have entered SAGD mode and preliminary results are encouraging.
At Saner Ranch, pilot facility construction is proceeding on schedule with all major long lead items on site and mechanical completion expected to be completed in November. The Saner Ranch pilot includes both a vertical inverted five spot well pattern and a horizontal three well pattern utilizing a modified Fracture Assisted Steamflood Technology (FAST) process. Early injection of steam into the vertical inverted five spot pattern commenced on August 28th. The three horizontal wells were drilled in 1Q08 and will be completed prior to commencement of first steam/reservoir warm-up which is expected to commence in the horizontal pattern in October. Preliminary performance results from both patterns are anticipated during the first half of 2009.
By the end of the second quarter of 2009, Pearl expects to be in a position to select which of the three recovery techniques will be used to form the basis of a commercial development project, SAGD or one of the two modified FAST techniques. In parallel with this, various commercial parameters including the supply of fuel gas for steam and potential on site upgrading is expected to be finalized during this period.
At Blackrod, the Company closed a transaction on August 20th to acquire an additional 30% working interest in 3,886 contiguous hectares of oil sands leases in the project area. In addition we, along with our partner, also acquired a contiguous block of five sections of land to the north-east of our existing land holdings. Pearl now holds a 65% interest in 20 sections in the Blackrod project area.
Pearl and its joint venture partner continue to plan to drill 10 to 15 core wells this winter to further delineate the deposit and gather additional petrophysical and reservoir fluid characteristic data. The application for the required governmental approvals of the SAGD pilot project was submitted in May 2008 and is expected to be approved sometime in the first half of 2009. As such, the SAGD thermal pilot is expected to be operational in the second half of 2009. We are working closely with our partner to expedite the necessary regulatory approvals to allow for the construction of an all-season road.
In early September we entered into an agreement to vend in all of our Palo Duro assets into Tyner Resources and take back shares (26.4% of shares outstanding). We believe this is the best way to realize on the potential value of the resources in the Palo Duro basin as our financial and technical resources are almost exclusively focused on our 4 core heavy oil properties. This transaction is expected to close in October.
Pearl has also initiated a nine well drilling program in southern Saskatchewan at the Ear Lake and Salt Lake fields which is expected to be completed in November. Production from these wells is expected to be on prior to year end.
Production is now approximately 6,000 Boe/d. We currently expect production of approximately 6,000 to 7,000 Boe/d for the remainder of the year.
Although oil prices have remained relatively strong throughout the third quarter they have declined steeply from the beginning of the quarter until now. Gas prices have also fallen significantly during the quarter. Our wellhead realized pricing for Q3 is now expected to be in the range of $85 per Boe. In comparison, average well head price in the second quarter was $79.74 per Boe and the well head price initially utilized by Pearl to establish its 2008 budget was approximately $43 per Boe.
As previously announced Pearl has increased its capital budget for the year to approximately $135 mm, up from the original budget of $61 mm. This expansion will be principally focused on: 1) Mooney with an increase to the budget of approximately $44.6 million, principally dedicated to accelerating the polymer pilot, expansion of the waterflood and related infrastructure and delineation drilling in the western portion of eastern field, 2) increase in planned expenditures in Blackrod including the acquisition of additional interests and land for $8.2 million, 3) increase to Onion Lake activities, principally related to CSS pilot of $4.6 mm, 4) increase in activities in San Miguel for $7.6 million and 5) expansion of budget for a drilling program and workover program and other capital maintenance items in our non-core areas for approximately $10 million.
Pearl President and CEO Keith Hill stated, "We are very pleased to report our continued progress in all of our core projects and we are very excited about the increase in our budget to accelerate our activities in Mooney. We strongly believe we are at the very beginning of realizing the significant embedded value of our assets for our shareholders. Although we have expanded our budget significantly for the current year we continue to be focused on maintaining a strong balance sheet and remain committed to rationalizing our non-core assets. While we are disappointed with the impact that the broader capital markets have had on our equity price we are thankful that we have put ourselves in a strong financial position precluding the need for any near term equity financing."
The Company's new corporate presentation can be viewed on the Company's website at www.pearleandp.com.
Pearl Exploration and Production Ltd. is a public company focused on converting its captured resources into reserves and becoming a substantial North American heavy oil project development company. Additional information on Pearl is available on the Company's website at www.pearleandp.com.
For further information, please contact:
Keith Hill - President and Chief Executive Officer
Tel.: (604) 689-7842
Randy Neely - Chief Financial Officer
Tel: (403) 716-4054
Sophia Shane - Corporate Development
Tel: (604) 806-3575
All references in this release to boe's are based on a 6 to 1 conversion ratio. Boe's may be misleading, particularly if used in isolation. A boe conversion 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.
Pearl's Certified Advisor on First North is E. Öhman J:or Fondkommission AB.
Forward-looking statements: This document contains statements about expected or anticipated future events and financial results that are forward-looking in nature and as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, the regulatory process and actions, technical issues, new legislation, competitive and general economic factors and conditions, the uncertainties resulting from potential delays or changes in plans, the occurrence of unexpected events, and the Company's capability to execute and implement its future plans. Actual results may differ materially from those projected by management. For such statements, we claim the safe harbour for forward-looking statements within the meaning of the Private Securities Legislation Reform Act of 1995.
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