early focus of the Company's drilling program is to
define the heavy oil reservoir one section at a time and
attempt to initiate production from each drilled
location as soon as is practical in order to generate an
early positive cash flow.
Deep Well Oil & Gas, Inc. through its wholly owned subsidiaries, Northern Alberta Oil Ltd. and Deep Well Oil & Gas (Alberta) Ltd., has a 90% working interest in 51 sections on seven oil sands leases, an 80% working interest in 5 sections on one oil sands lease, and a 50% working interest in an additional 12 sections on two oil sands leases in the Peace River oil sands area of Alberta, all of these sections are contiguous. These nine oil sands leases cover 43,015 gross acres (17,408 gross hectares) of land. Of the 68 contiguous sections on nine oil sands leases we are the operator on 56 sections on seven leases where we have working interest ranging from 80% to 90%.
Currently we have in place joint operating agreements with two other joint interest partners to manage our joint oil sands leases, all based on the 1990 Canadian Association of Petroleum Landmen (“CAPL”) Operating Procedure. Under these agreements our joint oil sands leases were evaluated seismically, geologically and by drilling to establish the continuity and the distribution of the crude bituminous-bearing Bluesky reservoir zone across our joint lands.
During our winter drilling season of 2008/2009 we successfully completed a drilling program and met our objectives by drilling six vertical wells, three of which were drilled on our oil sands permit in order to provide technical data to support the required Alberta Department of Energy regulation to convert our 5-year oil sands permit into a 15-year primary lease. The other three wells were drilled further to the North of any of our existing wells confirming the continuation of the main reservoir trend to the northwest. These wells were drilled to a depth of approximately 700 meters each. Along with the acquisition of road infrastructure on our properties, we acquired a well on our oil sands lease that was previously drilled and cased for heavy oil production in the Bluesky reservoir zone by an unrelated third party. In addition, we have a 40% working interest in three horizontal wells, which were previously drilled by our former farmout partner and are pending further evaluation and the development of an exploitation plan with our joint interest partner. All of our exploratory wells were logged, cored and analyzed by independent expert service providers.
In September 2009, we submitted an application to the Energy Resources Conservation Board (“ERCB”) for a commercial bitumen recovery scheme to evaluate one of our wells for potential development using Cyclical Steam Stimulation (“CSS”). Over a year later in October 2010, this application was approved by the ERCB.
In July 2010 and June 2011, it was determined through two separate independent reservoir engineering firms that our exploratory wells have found sufficient quantities of heavy oil in place to justify the completion of our wells for future production. It was also confirmed that our properties are suitable for employing thermal recovery methods on them. In addition, another hydrocarbon bearing zone was identified up-hole from the Bluesky reservoir zone presently being concentrated on by our Company. This secondary heavy oil zone is in the Peace River formation. We intend to continue the development of the larger Bluesky reservoir and at the same time we intend to evaluate this newly discovered reservoir by coring future wells where they intersect this zone.
In December 2010 and January 2011, two separate independent reservoir engineering firms prepared National Instrument 51-101 (a Canadian evaluation engineering standard) compliant resource appraisal reports for one of our joint venture partners. These reports evaluated the resource of some of our Sawn Lake joint properties and included an economic evaluation of the oil sands leases in the Sawn Lake area based on using thermal recovery to exploit the resource.
In 2011, we
evaluated the options for production available to us
to determine the preferable course of action for our
Sawn Lake project. Drilling on the 90% and 80% owned
lands has opened new avenues for testing and further
development of our Sawn Lake project. We have worked
with two independent reservoir engineering companies
to prepare a reservoir modeling simulation studies to
determine the preferred method for us to develop our
reservoir. Following these reservoir models and the recommendation
of our reservoir engineers, we intend to develop a
thermal recovery project on our properties, followed by a commercial
expansion project. To further this goal in 2012, our
environmental consultants completed an Environmental
Assessment (EA) in and around our proposed thermal recovery project.
This EA is mandated by Alberta environmental regulations
before we can embark on our proposed thermal recovery project.
The development progress of our properties is governed
by several factors, such as federal and provincial governmental
We have since put together a team of reservoir, drilling and completions engineers, along with project management and environmental consultants to assist us in the development of our thermal recovery project using in-situ recovery technology.
2012, we submitted to the ERCB an application to modify
our approved CSS application. This modification seeks to change the
vertical Cyclic Steam Stimulation (CSS) earlier approved, into a thermal recovery project with test wells that use a horizontal application of CSS. It
is anticipated that regulatory approval could be received within several
months from date of filing. Our proposed thermal recovery project will be located
on the Northern half of section 10-92-13W5 and has good road access
on most of Penn West Petroleum Ltd.’s (“Penn West”)
hard packed roads. Section 10-92-13W5 is approximately
1.4 kilometers away from the nearest Penn West hard packed
road. We intend to upgrade our existing winter road to section 10-92-13W5
to an all-weather road and acquire the remaining road infrastructure
and build it as an all-weather road up to the proposed thermal recovery project
site. We intend to upgrade and or build the all-weather road to our
proposed thermal recovery project well site location during the initial phase of
the project development.