Reef Resources has a clear growth strategy focused on the exceptional price metrics of enhanced oil recovery (EOR) through injected natural gas, a proven technology within the global industry currently being exploited by REE in advanced form to great effect at their primary interests in Southern Ontario.
The company currently holds a very healthy 71.4% WI on some 1,800-acres of development land in Lambton County as its primary site accessing the Ausable pinnacle reef (312-acre footprint alone). A quantifiable resource play, identified out of a massive proprietary 23.5k-acre 3D seismic database on the Ontario Basin acquired along with the property in 2003, has led to geophysical and petrophysical driven discovery of an estimated 8.9M barrels of oil and natural gas (Stock Tank Original Oil In Place; Nutech Energy Alliance, Houston, Texas). The entire region is renowned for patch/barrier reef type complexes rich in Silurian age hydrocarbons and a number of support targets in the main Guelph oil/NGL formation offer compelling longer term benefits for the natural gas recycling EOR program.
By jacking up the reservoir pressure through injecting natural gas, production and recovery values are significantly increased as the reef is energized, granting not only stable output rates due to stabilized pressurization, but also a three-fold to six-fold jump in overall output potential. The injected gas is then recycled through the formation, comingling with natural gas liquids (NGLs) in a process which also offers build up of exceptional resource structure mapping data over time. The resulting liquid-saturated gas that comes out as up pipe production is then reprocessed via onsite refrigeration units, resulting in saleable propane, ethane, and condensates, with the remaining dry gas pumped back into the reef.
With gas storage rights that could even be sold in the future (once depleted, estimated storage capacity of three billion cubic feet), contributing to both the EOR implementation and the company's ability to ride seasonal price/demand movements, the company's Southern Ontario interests represent a tangible growth vector that investors should compare to similar EOR schemes in Western Canada which yielded 80% resource recovery rates, resulting in attractive shareholder ROI. Initial production levels and solid EOR reservoir communication has essentially validated the company's Q1/Q2 2013 goal of around 550 or more barrels per day, with the Airport Reef and three to four additional Silurian complex reefs (discovered within company-owned 3d seismic database) under the company's belt, as well as another three to six reefs in the vicinity identified as prime acquisition candidates.
The upper Guelph has been isolated via the Ausable #1 well and injection for the EOR program is proceeding apace of expectations. Current production on Ausable #1 and #5 shows minimal recycle volumes of around 230 mcf per day and current production is roughly 13 bbls per day (total liquids potential of 275 boed computed based on current gas cycling rate), while the #2 and #4 (which was successfully worked over) are slated to be brought on stream in short order alongside the Airport Reef infrastructure (South Airport #1 was completed in the upper Guelph and the suspended Ausable #3 is slated for horizontal re-entry). Current targets include some 236 feet of net pay in the Ausable reef wells (roughly 170 feet of which is in the Guelph, with the remainder in the A2 gas formation) and another 394 feet of net pay total between the North (discovery) and South (standing gas well) Airport #1 wells. Considering the company's plan to pump 5M mcf per day through relevant structures, the 550 boed target for early 2013 looks good and the Airport well tie-in, along with potential acquisitions or outright purchases from the local utility, should feed the EOR program's natural gas needs handedly.
Management intends to develop the regional strategy around this considerable stratigraphic discovery and its associated reefs. The company raised some $1.9M amid the choppy economic waters of 2011 and soldiered ahead with infield well pipeline development, as well as major facility upgrades, to get ready for moving through planned development phases. The company even recently added veteran industry executive's Martin Sandell and Gene Moody to the Board of Directors in order to handle the sheer volume of complex work related to developing the regional strategy. Development drilling of offsetting lands should help the company grow towards its year-end 2014 goal of becoming a 3k boed producer, relying heavily on a mastery of EOR methods.
We are talking finding and development costs of only around $5.00 per barrel and an overall net present value of around $54M on some $6.7M in investments, set against a nice ($2.5M market cap) share structure backdrop, where almost 1/4th of the outstanding 55M shares are owned by company insiders. A strong position established in the Guelph formation, a strong regionally-minded, EOR-driven exploitation strategy for the Ontario basin, and ample long-term (20.5-year reserve life index) upside all combine in Reef Resources to make for an appealing investment opportunity, even before factoring in the true potential of the company's current footprint (indicated in part by off reef potential seen in the North Airport results).
At even a 70% recovery rate we are looking at roughly 6.2M barrels of recoverable reserves from the ongoing EOR program and Reef has an active portfolio of other domestic oil and gas acquisition opportunities in the hopper as well, with the lead candidate being a huge medium oil (18 API) play down in South Texas, kicked up through internal expertise in the industry.
To get a closer look at this rapidly developing domestic energy producer, please visit the Reef Resources Ltd. website located at: ReefResources.ca
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