We are currently testing two strategies to help expand our combustion zone. As previously discussed, we have initiated water co-injection in several wells. The water is intended to alter the relative permeability in the channels to redirect air flow, keep air at the top of the reservoir and to help transfer heat horizontally across the reservoir. We have also drilled two multi-THAI® air injection wells associated with two separate horizontal production wells. Our multi-THAI® patent involves the drilling of one or more injection wells along a horizontal production well to expand the combustion zone and to have a larger portion of the reservoir draining into the production well. Steam pre-heating has started on these injection wells and we intend to initiate air injection in September. Additional production from the multi-THAI® wells is expected to start in the fall.
Over the next several months, we intend to re-evaluate options to increase production at Kerrobert and reduce costs. In the short term, we may reduce costs by shutting-in low-volume wells that require workovers. In the medium term, we may drill more multi-THAI® wells and consider other techniques to help injected air stay at the top of the reservoir and form a broader THAI® combustion zone. With these changes, it may take longer for us to reach break-even production levels.
Saskatchewan Conventional Cold Production
At June 30, 2013, Petrobank had four conventional cold production wells operating on our Kerrobert Trend Lands that were producing an aggregate of approximately 50 bopd. We drilled and completed two horizontal wells in our Luseland area in July and we expect the new wells to contribute additional production volumes in the coming months.
Dawson Demonstration Project
At Dawson, we commenced cold production operations from both horizontal THAI® production wells in late 2012 and the wells produced at a combined rate of approximately 10 bopd in the second quarter of 2013. We have currently shut-in these wells to reduce costs as they have not produced at economic rates. We have also submitted an application to the Alberta Energy Regulator ("AER") to initiate two cyclic steam stimulation ("CSS") cycles with our THAI® production wells. If approved by AER, we believe that CSS will be more effective in pre-conditioning the reservoir for THAI® as CSS should result in more voidage than conventional cold production.
Business Operations Update
As we evolve our operations at Kerrobert, Petrobank remains focused on generating long term value for our shareholders. Recognizing that it may take longer to reach break-even production levels at Kerrobert, we are taking several steps to steward our working capital while increasing production and lowering expenses. In the short term, we plan to reduce expenditures at Kerrobert and other projects. Over the next several months, we will evaluate alternatives to increase production at our Kerrobert THAI® project and consider other value enhancing activities that take advantage of our strong capital position, attractive asset base and significant experience with combustion techniques.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2013, Petrobank had cash and cash equivalents of $30.6 million, investments in marketable securities of $44.7 million and a net working capital surplus (including cash and marketable securities) of $71.0 million. Our focus in 2013 is to steward our capital to maintain financial flexibility to pursue future projects and acquisition opportunities while positioning the company to benefit from our strong capital base. We expect to fund our 2013 expenditures with cash on hand and sales revenue from production.
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