Northern Petroleum announces progress with its low cost production in Alberta

By Stewart Dalby

Hard on the heels of the announcement that there has been movement with Northern Petroleum’s long dormant Italian Portfolio by way of a significant farm-in by Shell into one of its onshore assets there, the company has announced there has now been progress with its low-risk production- growth strategy in Canada.

Two new wells are about to come onstream one at the beginning of June and the other in Q3 2015 This is good news as it shows the AIM-quoted company is delivering, after some delays, on its planned work programme its Keg River Play in Alberta.

The production package for well 100/16-19 is ready to be transported to the well site with production to start up at the beginning of June. Start up production from the well is expected to be between 75 and 100 bopd. Also the pump on well 102/15-23 has been installed and production is expected to start at approximately 150 bopd after remedial maintenance on the pipeline by the local operator. Output is forecast to begin in Q3 2015.

This is some way sort of the 500 bopd once predicted for the end of 2014 but after promising start earlier in 2014 output became an on and off affair.
However the latest news on output is a pivotal moment for Northern as the sale of its producing assets in the Netherlands (although it helped leave the group better off with US$22 million in cash in the bank) left it with no output and thus no cash flow from production.

The new strategy involves draining overlooked or untapped reserves draining barrels from the neglected reef structure at Keg River – the existing wells watered out in the 1980s, although there has been a partial equilibrium after decades of shut-in.

Three proof of concept wells—a re-entry and two new wells early in 2014 at its Virgo field redevelopment in Alberta,– a re-entry and two new wells – were brought into production by May. These meant by July the company was producing 165 bopd .This successful three-well trial greenlit another US$6 million three-well programme, which got underway in August. The AIM company was also encouraged to triple its footprint here, increasing its mineral lease acreage for the Keg River formation from 9,300 to over 30,000 acres.

Thereafter, though, choke backs to keep tgas flaring within regulatory limits, shut – ins for pipeline work and other technical problems led to a sharp drop in output. The company has said, however, that the five wells drilled in 2014 have a total production capacity of 250 bopd at water cuts greater than 50 per cent. Establishing disposal of the produced water as economically as possible is the key to the restart of production from these wells.

Other operators in the area have demonstrated that wells can produce economically at water cuts greater than 95 per cent , so Northern should be able to get them back into business and take output up to the 500 bopd once envisaged.

Perhaps of more immediate significance, at US$55 WTI operating net back after royalty is forecast to be approximately US$30 a barrel. At current oil prices, net cash flow from both new wells is expected to cover most of the total general and admin costs for the whole group.

Moreover, having now demonstrated that the Alberta strategy is beginning to work, there is clearly still a lot to play for in the Reef Structure. So far Northern has managed to push recovery rates up from 17 to 18 per cent of the 101 million barrels of oil in place. But it is also examining plans for a secondary water flood, which the company reckons could lift recovery rates as high as 35 to 40 per cent.

Northern just a Canada play: it may have sold off its properties in the UK and the Netherlands but it still retains its interests in Italy; and as the Shell farm-in has shown there are reports of growing confidence in the political and business environment that may lead to long overdue further progress with other stalled permits in the Southern Adriatic.

Under the previous management a failure to deliver value from the company’s large Italian portfolio – not to mention the serial reserves disappointments in the Netherlands – long weighed on the share price,. The shares fell from a 52 week high of 27.38p to a low of 4.13p. They picked up on the Shell farm-in news and are now trading at 7.75p. Further progress on the Keg River development should do the £7.92 market cap company no harm.