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The Kakwa-Resthaven area is situated approximately 75 kilometres south of Grande Prairie in west central Alberta. Among other zones of interest, the area is prospective for condensate-rich natural gas in the deep, over-pressured fairway of the Montney formation, at a depth of approximately 3,100 metres to 3,600 metres. Questerre’s wells are currently targeting one of three prospective intervals in the Upper Montney formation. Economics are enhanced by relatively high liquids content, particularly condensate, and Crown royalty incentives for new deep horizontal gas wells with initial royalty rates of up to 5%.
Questerre currently holds 19,040 (11,000 net) acres in the area, including a 100% working interest and operatorship of 8,320 net acres. In addition, the Company holds a further 24,320 net acres in the Wapiti area, approximately 20 miles to the northwest also prospective for the Montney formation.
Initial development of the Montney focused on areas of dry gas or relatively low liquids of approximately 25 bbls/MMcf in British Columbia. With changes in the natural gas market, activity shifted to target sweet spots where natural gas liquids rates are higher. With test rates from its wells as high as 200 bbls/MMcf, the Company’s acreage is in one of the sweet spots of this liquids-rich fairway. More importantly, liquids from these wells are mainly condensate which retains a premium to light oil and liquids prices because it is used as a diluent for heavy oil production in Alberta.
Questerre participated selectively in additional wells drilled on the joint venture acreage in 2016.
During the third quarter of 2016, the operator of the Company’s joint venture acreage completed three wells. These wells include the 03-18-63-5W6M well (the “03-18 Well”), the 06-18-63-5W6M well and the 04-16-63-6W6M well. Questerre only elected to participate in the completion of the 03-18 Well and holds a 25% working interest in this well. Including the 16-20-63-5W6M well, Questerre has participated in two out of six wells drilled on the joint venture acreage in 2016.
The 03-18 Well was tied in and placed on production in early August. In its first month of production from the Montney formation, gross sales volumes from the well averaged 2.9 MMcf/d of natural gas and 563 bbls/d of condensate and other liquids (1,046 boe/d). Although the initial results from the 03-18 Well are encouraging, these results are not necessarily indicative of long term performance and ultimate recovery.
The operator also expanded field infrastructure with the acquisition of a regenerative amine sweetening system and construction of a water storage facility. The amine sweetening system, with a design capacity of 60 MMcf/d and up to 1 tonne of sulphur per day, will replace the non-regenerative chemical sweetening process and should lower operating costs. The water storage facility will temporarily store produced water and will be used for future completion operations. This should replace rental storage equipment and reduce water procurement and hauling costs for subsequent completions.
For 2017, the operator has proposed a gross capital budget of approximately $100 million including 8 new wells and further infrastructure expansion. Questerre intends to participate in this capital program, subject to commodity prices and continued results.