FEED (front end engineering and design) work on Chinook's offshore Cosmos development project continued through 2012. Due to critical component availability and cost escalation, the Company has been unable to secure several key components of the initial Cosmos A block development within the pre-FEED cost estimate and is currently favouring a strategy to further appraise the satellites and near field undrilled structures in an effort to increase the estimated resource and improve the economics of the project. The Company plans to shoot a 3-D survey later in 2013 and intends to drill the first well early in 2014. One of the more promising satellites has a well penetration that shows excellent reservoir quality and hydrocarbon pay on logs in the same Birsa sands as the Cosmos A block. On March 19, 2013, SVI Barbados, a wholly- owned subsidiary of Chinook, and its partner, New Zealand Oil & Gas ("NZOG") entered into an agreement pursuant to which each of SVI Barbados and NZOG acknowledged that it had given a negative final investment decision and which amends the original farmout agreement so that, if SVI Barbados and NZOG cannot agree on an alternative appraisal program for the Cosmos Concession by April 18, 2013, NZOG's right to complete its earning and acquisition of an interest in the Cosmos Concession will terminate. Negotiations are presently underway with the concession partners, NZOG and ETAP, to define the program for the balance of 2013.
Tunisia remains a country in political and social transition that has been underpinned by an escalating level of politically stoked violence with elections planned for late 2013 or early 2014. Public demonstrations have been common in larger cities and local demonstrations have occurred near the Company's operations. Chinook remains proactive in its dialogue with local groups which, to date, have been labour related discussions and have been resolved by Chinook's in-country management. The Company's activity and investment in the country has not been viewed negatively, rather, the reaction by local stakeholders is a byproduct of Chinook's increased activity and the desire by many for employment and training in an area of the country that experiences a lower standard of living than those living in the larger urban centres. Safety of all stakeholders is Chinook's main priority and, with ongoing support available from the local National Guard, the Company has to date experienced no production downtime at its BBT Concession and operational delays have been limited to several occurrences each lasting no longer than 48 hours. Chinook will, however, continue to put in place security protocols in an effort to ensure the wellbeing of its staff and contractors.
For 2013, Chinook's budgeted production is 9,500-10,200 barrels of oil equivalent per day comprised of approximately 39% oil, 7% natural gas liquids and 54% natural gas. Cash flow is expected to be $95-$100 million on capital expenditures of $102-$107 million with approximately 60% invested in Tunisia and 40% in Canada. Year end net debt is expected to be reduced to $60-$65 million on combined credit facilities of $161.5 million.
In Canada, the Company intends to improve its asset quality with non-strategic asset sales throughout 2013. The disposition of non-core assets as a means to maintaining a strong balance sheet and increasing the per barrel profitability of the Company's core Canadian assets will be a continued priority for the Company. A cash flow based capital expenditure program focused on Dunvegan and Montney oil locations opportunities in the Peace River Arch is in place and being executed. Chinook continues to focus on improving its Canadian operating and general and administrative cost structure which has resulted in various process changes and cost saving initiatives, the impact of which should be fully recognized in 2013.
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