Macro Tsimmis

intelligently hedged investment

Oilsands Quest (BQI) update #8

Posted by intelledgement on Wed, 16 Apr 08

Oilsands Quest (BQI) announced today that their 2007-2008 winter exploration program in Saskatchewan and Alberta concluded on 26 March, with a total of 175 hole drilled: 150 in Saskatchewan and 25 in Alberta. Of the 175 holes drilled, 155 were exploration and delineation holes of which 103 encountered meaningful intercepts of bitumen-bearing McMurray formation (66%). The quality of the  bitumen encountered will be determined by lab analysis, which has already begun.

Of the 125 holes drilled in the Axe Lake Discovery area, 88 were delineation holes, of which 65 encountered meaningful intercepts of bitumen-bearing McMurray formation (70%). The depths, thickness, and observed reservoir quality of the formation were consistent with previous results. The remaining 37 holes drilled in the Axe Lake Discovery area were exploration holes, of which 18 encountered meaningful intercepts of bitumen-bearing McMurray formation (49%). The successful exploration holes extend the drilled Axe Lake Discovery area from 36 to 65 square miles.

This winter marked the first time the company has drilled exploratory holes in Alberta. Of the 25 holes, 18 encountered meaningful intercepts of McMurray formation (72%) at depths of 371 to 745 feet. The thickness of the bitumen-bearing formation was observed to be between 23 and 112 feet, with a mean of 51 feet. The Alberta drilling program demonstrated continuity of oil sands characteristics extending from Oilsands Quest’s Axe Lake Discovery in Saskatchewan westward into Alberta (in close proximity to EnCana’s Borealis project). A report on the reservoir characteristics such as bitumen saturation and net pay will be released in a few months (after geophysical log data and core analysis have been completed).

Management believe their activities this past year have been successful in discovering additional reportable resources in both Saskatchewan and Alberta, and they are working with third-party evaluators to prepare updated resources reports consistent with relevant regulations.

So we know the bitumen is there. The important question now is: how expensive will it be to produce oil from it? Preparations for the reservoir field test program in the Axe Lake Discovery area began this past winter and will continue in May or June. Phase One of the Axe Lake Discovery test program projects up to three test sites (with varying overburden and pay thickness) with one vertical steam injection well and five vertical observation wells per site. Steam injection is planned for September 2008 on Test Site #1 and towards the end of 2008 on Test Sites #2 and #3 if appropriate.  The purpose of Phase One is to measure resource specific heat and fluid movement under specific operating conditions on a field scale to complement on-going simulation and laboratory analysis programs. BQI have obtained regulatory approval for Phase One.

Phase Two of the Axe Lake Discovery test program will consider expanding the three test sites with horizontal wells and/or injecting mobilization agents other than steam. Current plans call for placement of horizontal wells early next year and injection thereafter. The purpose of Phase Two is to evaluate and analyze information gathered from Phase One regarding mobilization agents and to measure field scale response using horizontal wells.

Phase Three of the Axe Lake Discovery test program is currently in the scoping phase where the options being considered range from a continued reservoir test program to a technology feasibility pilot to a full commercial demonstration project.

Four reservoir test wells have already been drilled at Reservoir Test Site #1 and ten 1,000-barrel heated liquid storage tanks are on site. Other critical components, such as test and control equipment and steam generation facilities are scheduled for delivery starting in June. BQI plan to continue construction of the test facilities on Test Site #1 in May or June and expect initial steam injection into the reservoir Test Site #1 to begin late this summer.

The recently completed 3D seismic programs in Saskatchewan and Alberta were utilized CGG Veritas’ highest quality, three-component 3D technology. The 1,053 miles of lines cut for the 3D program were low-impact and environmentally friendly. The 3D program covered over 15 square miles in Saskatchewan and 6 square miles in Alberta. The data from this program has been processed and interpretation of the data is now being completed.

This company continues to be a perfect speculative play, spending money like the US government and—in pursuit of fresh funds to spend—issuing new shares like Max Max Bialystock and Leo Bloom in The Producers. Did we mention they have no revenue whatsoever, nor prospect of any within sight? But goodness do they have potential! With oil selling for over $120/BBLS, BQI can afford to spend $60-to$80/BBLS in production and still be fabulously profitable! The big remaining questions are [a] where do they get the natural gas to fire their production process (and how much does it cost) and [b] what sort of quality will the finished product turn out to be.

This summer’s reservoir field test program won’t completely answer those questions, but it could considerably advance the ball. Stay tuned.


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