Arsenal Energy Outlook
With the recent strengthening of oil prices, Arsenal's field revenue should
continue to be strong. Volumes in the second quarter will be negatively impacted
by weather conditions in North Dakota where localized flooding and power outages
have resulted in significant production downtime for all operators, including
Arsenal. Volumes should return to full capacity in Q3. Operating costs in Q2
will be higher than Q1 due to the production issues in North Dakota and to a
pipeline break in northern Alberta that has forced Arsenal to truck sales oil at
Evi.
Small operators like Arsenal generally rely on windows to execute programs. The
tight equipment environment in North Dakota has been exacerbated by bad weather.
Fracs for Arsenal's Brenlee and Amy Elizabeth wells are in line for a window but
bad weather continues to delay the scheduled dates. As soon as the Brenlee well
is fraced, Arsenal will schedule the drilling of the Gjoa Lynn well. In addition
to Arsenal's operated wells, before yearend Arsenal anticipates participating in
4 non- operated wells in North Dakota with an average WI of approximately 15%.
At Rennie Lake, North Dakota, Arsenal has approximately 2500 net acres
prospective for the Bakken. Industry has drilled a number of wells surrounding
Arsenal's block. Area operators have formed drilling spacing units including
lands in which Arsenal has an interest. Arsenal anticipates receiving operating
notices on these lands over the next twelve months.
Arsenal has a drilling program planned for eastern Alberta in Q3. Four vertical
Mannville wells are planned at Provost, two horizontal wells in the Leduc are
planned at Chauvin and Edgerton, and one horizontal is planned in the Glauconite
at Princess. The drills at Chauvin, Edgerton and Princess have the potential, if
successful, to open up larger development programs.
Arsenal has acquired 13440 net acres of land on the Wilrich play in the deep
basin of Alberta. Wells drilled by other operators in the play are coming on
stream at approximately 4mmcf/d of gas with 25bbls/mmcf of liquids. Arsenal is
planning to test its acreage in early 2012.
