Working Interest up from 20% to 85% in 18 months

(Dec 2018 to June 2020)

Drilling Operations

The primary focus of the JV has been on the development and optimisation of existing oil pools. A disciplined and pragmatic technical approach in nearby areas has uncovered robust exploration potential. The Wizard Lake Rex Oil Discovery is now in development and focussed on the Rex (Upper Mannville) oil play. The successful drilling and testing of the first Wizard Lake Rex-1 well re-directed the immediate focus to the continued development of the Rex field as outlined below.

Wizard Lake Rex – Rex-1 Oil Discovery (WBE 30% WI)

The Wizard Lake Rex well was spud on the 24 November 2018 and, following a 27 stage fracture stimulation program, the well commenced cleanup flows on December 24th.

Initial flow testing of the Wizard Lake Rex horizontal oil well recorded production rates of more than 300 barrels of oil per day prior to the completion of testing. Following reconciliation of the hydrocarbons produced from the January 2019 flow test of its Wizard Lake Rex well, the total oil produced from the 16‐day flow test has been increased from 1833 barrels of oil to 2845 barrels – a 55% increase.

Rex-2 Development Well
(WI moved to 40% when connected to facilities)

Rex-2 was drilled and completed in August 2019.  A successful 35 stage frac placing over 1000 tonnes of proppant in to the Rex formation was announed on 26 August 2019 and flowback and testing commenced shortly after.

On 6 September, the Company announced that the steadily increasing production rates in Rex-2 during the test period enabled commercial production to be established for the well. This was seven days after the commencement of testing and around seven days earlier than when commercial production was established for Rex-1.

The final 24 hour flow rates to 4 September exceeded flowrates from Rex-1 and oil continue to trend upwards, averaging 700 boepd during the final 24 hours of testing (50% oil). This compares to around 340 boepd for Rex-1.

Rex-3 – Performing Beyond Expectations
(WI moved to 50% upon completion)

Rex-3 was successfully drilled to 3673m total length in eight (8) drilling days from spud on 17 November 2019. The planned Rex-3 horizontal leg of 1800m (Rex-1 hz = 1237m, Rex-2 hz = 1500) was extended 298m due to the presence of a continuous reservoir while drilling to the toe. The well encountered excellent quality reservoir with free oil noted on the shakers, oil shows (fluorescence and cut) and elevated gas readings when drilled. Elevated porosity levels ranging up to 23% were also recorded through the sand (Rex-1: 15-18%, Rex-2 – up to 21%).

A successful 46 stage fracture stimulation program was completed in just over 30 hours during December 2019. The 46 stage frac programme placed over 1300 tonnes of proppant into the Rex formation and used sliding frac sleeves to isolate each zone.

Pump assisted cleanup flows of Rex-3 commenced on 12 December with first measured oil recorded at surface after 30.5 hours compared with 42 hours at Rex-2. At the end of 18 hours continuous flow, average rates at Rex-3 were 1084 bopd with 1.16 mmcfd.

As expected, the extra length of the horizontal section at Rex-3 has led to higher oil production rates and likely larger reserve bookings per well than at Rex-1 and Rex-2.

As announced on 7 January 2020, Rex-3 flowed oil and gas to surface unassisted. At that time, approximately 30% of the frac fluid had been recovered. The well flowed through an 11.91mm choke to restrain the gas rate to approximately 2 mmcfd and ensure the well could clean up in an optimal manner. Flowing 350 to 450 bopd under this heavy choke, the well continued to clean up with a total water cut of approximately 35%.

Rex-1 Workover

Due to the strong production achieved from Rex-2, Rex-1 was shut in as the facilities at the time reached capacity. The company took this opportunity to carry out a workover of Rex-1 and investigate the performance difference between the wells.

During the workover, metal debris was encountered in the hole obstructing approximately two thirds of the lateral. The debris, identified as the drill bit and downhole motor of the coil tubing (5m long) was stuck in the hole just prior to Christmas 2018 when the Operator at the time pushed this debris to the toe of the well so that it would not interfere with production. The reason the debris moved uphole is unclear, but it was most likely dragged up the hole during the original recovery operation.

A successful recovery operation by Whitebark’s Canadian operating entity, Saltbush Energy, was followed by connection to the upgraded facilities.

Facilities and Pipeline

A new pipeline, commissioned as a result of the excellent results from Rex-2, commenced construction on 1 November 2019 and was completed in late December 2019. The new pipeline comprises 2.1km, 6” steel line which is buried its entire length.  Whitebark also acquired a key 4.7km pipeline securing access to a pipeline gathering system and gas plant operated by Petrus Resources 14km to the north west, to which Wizard gas will be sent for processing and sales.

The new facilities upgrade work commenced 6 November and was completed and commissioned with the new pipeline in late December 2019[2]. Plant commissioning was carried out using Rex-2 production with Rex-1 added in the following days. The facilities separate the gas from the liquids for sales via the Petrus gas processing facilities. Gas throughput at this stage was held at 2 – 2.5 mmcfd as the wells continued to clean-up and stabilise. Oil throughput uses a heated cascade tank system which uses gravity to separate the oil and water (Figure 5). This system removes up to 99.5% of the water prior to the oil being trucked to receiving stations[3].

The new expanded facilities are capable of handling 5,000 barrels of fluid a day along with 5mmcfd of gas. Oil will continue to be trucked to market while gas is sent through the newly constructed gas pipeline to the nearby Petrus operated gas processing facility and then on to market.

Production Rates All Wells – February 2020

During the first half of February and following the extremely difficult operating conditions in January, the production of the Wizard Lake Oilfield reached a gross rate peak of 1,220 bopd and 3.5 mmcfd gas, which equates to ~1800 boepd when all wells were online.

On 12 March 2020 the Company announced that in response to the significant reduction in the oil price, the Company has taken immediate steps to maximise the long term returns from its Wizard Lake oil field in Alberta, Canada.  Production will be constrained to between 550 – 650 barrels of oil per day (bopd) and 3 – 4 million cubic feet of gas per day (mmcfd), which equates to ~1050 – 1315 barrels of oil equivalent per day (boepd).  This is to optimise the value of reserves while oil prices remain at low levels, while still generating significant cashflow for the company.

During Q1 2020, the Company was able to establish its operating costs, based on production of 600bopd, at CDN$7.50/bbl oil.  Key costs include oil and water transport and treatment variable costs of CDN$4.35/bbl, and fixed costs equivalent to CDN$3.15/bbl (equipment rental, labour, maintenance, regulatory etc).  Further reductions in fixed costs of approximately $2/bbl are available if the rental equipment is acquired rather than leased.  The Company continues to explore the cost benefit of undertaking this exercise.

Reserves

In its Wizard Lake reserves update announced to the ASX on 22 August 2019, Whitebark indicated the likelihood of 20+ gross well locations in the oil pool. The Company has development plans including the recently drilled and stimulated Rex‐2 (6 September 2019). Rex‐2 is situated to the north of Rex‐1 and on the same location as the new Rex facilities.

Working Interest at 30 June 2020 – ~85%

On 18 December 2019, the Company announced the acquisition of the remaining 50% of the Wizard Lake assets following completion of Rex-3 and the increase to working interest of 50%.  Of this staged acquisition, Stage 1 was completed on 23 December 2019 moving the Working Interest to 60% ownership, with the right to acquire the remaining 40% interest in Wizard Lake (Stage 2 and Stage 3).

Under the Agreement, Closing of Stage 2 was subject to the company arranging appropriate financing with a target date of 31 March 2019.  Due to the rapid decline in global economic conditions, particularly the decline in oil prices, this financing was not achieved, nor would it be prudent to proceed given present market conditions.

Accordingly, SBE served notice to terminate the Definitive Agreement after Stage 1 and holding a 60% working interest and Operatorship of the field.

In June 2020, SBE executed a new lease for 100% of the mineral rights in three sections of land (713ha) with the owner of the mineral rights in the Wizard Lake Oilfield.   This lease renewal increased SBE’s average working interest across the Wizard Lake Oilfield to 85%.  SBE retains the ROFR over any sale of the remaining interest.

SBE continues to receive 100% of production from Rex-1 until payout and has an entitlement to 85% of production in Rex-2 and 3 until payout. SBE continues to hold 100% WI in all facilities, pipelines and infrastructure.