Nextraction Energy Corp. (CVE:NE) said Monday that it has amended its joint venture agreement with oil and gas company Magnum Energy (CVE:MEN) relating to their Viking oil property, in eastern Alberta.
The property, situated in the Provost Field, is known for its prolific Viking A formation whereby vertical wells have produced up to 300,000 barrels of oil each.
According to the initial joint venture deal, Nextraction was supposed to cover the costs to drill, complete and tie in two horizontal wells to earn a 50 percent working interest in each well and future development.
Under the amended deal, Nextraction immediately becomes vested in the property, decreasing the earn-in provision of the agreement from two horizontal wells to one well.
In exchange for the reduction in the required number of drilled wells under the joint venture deal, Nextraction has agreed that the $1.19 million remaining loan Magnum owed the company has now been repaid in full as of October 1.
Nextraction said that reducing the earn-in commitment allows the company to drill two wells – at 50 percent working interest – rather than one well for the same capital outlay, thereby increasing the production, reserves and value of the expenditure for Nextraction’s shareholders.
On October 6, Nextraction finished its first horizontal Provost Viking well. For the first five days of testing, the 1,200 metre horizontal leg, which had been fractured in 13-stages, flowed at 177 barrels of oil equivalent per day. Average flow rates were comprised of 109 barrels of oil and 410 million cubic feet per day of natural gas, with a 75 percent watercut, the Canadian junior oil and gas company said.
Under the terms of the new deal, Nextraction will complete and solely pick up the cost for the construction of a pipeline to tie-in this first horizontal well that has been completed.
The permitting of the pipeline is underway, and Nextraction expects construction to be completed late in the fourth quarter. Once the pipeline has been constructed, Nextraction and Magnum will continue to advance the development of the Provost property.
In addition to developing the Provost light oil pool, Nextraction is producing light oil and liquids rich gas at its Pinedale Anticline resource play in Wyoming, and is testing for horizontal shale gas development on its lands in the southern Appalachian Basin of the eastern United States.
The Calgary-based company’s stock traded flat at 31 cents a share, while Magnum Energy’s shares rose 5.88 percent to 18 cents on Monday early afternoon.