The Risks and the Level of Uncertainty
The risk associated with an exploration prospect comprises two components: the chance of discovery (or of geological success) and the chance of development. The geological risk assigned for each reservoir interval in the Report is the chance or probability of discovering hydrocarbons in sufficient quantity for them to be tested to the surface and is considered as the chance or probability of the Prospective Resource maturing into a Contingent Resource. The Lower Cretaceous represents a relatively low risk test as sandstones with shows were encountered in the 13/24a-2A well. The chance of development has not been assessed at this stage but a critical factor will be the quality of any hydrocarbons discovered. The oil is likely to be relatively heavy with a high viscosity, although possibly comparable to that in the producing Captain Field where the oil gravity is believed to be in the range of 19 to 21 degrees API.
Significant Positive and Negative Factors
The significant positive factors that we consider relevant to the resource estimate are as follows:
-- The 13/24a-2A well encountered a 29 ft Cretaceous sandstone and a "granite wash" section of at least 200 ft.-- Shows are present in the sandstone and in fractures in the core which could suggest an oil column of over 225 ft.-- The Captain Field, with documented oil in place of 1 billion barrels, together with the extensive shows in 13/24a-2A, indicate a viable charge from an extensive kitchen in the South Halibut Graben onto the Halibut Horst.-- The 2D and 3D seismic database is sufficient to define a potential trap with a significant area.-- Reservoir potential also may exist in older Jurassic sediments, although the presence of sandstones is speculative; feeder canyons could exist in the prospect area, potentially feeding the Claymore sands found in well 14/21a-1.
The significant negative factors that we consider relevant to the resource estimate are as follows:
-- The basal sandstones in well 13/24a-2A have not been adequately logged so there is no proof that an effective reservoir exist over the prospect area.-- The thickness of the Lower Cretaceous, Jurassic and Granite wash intervals are likely to be extremely variable and difficult to predict without significant drilling.-- The granite wash may be tight and not an effective reservoir.-- The degree of biodegradation is uncertain; any oil may be too heavy and viscous for a commercial development.-- There may be limited or ineffective migration pathways into parts the prospect area.-- The Chalk top seal is relatively thin and could be breached; the side seal may not be effective.
Standards Applied and Evaluation Procedures
In compiling this report, Senergy used current geological and engineering knowledge, techniques and computer software. It has been prepared within the Code of Ethics of the Association of Professional Engineers, Geologists and Geophysicists of Alberta (APEGGA). The report adheres to the "best practices" recommended in the COGE Handbook, which are in accordance with principles and definitions established by the Calgary Chapter of the Society of Petroleum Evaluation Engineers.
All available relevant factors were considered in the assessment of this unproved property, including, geological structures, prospective zones, historical drilling and production results, resources have been made, together with an assessment risk factors associated with the chance of discovery. The resource classification methodology used herein complies with the Canadian Oil and Gas Evaluation handbook definitions and guidelines, in accordance with the requirements of National Instrument 51-101.