CALGARY, March 11 /CNW/ - (GO: TSX) Galleon Energy Inc. ("Galleon" or the
"Corporation") announces record revenues, earnings and funds from operations
in 2008.
2008 Performance
One of the key highlights in 2008 was the successful capture and
development of the Eastern and Central Montney resource projects. Horizontal
drilling and multi-stage fracture technology has advanced the development of
the Eastern Montney project and one of the Central Montney projects. These
resource projects are expected to deliver predictable, sustainable growth
throughout the multi-year drilling program.
- Net present value of estimated future net revenue before tax from
gross proved plus probable reserves based on forecast prices and
costs discounted at 10% reached $1.3 billion, a 10% increase over
December 31, 2007; Gross proved plus probable reserves grew to 80.4
million BOE, an increase of 35% over December 31, 2007;
- Gross proved reserves grew to 49.3 million BOE, an increase of 45%;
- Gross proved producing reserves grew to 23.6 million BOE, an increase
of 53%;
- Gross proved plus probable reserve life index was 11.9 years based
on average Q4 2008 production;
- Production on a gross proved plus probable basis was replaced 4.3
times;
- A drilling success rate of 89%: drilled 107 gross wells resulting in
56 (53.2 net) natural gas wells, 35 (32 net) light oil wells, 3 (3
net) heavy oil wells and 1 (1 net) water injection well.
2008 Financial Highlights
- Revenues reached $418.2 million, an increase of 71% compared to 2007;
- Funds from operations of $241.3 million ($3.39 per basic share) were
generated, an increase of 84% from 2007;
- Earnings of $79.3 million ($1.11 per basic share) were recorded;
- Daily production averaged 17,216 BOE: natural gas - 59 Mmcf and crude
oil and NGLs - 7,385 Bbl, an increase of 28% from 2007;
- Investment in exploration and development activities was $273.6
million.
Operational Update
As commodity prices have continued to weaken over the past 4 to 6 months,
Galleon has focused on low cost projects that also provide strong reserve
growth. The majority of the drilling program has targeted the Eastern and
Central Montney projects.
To date in Q1 2009, 7 (7.0 net) Eastern Montney horizontal wells, 1 (0.9
net) Central Montney horizontal well, 1 (1.0 net) Puskwa Beaverhill Lake
infill well have been drilled and cased and 1 (0.1 net) non-operated well, a
100% success rate. One well targeting a new light oil resource play is
currently drilling.
Current production based on field report estimates is approximately
18,000 BOE/d with in excess of 1,500 BOE/d of tested production behind pipe.
Approximately 1,000 BOE/d of this production is scheduled to be on stream
during Q4 2009 pending completion of the natural gas plant expansion in the
Central Montney. The remaining 500 BOE/d, at Puskwa, is expected to be on
stream in Q3 2009/Q4 2009 subject to receipt of regulatory approval for water
injection.
Eastern Montney Update
The Eastern Montney horizontal program has continued to exceed
expectations.
- The project is viable at low commodity prices.
- The horizontal well program will focus on drilling from pad locations
to reduce costs and improve drilling and tie-in efficiencies.
- Horizontal well initial production rates and associated proven
reserves have been on average approximately 2 to 3 times the rates of
offset vertical wells. The horizontal well costs have been on average
1.5 times the cost of a typical vertical well.
- Horizontal well performance is more consistent and repeatable and
production decline rate is lower and more stable compared to vertical
wells.
- Gas, water and oil are co-produced which is typical in tight immature
reservoirs. All horizontal wells have associated water production
which is not part of an active bottom water drive. Such water is not
expected to materially impact total recoverable reserves.
- Production life is expected to exceed 10 years based on original
analog pools.
There have been 31 (30.6 net) Eastern Montney horizontal wells drilled by
Galleon since March 2008. The average initial production rate is 1.3 Mmcf/d
with 20 Bbls/d of oil per Mmcf. As the project has evolved, tests have been
done on the length of the horizontal lateral, size of fractures, fracture
density and fracture fluid to maximize productivity and reduce costs. The
optimal configuration appears to be a 900 to 1000 meter lateral with 8 stages
of 2 to 3 tonne water based fractures. Average initial production rates for
the wells drilled to date in Q1 2009, have increased to 1.6 Mmcf/d. Total
drilling and completion costs to date have been approximately $1.3 million per
well on average.
Galleon plans to continue to use pad drilling throughout the 57 sections
of land in the main fairway which has received approvals for down spacing to 4
wells per section. Up to 25 Eastern Montney horizontal wells are planned for
2009. As at December 31, 2008, a total of 59 gross proved plus probable
horizontal drilling locations were recognized in the independent reserve
evaluation report. Based on vertical well control and geologic mapping, an
additional 300 horizontal locations with no reserves assigned have been
identified. Galleon has access to over 200 sections (average interest 90%) of
prospective land in the delineated Eastern Montney fairway which is
approximately 35 miles long by 10 miles wide.
Central Montney Update
As the drilling program on the two Central Montney projects commenced in
July 2008, the projects are in the early stages of development. Galleon has
delineated some very significant reserves.
- The project is viable at low commodity prices.
- Central Montney project No.1 can be developed using inexpensive
vertical wells with average drilling, completion and tie-in costs of
$1.1 million to date.
- Galleon plans to develop the Central Montney project No.2 using a
combination of vertical and horizontal wells. Vertical wells cost on
average $1.0 million to date in total and serve to identify the depth
of each of the 7 gas charged Montney sands. The vertical wells can be
produced but they also provide an accurate reference for the location
of follow up horizontal legs. In this play horizontal wells have
generally produced at rates of 2 times the vertical wells with well
costs averaging 1.5 times the vertical well costs.
Four Montney wells were drilled in the Central Montney project No.1 in
the last half of 2008. These wells provided ample justification for the plant
expansion which occurred in fourth quarter 2008. The plant was up and running
by January 10, 2009 and, since that time, net production has been stable at 14
Mmcf/d. The discovery well plus the 4 wells drilled in 2008 are contributing
approximately 11.6 Mmcf/d of net production. No follow up wells have been
drilled in Q1 2009 as the plant capacity is full and there is 6 Mmcf/d of
tested net gas production currently behind pipe. Plans are underway to expand
the plant capacity to up to 28 Mmcf/d in Q4 2009. At least 2 more Montney
vertical wells are planned to be drilled on this project in 2009.
Since July 2008, 3 Montney wells (2 horizontal wells and 1 vertical well)
have been drilled and one Montney recompletion has been performed in the
Central Montney project No.2. One of the Montney horizontal wells was drilled
in Q1 09. Including the original discovery well, this project is currently
producing at approximately 7.4 Mmcf/d net from the Montney. There are no plant
capacity constraints in this area and up to 4 more Montney wells (two vertical
wells and two horizontal wells) are planned to be drilled in 2009. Drilling
risk on these wells has been lowered due to approvals being received for down
spacing to 4 wells per section on the two key sections. At least one
exploitation well is planned to test the expansion of the play along trend.
Puskwa Beaverhill Lake Light Oil Update
Puskwa continues to be a solid light oil project. Net production has been
stable over the last year at approximately 2,500 BOE/D. Two wells (100%
interest) have been drilled since July 2008. The first well was drilled to be
a water injection well. This well was drilled in August 2008 and has not yet
received regulatory approval to commence injecting water. The second well was
drilled in Q1 2009. This is the first well drilled on the recently approved 80
acre down spacing. This well flowed at 550 Bbl/d and 1.2 Mmcf/d gas for a
period of 62 hours on test. The production rate has not yet been determined.
The well is expected to be eligible for the Alberta Government transitional
royalty rate. The number of wells planned for Puskwa in 2009 will depend on
receiving water injection approval on the two outstanding applications.
Management's Discussion and Analysis
This Management's Discussion & Analysis ("MD&A") is intended to assist in
the understanding of the trends and significant changes in the financial
condition and results of operations of Galleon Energy Inc. ("Galleon" or the
"Corporation") for the year ended December 31, 2008 with comparisons to the
year ended December 31, 2007. The MD&A has been prepared by management in
accordance with Canadian generally accepted accounting principles ("GAAP") and
should be read in conjunction with the audited financial statements for the
year ended December 31, 2008.
Petroleum and natural gas reserves and volumes are converted to a common
unit of measure on a basis of six thousand cubic feet (Mcf) of gas to one
barrel (Bbl) of oil. BOEs may be misleading, particularly if used in
isolation. The forgoing conversion ratio is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead.
Amounts are shown in Canadian dollars unless otherwise stated. All
production volumes disclosed herein are sales volumes.
This MD&A is based on information available as of, and is dated, March
11, 2009.
Non-GAAP Measurements
The MD&A contains terms commonly used in the oil and gas industry, such
as funds from operations, funds from operations per share, and operating
netback. These terms are not defined by GAAP and should not be considered an
alternative to, or more meaningful than, cash provided by operating activities
or net earnings as determined in accordance with Canadian GAAP as an indicator
of Galleon's performance. Management believes that in addition to net
earnings, funds from operations is a useful financial measurement which
assists in demonstrating the Corporation's ability to fund capital
expenditures necessary for future growth or to repay debt. Galleon's
determination of funds from operations may not be comparable to that reported
by other companies. All references to funds from operations throughout this
report are based on cash flow from operating activities before changes in
non-cash working capital and abandonment expenditures. The Corporation
calculates funds from operations per share by dividing funds from operations
by the weighted average number of Class A shares outstanding.
Galleon uses the term net debt in the MD&A and presents a table showing
how it has been determined. This measure does not have any standardized
meaning prescribed by Canadian GAAP and therefore may not be comparable to
similar measures presented by other companies.
Forward-Looking Statements
Statements that are not historical facts may be considered forward
looking statements including management's assessment of future plans and
operations, growth expectations within the Corporation, expected production
and production increases, length of drilling program in the Montney, expected
general and administration, operating and transportation expenses in 2009,
expected royalty rates in 2009 and the impact of the New Alberta Royalty
Framework and the transitional royalties and incentives provided in connection
therewith, expected levels of cash flow and earnings in 2009, drilling and
completion plans and the timing thereof, facilities to be constructed or
expanded and the timing thereof, capital expenditures, the timing thereof and
the method of funding thereof. These forward-looking statements sometimes
include words to the effect that management believes or expects a stated
condition or result. All estimates and statements that describe the
Corporation's objectives, goals or future plans are forward-looking
statements. Since forward-looking statements address future events and
conditions, by their very nature they involve inherent risks and uncertainties
including, without limitation, risks associated with oil and gas exploration,
development, exploitation, production, marketing and transportation, loss of
markets, volatility of commodity prices, currency fluctuations, imprecision of
reserve estimates, environmental risks, competition from other producers,
inability to retain drilling rigs and other services, incorrect assessment of
the value of acquisitions, failure to realize the anticipated benefits of
acquisitions, delays resulting from or inability to obtain required regulatory
approvals and ability to access sufficient capital from internal and external
sources. As a consequence, Galleon's actual results may differ materially from
those expressed in, or implied by, the forward-looking statements.
Forward-looking statements or information are based on a number of
factors and assumptions which have been used to develop such statements and
information but which may prove to be incorrect. Although the Corporation
believes that the expectations reflected in such forward-looking statements or
information are reasonable, undue reliance should not be placed on
forward-looking statements because the Corporation can give no assurance that
such expectations will prove to be correct. In addition to other factors and
assumptions which may be identified in this document, assumptions have been
made regarding, among other things: the impact of increasing competition; the
general stability of the economic and political environment in which the
Corporation operates; the timely receipt of any required regulatory approvals;
the ability of the Corporation to obtain qualified staff, equipment and
services in a timely and cost efficient manner; drilling results; the ability
of the operator of the projects which the Corporation has an interest in to
operate the field in a safe, efficient and effective manor; the ability of the
Corporation to obtain financing on acceptable terms; field production rates
and decline rates; the ability to replace and expand oil and natural gas
reserves through acquisition, development of exploration; the timing and costs
of pipeline, storage and facility construction and expansion and the ability
of the Corporation to secure adequate product transportation; future oil and
natural gas prices; currency, exchange and interest rates; the regulatory
framework regarding royalties, taxes and environmental matters in the
jurisdictions in which the Corporation operates; and the ability of the
Corporation to successfully market its oil and natural gas products.
Readers are cautioned that the foregoing list of all factors and
assumptions is not exhaustive. Additional information on these and other
factors that could affect Galleon's operations and financial results are
included elsewhere herein and in reports on file with Canadian securities
regulatory authorities and may be accessed through the SEDAR website
(www.sedar.com), or at Galleon's website (www.galleonenergy.com). Furthermore,
the forward-looking statements contained herein are made as at the date hereof
and Galleon does not undertake any obligation to update publicly or to revise
any of the included forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required by
applicable securities laws.
Annual Information
($000s) 2008 2007 2006
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Revenues 418,233 245,203 157,931
Funds from Operations(1) 241,298 131,052 85,151
Per share, basic(1) 3.39 2.18 1.60
Per share, diluted(1) 3.35 2.12 1.52
Net Earnings 79,264 8,286 13,826
Per share, basic 1.11 0.14 0.26
Per share, diluted 1.10 0.13 0.25
Total Assets 1,181,003 799,359 614,565
Net debt 282,446 193,557 151,213
Bank debt 249,015 163,378 122,996
Total Long-term Financial Liabilities - - -
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(1) Funds from operations and funds from operations per share is not a
standard measure under GAAP and may not be comparable to similar
measures presented by other companies. Management believes that funds
flow per share is a useful supplementary measure that may assist
investors in assessing the underlying per share value of the
Corporation.
(2) See " Non-GAAP Measurements"
On January 16, 2008, the Corporation acquired all of the outstanding
common shares of Exalta Energy Inc. ("Exalta"). The Exalta acquisition was
accounted for by the purchase method and shares were acquired for an aggregate
of $62.5 million by the issuance of 4,334,856 Class A shares of Galleon at a
value of $14.42 per share plus the assumption of $48.5 million of net debt
including capital leases.
On May 9, 2008 the Corporation acquired all of the outstanding common
shares of Adamant Energy Inc. ("Adamant"). The Adamant acquisition was
accounted for by the purchase method and shares were acquired for an aggregate
of $65.2 million by the issuance of 4,193,288 Class A shares of Galleon at a
value of $15.55 per share. Cash of $2.4 million was acquired and positive
working capital of $5.9 million was assumed in the acquisition.
The increase in revenues, funds from operations and net earnings in 2008
compared to 2007 was due to strong commodity prices in the majority of 2008
and to an increase in production volumes throughout 2008. Total assets and net
debt increased in 2008 due to the capital expenditure program and the
acquisitions of ExAlta and Adamant.
On February 1, 2007, the Corporation closed a transaction resulting in an
acquisition of an interest in a partnership and the minority partnership's
holdings resulting in a 100% consolidated interest. The partnership held oil
and gas assets within Galleon's core area of Dawson, Alberta. The total
consideration of $28.7 million was paid in cash. The acquisition of the
partnership increased funds from operations and total assets compared to 2006.
The decrease in net income in 2007 compared to 2006 is due to the fair value
of financial derivatives recorded based on quoted market prices. At December
31, 2007 the fair value was an unrealized loss of $9.3 million.
Results of Operations
Year ended December 31 2008 2007
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6,300,970 BOE 4,901,518 BOE
($000s) $/BOE $/BOE
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Revenues 418,233 66.38 245,203 50.03
Other income 438 0.07 - -
Royalties (86,717) (13.76) (51,586) (10.52)
GCA(1) 15,595 2.48 10,033 2.05
Transportation costs (8,537) (1.35) (6,024) (1.23)
Operating costs (75,807) (12.03) (44,759) (9.13)
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263,205 41.79 152,867 31.20
G&A (13,326) (2.11) (7,281) (1.49)
Interest costs (11,138) (1.77) (10,110) (2.06)
Gain (loss) on financial
derivative 3,621 0.57 (3,545) (0.72)
Capital and other taxes (1,064) (0.17) (879) (0.18)
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Funds from operations(2) 241,298 38.31 131,052 26.75
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(1) GCA means Gas Cost Allowance
(2) See "Non-GAAP Measurements"
Petroleum and Natural Gas Revenues
Year ended December 31 2008 2007
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($000s) % %
Light oil 189,435 45 98,564 40
Heavy oil 41,503 10 27,776 11
NGLs 11,434 3 5,736 3
Natural gas (net of
physical gas contracts) 175,122 42 112,299 46
Royalty income 739 - 828 -
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Total 418,233 100 245,203 100
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Revenues for the year ended December 31, 2008 increased 71% to $418.2
million from $245.2 million in the prior year due to a 28% increase in average
production volumes. As well overall revenues increased by 33% to $66.38/BOE
from $50.03/BOE in 2007 as a result of higher commodity prices. A portion of
Galleon's petroleum products are sold at either spot reference prices or
prices subject to commodity contracts based on U.S. dollars for crude oil and
AECO for natural gas. The Corporation also enters into fixed price and
costless collar commodity contracts on a portion of its petroleum products.
Refer to "Commodity Pricing and Marketing" section.
Production
Year ended December 31 2008 2007
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BOE/d % BOE/d %
Light oil (Bbls/d) 5,187 30 3,562 26
Heavy oil (Bbls/d) 1,686 10 2,005 15
NGLs (Bbls/d) 512 3 246 2
Natural gas (Mcf/d) 58,986 57 45,697 57
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BOE/d (6:1) 17,216 100 13,429 100
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Average production volumes for 2008 of 17,216 BOE/d increased by 28%
compared to 13,429 BOE/d in 2007. By product, light oil volumes increased by
46%, natural gas volumes increased by 29% and heavy oil volumes decreased 16%.
Light oil production increased in 2008 as a result of drilling success at
Puskwa, Eaglesham, Culp/Kimiwan and McLeans Creek. Natural gas volumes
increased in 2008 as a result of the significant resource gas brought on
production in the Central Montney project as well as the production additions
realized from horizontal drilling and multi-stage fracture technology in the
Eastern Montney project. Heavy oil production suffered a set back in Q2 2008
with a number of wells not recovering their oil production rates after being
shut in during spring breakup. Current heavy oil production levels remain
stable, but at lower levels.
Commodity Pricing and Marketing
Petroleum products are sold to major Canadian marketers at either spot
reference prices or prices subject to commodity contracts based on US WTI for
crude oil and AECO for natural gas. As a means of managing the risk of
commodity price volatility in 2008, Galleon entered into one term natural gas
contract and six crude oil financial contracts. The natural gas contract for
10,000 GJ/day was put in place on January 8, 2008 and had a term from February
1 to December 31, 2008 with pricing subject to a costless collar of $6.00/GJ
and $8.00/GJ Canadian.
An additional natural gas contract was acquired with Adamant. This second
contract was for 8,500 GJ/day and was put in place from January 1, 2008
through December 31, 2008 with pricing subject to a costless collar of
$6.00/GJ to $7.00/GJ Canadian. At the date of acquisition, this contract
represented a $5.3 million liability which has been fully amortized into
income in 2008 and recorded as a realized non cash gain of $5.3 million. For
the year ended December 31, 2008, realized losses of $2.7 million were
recorded from these contracts.
In 2008, Galleon had the following crude oil costless collar contracts in
place:
January 1, 2008 - 2,000 Bbl/d WTI CDN $70.00-$80.75/Bbl
December 31, 2008
January 1, 2008 - 1,000 Bbl/d WTI USD $75.00-$100.00/Bbl
December 31, 2008
July 1, 2008 - 1,000 Bbl/d WTI CDN $110.00-$177.30/Bbl
December 31, 2008
October 1, 2008 - 1,000 Bbl/d WTI USD $100.00-$120.00/Bbl
December 31, 2008
October 1, 2008 - 1,000 Bbl/d WTI USD $100.00-$120.00/Bbl
December 31, 2008
January 1, 2009 - 1,000 Bbl/d WTI USD $100.00-$115.00/Bbl
June 30, 2009
For the year ended December 31, 2008, the crude oil contracts resulted in
realized gains of $3.6 million. In addition, the 2009 contract was unwound in
2 separate transactions in December 2008 which resulted in a realized gain of
$10.8 million.
In the last two months of 2008, the Corporation entered into the following
natural gas financial fixed price contracts:
January 1, 2009 - June 30, 2009 5,000 GJ/d CDN $6.00/GJ
January 1, 2009 - June 30, 2009 5,000 GJ/d CDN $6.00/GJ
April 1, 2009 - October 31, 2009 5,000 GJ/d CDN $7.40/GJ
Unrealized gains of $1.2 million were recorded as an asset based on the
mark to market value at December 31, 2008 of these natural gas financial
contracts.
Subsequent to December 31, 2008 the Corporation has entered into the
following financial fixed price contracts:
Natural Gas:
March 1, 2009 - March 31, 2010 5,000 GJ/d CDN $5.96/GJ
March 1, 2009 - March 31, 2010 5,000 GJ/d CDN $6.01/GJ
Crude Oil:
March 1, 2009 - December 31, 2009 1,000 Bbl/d WTI CDN $68.25/Bbl
February 1, 2009 - December 31, 2009 500 Bbl/d WTI CDN $63.30/Bbl
February 1, 2009 - December 31, 2009 500 Bbl/d WTI CDN $63.85/Bbl
March 1, 2009 - December 31, 2009 500 Bbl/d WTI CDN $60.00-
$70.00/Bbl
Prices (net of transportation)
Year ended December 31 2008 2007
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Light oil ($/Bbl) 96.94 74.77
Heavy oil ($/Bbl) 71.77 37.39
Total oil including financial
derivative contract ($/Bbl) 92.20 59.56
Total oil with out financial
derivative contract ($/Bbl) 90.76 61.31
Natural gas ($/Mcf) 7.87 6.54
NGLs ($/Bbl) 61.06 63.94
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The average light oil price (excluding the financial derivative contract)
received for 2008 was $96.94/Bbl, an increase of 30% compared to $74.77/Bbl in
the prior year. The average heavy oil price was $71.77/Bbl, an increase of 92%
compared to $37.39/Bbl in the prior year. The 2009 budget is based on an
average price of $65 WTI USD and a foreign exchange rate of $0.85 USD to $1.00
CAD. This budget has been modified to reflect current and future prices.
The average natural gas price received for 2008 was $7.87/Mcf, an
increase of 20% compared to $6.54/Mcf in the prior year. The 2009 budget is
based on an average AECO price of $7.00/Mcf CAD. This budget has been modified
to reflect current and future prices.
Performance by Property
Year ended
December 31 2008 2007
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Oper- Oper-
ating ating 2008
net- net- Funds
backs/ backs/ from
Average BOE Average BOE opera-
Production (1)(2) Production (1)(2) tions(2)
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BOE/d % $ BOE/d % $ %
East Montney 3,818 22 33.60 3,668 27 25.63 19
Eaglesham 3,066 18 42.15 1,975 15 28.07 19
Puskwa 2,573 15 57.71 2,129 16 52.08 22
North Peace
River Arch 1,318 8 26.59 - - - 5
Alexis/St. Anne 1,198 7 35.45 - - - 6
Edam 1,174 7 24.73 1,856 14 8.38 4
Culp/Kimiwan 803 5 59.91 804 6 37.14 7
McLeans Creek 618 4 80.25 154 1 68.25 7
Kakut 549 3 30.08 273 2 22.87 2
Western Montney 278 1 30.52 212 2 26.07 1
Other 1,821 10 26.28 2,358 17 22.21 8
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Total 17,216 100 39.65 13,429 100 29.15 100
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(1) Operating netbacks/BOE exclude GCA and crude oil and gas hedging
gains or losses, and are calculated by subtracting royalties and
operating costs from revenues and dividing the result by average
production for the period.
(2) See "Non-GAAP Measurements".
Daily production for the year averaged 17,216 BOE/d, an increase of 28%
compared to 13,429 BOE/d in 2007. Volume growth in 2008 was primarily driven
by Galleon's light oil drilling in the first half of the 2008, Montney
resource gas drilling in the second half of the year and production from the
ExAlta and Adamant acquisitions. Light oil volumes increased due to the
drilling of more oil wells in response to higher oil prices in the first part
of 2008. Natural gas volumes increased in 2008 compared to 2007 as a result of
the success of the significant Eastern Montney gas horizontal drilling
program. Twenty of the 24 horizontal wells drilled in 2008 were brought on
production during the second half of 2008. Drilling in the Central Montney
project commenced in the second half of the year. The drilling focus shifted
between the first half and the second half of 2008. The Corporation moved from
conventional plays with smaller size and high initial declines toward resource
projects that have repeatability, predictability and comparably larger in
size.
The Eastern Montney natural gas project represents a significant resource
to Galleon and is currently the largest producing area contributing 19% to
total funds from operating activities in 2008 based on 22% of production
volumes. The operating netback of $33.60/BOE has improved by 31% from the
prior year as a result of stronger 2008 natural gas prices. Production
averaged 3,818 BOE/d (91% natural gas and 9% oil and liquids) during 2008
compared to 3,668 BOE/d in 2007.
Galleon's first Montney horizontal well was drilled in Q1 2008 and
commenced production in the latter part of June 2008. In 2008, twenty-four
(23.6 net) Eastern Montney horizontal wells were drilled and completed with
multi-staged fractures and twenty wells are currently producing approximately
3,600 BOE/d net (20 Mmcf/d and 267 BOE/d of oil and liquids). The production
data suggests that horizontal wells have a higher production profile (2 to 3
times better) and lower initial production decline rates than the vertical
wells. To date, the economics of the horizontal wells have proven to be better
than the vertical wells on a rate of return and reserve optimization basis. On
stream costs (including drilling, completion, tie-in and facility costs) on
average for the project are less than $10,000 per producing BOE. Galleon has
delineated a gas charged fairway with vertical well control that is 35 miles
long by 12 miles wide.
Production at Eaglesham averaged 3,066 BOE/d making it Galleon's second
largest producing property in 2008. Production is comprised of 71% natural gas
and 29% oil and liquids. Average production was 55% higher in 2008 compared to
1,975 BOE/d in the prior year. This increase has come from success in Wabamun
light oil and Montney resource gas drilling. Eaglesham contributed 19% of the
2008 funds from operations from 18% of production volumes.
