HALIFAX, Nova Scotia, Dec. 19, 2018 (GLOBE NEWSWIRE) — (TSX – CDH): Corridor Resources Inc. (“Corridor”) is pleased to provide an update on its operations in New Brunswick.
Update on Pricing, Additional Financial Hedges, Production and Guidance
In our press release dated November 13, 2018, Corridor announced the following financial hedges for the winter of 2018/2019: 2,500 mmbtupd of natural gas production at a fixed price of $US12.72/mmbtu for January 2019 and 2,500 mmbtupd at a fixed price of $US12.50/mmbtu for February 2019. Corridor subsequently entered into an additional hedge for 2,500 mmbtupd of natural gas production at a fixed price of $US10.35/mmbtu for December 2018. As a result, Corridor has now hedged approximately 70% of its estimated production for the period from December 1, 2018 to March 31, 2019 at an average price of $US8.74.
Due to higher than normal natural gas prices in November 2018, Corridor resumed a portion of its natural gas production at the McCully Field, which production had been shut-in since May 2018. As a result of this earlier than anticipated resumption of production, together with the additional financial hedges, Corridor is now expecting an increase of $1.0 million in cash flow from operations for the winter of 2018/2019 over its previous forecast and an estimated working capital balance as of March 31, 2019 of $63.4 million.
2019/2020 and beyond
Subsequent to our November 13, 2018 press release, Corridor entered into an additional financial hedge for 2,500 mmbtupd of natural gas production at a fixed price of $US9.00/mmbtu for the period from December 1, 2019 to March 31, 2020. In addition, Corridor recently entered into an agreement that will eliminate transportation charges on the Canadian portion of the Maritimes & Northeast Pipeline, not only in the current year, but until April 1, 2024. As a result, Corridor’s operating cash flow is expected to increase by a minimum of $6 million from April 1, 2019 to April 1, 2024.
Update on New Brunswick Assets
Recently, the Government of New Brunswick expressed its intention to allow natural gas development in the Sussex region where Corridor has been conducting exploration and production activities for close to 20 years. We are hopeful this will result in the permanent removal of the moratorium on hydraulic fracturing in Corridor’s key operating area and, accordingly, Corridor provides an update on its producing assets, development assets and exploration assets in New Brunswick.
Corridor has producing assets comprised of 32 natural gas wells in the McCully Field near Penobsquis in the Sussex region. The McCully Field was discovered in 2000 and has produced over 57 bcf of natural gas to date. Almost all of Corridor’s production is sourced from the Hiram Brook formation, which is a tight sandstone. All of these producing wells have been hydraulically fracture stimulated, and the natural gas production is processed and transported through a 100% owned gas processing plant and gathering/transportation system. The continued production of these wells is not dependent on the removal of the hydraulic fracture moratorium, as they do not require additional fracture stimulation to remain productive. The current reserve life estimate of the McCully Field is 27 years.
For the past four years, Corridor has chosen to optimize its producing assets in the McCully Field using a seasonal production optimization strategy, which consists of shutting-in Corridor’s producing natural gas wells for a portion of the summer/fall period when natural gas prices are typically relatively low and timing the start-up of production, and the associated recovery of flush volumes, with peak winter pricing to maximize cash flow from operations and retain Corridor’s reserves for production in future years. We will continue to evaluate the merits of the optimization strategy on an annual basis, taking into consideration estimated future gas prices and other market conditions.
Corridor has development assets comprised of 11 (10 net) drilling locations and 2 (1.5 net) previously drilled non-producing natural gas wells targeting the Hiram Brook formation in the McCully Field, which development would require roughly an estimated $77 million of gross future development capital. Each of these development assets is situated within a few kilometers of an existing producing well in the McCully Field area. All of the drilling locations would need to be fracture stimulated in order to be productive.
Currently, these development assets are categorized as contingent resources by GLJ Petroleum Consultants (“GLJ”), as set forth in GLJ’s report dated February 2, 2018 and effective December 31, 2017 (the “GLJ Contingent Resource Report”), which report was prepared in accordance with the standards contained in the COGE Handbook and National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) and is summarized in Appendix A to Corridor’s Annual Information Form for the year ended December 31, 2017 (the “Annual Information Form”).
The GLJ Contingent Resource Report assumed these development wells would be drilled over a four-year period commencing in 2021. The timing of when Corridor may proceed with these development activities is dependent on the timing of the permanent removal of the New Brunswick moratorium on hydraulic fracturing and other factors such as future capital availability, commodity prices, addressing regulatory limitations and estimated capital costs. In particular, these development activities require the approval of a facility and process by which water produced in association with fracture stimulations can be stored, transported, treated and disposed of in New Brunswick. Corridor has previously filed numerous recommendations/proposals to remedy regulatory uncertainties and intends to renew its efforts with the New Brunswick regulatory authorities in this regard.
For more information on Corridor’s producing assets and development assets, including a summary of the GLJ Contingent Resources Report, please refer to the “Statements of Reserves Data and Contingent Resources Data” in the Annual Information Form.
Exploration Assets – Frederick Brook Shale
Corridor’s exploration assets in New Brunswick are comprised of 195,000 net undeveloped acres. The primary target for potential exploration activity is the Frederick Brook shale, a black hydrocarbon rich shale that is up to 1100 meters thick. To date, thirteen wells have been drilled into the Frederick Brook shale. The information from these wells has enabled Corridor to geologically map the Frederick Brook shale over a wide area, in excess of 20 kilometers laterally from the McCully Field eastward.
Corridor engaged GLJ to estimate the quantity of shale gas resources contained within Corridor’s interests in the Frederick Brook shale in New Brunswick. The goal of the study was to assist Corridor to develop a longer-term plan for the appraisal and potential development of this potentially vast resource. The report, dated March 1, 2017 and effective December 31, 2016, was prepared in accordance with the COGE Handbook and NI 51-101 (the “Frederick Brook Resource Study”). GLJ has confirmed that the estimates in the Frederick Brook Resource Study remain effective as at the date hereof.
The Frederick Brook Resource Study provides a best estimate of 52.7 trillion standard cubic feet (“tscf”) gross lease (48.2 tscf net to Corridor’s working interest) of total unrisked undiscovered unrecoverable petroleum initially-in-place or “PIIP” in respect of the Frederick Brook Shale in New Brunswick. With respect to Corridor’s interests in unrisked undiscovered unrecoverable PIIP, there is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.
The Frederick Brook Resource Study does not estimate quantities of petroleum that may become recoverable in the future. The volumes are not classified further than total PIIP, as an established technology for commercial development has yet to be demonstrated, and there is not a development plan with which recoverable volumes can be associated. Significant uncertainties exist for the project due to political and regulatory risk, timing, availability of capital, development area uncertainty, and inability to determine appropriate technical and commercial feasibility. As the resources cannot be placed in a classification other than PIIP, they are unrisked.
Corridor’s future activities in respect of the Frederick Brook shale will be focused on initially attracting a joint venture partner to bring capital and shale gas expertise to assist with further evaluation of the Frederick Brook shale by way of a pilot project to be developed with such joint venture partner. As the scope and scale of the opportunity in the Frederick Brook shale represents a significant upside potential for Corridor’s shareholders this will be Corridor’s top objective moving forward. While Corridor is optimistic that the Frederick Brook shale possesses the key attributes necessary for a commercial shale gas development, we caution that the Frederick Brook shale is still exploratory and at a very early stage. We provide no assurance that Corridor will be able to attract a joint venture partner or, if we do, the timing and extent of any future activity to develop the Frederick Brook shale in New Brunswick.
Corridor is proud of its track record in New Brunswick and is confident that drilling and completion activities can once again be undertaken in a safe and environmentally responsible manner. In early 2015, Corridor initiated the formation of the New Brunswick Responsible Energy Development Alliance (“NBREDA”). NBREDA’s mandate is to provide fact-based information to New Brunswickers interested in learning more about hydraulic fracturing and the potential for natural gas development in the province. To achieve this objective, NBREDA established a website (www.nbnaturalgas.ca) aimed at promoting a two-way dialogue, which includes information about how hydraulic fracturing works, answers to important and frequently asked questions and identifies and provides links to independent, third party studies on the subject.
An updated Corporate Presentation dated December 2018 is now available on Corridor’s website at www.corridor.ca.
Corridor is a Canadian junior resource company engaged in the exploration for and development and production of petroleum and natural gas onshore in New Brunswick and offshore in the Gulf of St. Lawrence. Corridor currently has natural gas production and reserves in the McCully Field near Sussex, New Brunswick. In addition, Corridor has a shale gas prospect in New Brunswick and an offshore conventional hydrocarbon prospect in the Gulf of St. Lawrence.