AWE Provides Major Upgrade to Sugarloaf Reserves & Resources

Source: 5/20/2014, Location: North America

AWE Limited has increased its booked Reserves and Contingent Resources for the Sugarloaf Area of Mutual Interest (“AMI”), located in the Eagle Ford unconventional shale play in Texas, USA, following an independent appraisal and report prepared by DeGolyer & MacNaughton. The Sugarloaf AMI covers a number of leases totaling approximately 24,000 acres and AWE holds a 10% working interest (approximately 2,400 acres).

Managing Director, Bruce Clement, said that Sugarloaf is a well-managed growth asset that had consistently delivered excellent production performance and significant upgrades to AWE’s Reserves and Resources over the past three years. “

- Sugarloaf continues to be an outstanding investment for AWE, providing strong cash flow and generating more than 90% of its revenue from liquids production.
- This most recent assessment has delivered another significant upgrade to Reserves and Resources and confirms the substantially increased value of the asset, which has been reflected in recent transactions in the Eagle Ford area.

“We have booked an additional 7.7 million BOE in 2P Reserves alone, which is greater than AWE’s total annual forecast production for FY 2013/14 of between 5 and 5.5 million BOE. In addition, the report has identified 13.2 MMBOE in 2C Contingent Resources in the Austin Chalk that could be developed over the next few years,” Clement said.

The Operator, Marathon Oil, has signalled an aggressive drilling campaign for the remainder of 2014 calendar year with more than 100 wells planned for the Sugarloaf AMI. AWE has approved expenditure to drill 48 wells before the end of June.

Clement said, “Eagle Ford wells drilled in 2013-2014 are outperforming the Operator’s previously modelled type curves, and tighter well spacing to 40 acres and improvements to hydraulic stimulation methods are delivering higher well recovery than historical well results. We are seeing strong initial performance from the Austin Chalk wells and we expect the Austin Chalk to be developed in parallel with the Eagle Ford in coming years”.

“Pad drilling is helping to reduce drilling costs and the Operator is focused on improving efficiencies and reducing the spud to production cycle time for batch drilling of wells,” he said.

Explanations as to reasons for the reported revisions to Reserves and Contingent Resources
The revisions to the Reserves and Contingent Resources as reported above result substantially from the following new data and information:

1. An updated Eagle Ford development plan wherein AWE assumes Eagle Ford drilling will be at 40 acre well spacing rather than the previously assumed 60 acre spacing (The Operator has announced Eagle Ford drilling in certain areas at spacing as low as 30 acres);

2. Re-categorising a number of drilling locations (as between Proved Developed, Proved Undeveloped, Probable or Possible) as a result of additional wells having been drilled throughout the Sugarloaf AMI over the course of calendar 2013. (Note that under SPE-PRMS (2011) Guidelines for Shale Petroleum Resources, drilling locations are categorised as Proved, Probable or Possible based on their spacing from existing developed well locations. Proved locations contribute to 1P, 2P and 3P Reserves, Probable locations contribute to 2P and 3P Reserves and Possible locations contribute only to 3P Reserves);

3. Updated 1P, 2P and 3P type curves for four separate subregions of the AMI based on additional performance data from a larger population of producing wells and an additional year of production data. Predominantly, the revised type curves indicate higher reserves per well than was indicated by the type curves used in the previous assessment.

4. Revised economic assumptions including: a. Updated forecast costs based on recent historic costs and trends; b. Updated product pricing, with oil, condensate and NGL prices based on the NYMEX strip price for WTI oil as at the Evaluation Date, with differentials to account for product quality and regional pricing factors. NGLs are assumed to sell for one third the price of oil (previously approximately one half) on a per BOE basis. Natural gas prices are based on the NYMEX strip price as at the Effective Date for natural gas at Henry Hub, with a differential to reflect the local delivery point. 5. As at the Evaluation Date, three Austin Chalk wells had been drilled in the Sugarloaf AMI, one of which had commenced production. (Subsequently a further four Austin Chalk wells have been drilled.) The Operator is using the current phase of Austin Chalk appraisal drilling to establish the commercial viability of a full scale development of this resource. Consequently AWE has for the current assessment defined an Austin Chalk development plan assuming a 60 acre well spacing (282 locations), and categorised the majority of this area away from existing wells (263 locations) as supporting Contingent Resource rather than Reserves. DeGolyer & MacNaughton accepted this as the basis for the current assessment. This compares to the previous assessment for which DeGolyer & MacNaughton assumed 100 Austin Chalk locations all of which were ascribed Contingent Resources).

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