"Our suite of mature crude oil assets continues to provide consistent and predictable base petroleum revenue as we expand our operations in
The new arrangements present an opportunity for us to drill additional wells in the second half of 2021, with the expectation that any increase in production will decrease overall royalties under the revised fiscal structure. We have budgeted to drill four wells on the Blocks prior to the end of the year at an average cost of
The long-term agreements will also allow us to evaluate deeper exploration opportunities which we have identified on our CO-1 and CO-2 Blocks. With legacy wells and new 3D seismic data from Heritage, we plan to delineate a Coora Herrera turbidite trend for future exploitation. In addition, the agreements will permit us to target zero effluent discharge by the end of 2021, which is a major Company-wide environmental initiative in our continued efforts to significantly reduce the environmental footprint of our operations.
We would also like to thank Heritage for engaging in collaborative renewal negotiations, and we look forward to continuing to work together as partners in the years to come."
LOA Key Terms
Minimum production and work obligations
Under the new arrangements, the Company is subject to annual minimum production levels and minimum work obligations from 2021 through 2030 specified under each LOA. Failing to reach either the annual minimum production levels or complete the annual minimum work obligations will not constitute a breach provided the minimal production levels have been attained or the minimum work obligations have been completed, as the case may be.
The LOAs contain an aggregate minimum of 20 new infill wells and 40 well recompletions to be completed over the licence periods. Similar to the previous arrangements, we will be required to provide aggregate guarantees to Heritage of approximately
Royalties
The new LOAs include favourably adjusted royalty rates to incentivize increased production from all field activities.
In addition to the crown royalty rate of 12.5 percent, the LOAs apply a sliding scale overriding royalty ("ORR") structure, which is indexed to the average price of oil realized in a production month. Base ORR rates are applicable to pre-defined monthly base production levels which decline by 2 percent per annum. For any monthly volumes sold in excess of base production levels, the Company incurs reduced enhanced ORR rates. The former arrangements allowed for new drill ORR incentives, which were reduced ORR rates applicable to production from new wells drilled in the initial two years. This concept has been replaced with the super enhanced ORR, which contemplates a further reduction in royalty rates based on increased property production from all field activities. The super enhanced ORR applies a 50 percent reduction from enhanced ORR rates for any production in excess of combined base and enhanced production levels.
In the current realized oil price band (
LOA Operations
Crude oil volumes from the properties governed by the LOAs currently comprise approximately 87 percent of our 2021 crude oil sales through
At Forest Reserve WD-8, we have identified three high-grade drilling locations on the north-west section of the property which are targeting the Lower Cruse Formation. The Lower Cruse Formation has yielded exceptional production in previous drilling campaigns, particularly following our successful 2018 drilling program. These locations are focused on targets offsetting the FR-1801 well, which to date has produced over 88,000 barrels of oil since its completion in
At Grande Ravine WD-4, Touchstone has identified five initial high-grade drilling locations, two of which target the Lower Cruse Formation at depths of approximately 8,000 feet. Located on the south side of the Los Bajos Fault, minimal development has been completed in the Lower Cruse Formation in WD-4 compared to other properties including our WD-8 Block located to the north. The remaining three prospects target the shallower Upper and Middle Cruse Formations which achieved exceptional results in our 2017 and 2018 drilling campaigns. Further development and a potential exploration program on the WD-4 Block will be evaluated as new information, including available 3D seismic data, is reviewed and interpreted.
On our Coora Blocks (CO-1 and CO-2), we have identified three development drilling locations to further evaluate the fault blocks offsetting our 1CO-369 well which has produced in excess of 249,000 barrels of oil in four years of production and is currently producing approximately 173 bbls/d. The Company is using historical well data and anticipates available 3D seismic data will help us evaluate the potential for an exploration well targeting oil in the Herrera Formation. This is the same formation that we have been pursuing on the Ortoire Block on the eastern side of the island and is on trend with the Penal-Barrackpore field which is one of the most productive onshore blocks in
Advisories
Forward-Looking Statements
Certain information provided in this news release may constitute forward-looking statements and information (collectively, "forward-looking statements") within the meaning of applicable securities laws. Such forward-looking statements include, without limitation, forecasts, estimates, expectations and objectives for future operations that are subject to assumptions, risks and uncertainties, many of which are beyond the control of the Company. Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by the words "expects", "plans", "anticipates", "believes", "intends", "estimates", "projects", "potential" and similar expressions, or are events or conditions that "will", "would", "may", "could" or "should" occur or be achieved.
Forward-looking statements in this news release may include, but are not limited to, statements relating to the Company's development plans and strategies, including anticipated well recompletions, workovers, waterflood programs and infill drilling, drilling locations, timing thereof and ultimate production therefrom; the Company's estimate of oil in place and the potential for increased recovery factors; estimated cumulative and current field production levels; the Company's expectation of reduced royalty rates based on expectations of increased production; and the Company's expected achievement of zero effluent discharge in its operations and the expected timing thereof. Although the Company believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. Certain of these risks are set out in more detail in the Company's 2020 Annual Information Form dated
SOURCE
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