Corridor Reports on Forward Plans for McCully Development and Exploration.
The current phase of McCully development includes the planned drilling and completion of twenty more production wells over the next two and one-half years at locations identified on or near the existing 3-D seismic survey. Ten production wells have already been drilled and cased, and six of these wells have been fraced, tested and are ready for production (excluding the A-67 and P-66 wells which will continue to flow natural gas to the nearby potash mill owned and operated by Potash Corporation of Saskatchewan Inc. (PCS)). Corridor plans to drill and case four of the planned new wells this spring and summer, resulting in a total of eight cased wells being available for fracing operations planned for the fall of this year. Accordingly, a total of fourteen wells are expected to be fraced, completed and available to initiate production to the Maritimes & Northeast Pipeline (M&NP) at such time as the pipeline connection is available, expected by year-end 2006, with ten of these wells shown in yellow on the map below. Corridor expects initial production capacity for the field to be in the order of 25+ million standard cubic feet per day (mmscf/d) when production commences, assuming new wells will have results similar to previously completed and tested wells in the field.
Corridor plans to drill, frac and complete an additional sixteen production wells between the fall of 2006 and the spring of 2008 (assuming continuous drilling with one rig only), bringing the total number of production wells to thirty for the current phase of McCully development. Nine of the proposed new production wells are shown in blue on the map below, along with the currently drilling K-66 well (shown in green). Corridor expects to attain production levels in the range of 35 mmscf/d during 2008 for the current (30-well) phase of McCully development, assuming new wells will have results similar to previously completed and tested wells in the field.
The next four McCully wells are planned to be drilled and cased to the base of the Hiram Brook Formation and into the top of the Fredericks Brook shale, in order to maximize the number of wells available to be fraced this fall and to be placed on production as soon as the new McCully gas plant and pipeline facilities are commissioned. During fracing operations this fall, Corridor plans to drill a deep well to a depth of up to 3500 meters to penetrate the Fredericks Brook shale and evaluate the sands of the underlying Dawson Settlement Formation. Seismic and outcrop data suggest the structure at the Dawson Settlement level has the potential to trap and contain several trillion cubic feet of natural gas-in-place. The deep well is intended to determine if the Dawson Settlement sands are gas bearing and have sufficient reservoir quality to facilitate economic development of this massive potential resource. Forward development plans would be significantly altered in the event that the Dawson Settlement sands are gas bearing and commercially productive.
A Map of the McCully Drilling program is available at the following address:
This spring and summer Corridor is planning to undertake additional 3-D seismic surveying to the northeast and southwest of the existing McCully 3-D seismic pattern. The interpreted results of this new 3-D survey are intended to assist in locating potentially more than fifty additional new production well locations on the McCully structure (based on 110 acre spacing and additional to the thirty wells included in the current development phase). Corridor is evaluating the opportunity to operate with two or more drilling rigs in order to accelerate the longer term development of the field, potentially reaching peak production rates in the order of 80 to 90 mmscf/d in 2009 to 2010, assuming continuity of the productive Hiram Brook sand package across the structure. The gas gathering and processing facilities would need to be expanded to handle production volumes in excess of 35 mmscf/d.
Activities are continuing with regard to connecting the McCully Field by pipeline with M&NP located approximately 49 kilometers north of the field. An Environmental Assessment (EA) for the planned project was submitted for approval to the New Brunswick Department of Environment (DEnv) in December, 2005. An application was submitted in February, 2006, to the New Brunswick Public Utilities Board (PUB) for approval to construct the required pipeline along with the associated gas gathering system and gas conditioning plant. A separate application was also submitted in February to the New Brunswick Department of Natural Resources (DNR) for approval of the field development plan. M&NP have commenced the engineering design for the connection to their main pipeline near valve station 345. Pending timely receipt of the DEnv, DNR and PUB approvals, Corridor anticipates it will be in position to begin construction of the facilities this summer and to commence first natural gas deliveries through M&NP by the end of 2006.
Corridor is evaluating several proposals regarding the financing, construction, ownership and operation of the required McCully Facilities (ie, the gas gathering system, gas conditioning plant and pipeline lateral). The options include proposals from midstream companies interested in financing, constructing, owning and operating the Facilities and charging Corridor and PCS a cost-of-service for processing and transporting their gas. They also include financing proposals where financial partners are prepared to finance and own the Facilities, in which case Corridor would construct and operate the Facilities. Corridor is also evaluating the option of establishing a separate entity to publicly finance and own the Facilities. The Facilities are projected to cost approximately $42 million and, regardless of the method of financing selected, it is Corridor's objective to fund its share of the investment on an "off balance sheet" basis. Corridor will announce its decision regarding financing, construction, ownership and operation of the Facilities once arrangements are completed, expected to be later in the spring.
Corridor and PCS are in discussions as to whether or not PCS will participate in financing and ownership of the Facilities. Such ownership would be expected to be based approximately on PCS's percentage share of total natural gas produced (initially) for processing and transport through the new McCully Facilities.
Except for those volumes sold to local customers in the McCully area, Corridor intends to sell its share of McCully gas to a third party at the connection point with M&NP. Subject to finalizing a gas sales contract, Corridor plans to sell its share of McCully gas for a two-year initial term, with pricing based on major indices in the northeast USA (related to NYMEX) minus M&NP tariffs for both the US and Canadian sections of the M&NP system. Prices for gas volumes sold based on firm delivery are expected to benefit initially from pre-paid but underutilized capacity on the M&NP system.
Corridor will require additional capital of approximately $40 million to finance the planned 3-D seismic program, the four Hiram Brook wells, the deep Dawson Settlement well and the eight-well frac stimulation program, assuming no participation by PCS in these activities. Corridor intends to raise the capital required to fund 2006 expenditures through an equity financing, possibly in two stages, and expects to fund drilling and completion activities in 2007 and beyond out of McCully cash flow and bank lines of credit.
Beyond the current development (Hiram Brook) and exploration (Dawson Settlement) objectives within the area of the McCully structure, Corridor has numerous other exploration targets within and adjacent to the sub-basin containing the McCully structure. These additional prospects include targets for natural gas (and in some cases oil) within both the Hiram Brook and Dawson Settlement formations, and are located to the south, and northeast of the McCully structure. Corridor has identified potentially large shale gas development opportunities on its lands in the general McCully area. Additional exploration targets for both gas and oil have been identified in the Millstream sub-basin located to the north of the McCully Field and along the route of the McCully pipeline lateral and on lands held 100% by Corridor. Corridor is eager to explore these prospects, some of which appear to have similar structural and trapping characteristics to the McCully Field. Following commencement of production to M&NP, Corridor intends to divert a portion of its cash flow to selectively drilling and testing some of these prospects.
Corridor is a junior oil and gas exploration and production company, headquartered in Halifax, Nova Scotia, with interests onshore in New Brunswick, Prince Edward Island and Quebec, and offshore in the Gulf of St. Lawrence.
Forward Looking Statements
This press release contains certain forward looking statements relating to, but not limited to, Corridor's operations, anticipated financial performance, business prospects and strategies, including expectations relating to production levels; capital expenditure programs; the quantity of natural gas reserves; projections of market prices; projections of costs; supply and demand for natural gas; expectations regarding the ability to raise capital and to continually add to reserves through exploration and development; treatment under governmental regulatory regimes; and expectations regarding the regulatory approval and construction of the necessary midstream facilities to connect the McCully Field to the M&NP.These statements are based on current expectations that involve numerous assumptions regarding factors and risks that could cause actual results to vary materially, including, without limitation to, the following factors: risks may not be insurable, dependence on key personnel, conflicts of interest, management of growth, government regulation, competition, risks associated with oil and gas exploration, financial risks, history of losses, expiration of licences and leases, relationship with PCS, Kyoto Protocol, environmental, prices, markets and marketing, issuance of debt, availability of drilling equipment and access, reserve estimates, title to properties and uncertainty of global financial markets. There is no representation by Corridor that actual results achieved will be the same in whole or in part as those set out in the forward looking information.Furthermore, the forward looking statements contained in this press release are made as of the date hereof, and Corridor undertakes no obligation, except as required by applicable securities legislation, to update publicly or to revise any of the included forward looking statements, whether as a result of new information, future events or otherwise.
The TSX Venture Exchange has neither approved nor disapproved the information contained herein.
Corridor Resources Inc. (TSX VENTURE:CDH)