The Kaybob Corporate Operating Unit (“Kaybob”) produces natural gas, natural gas liquids (“NGLs”), and crude oil in West Central Alberta. The core natural gas producing areas in Kaybob include Musreau, Resthaven, and Smoky and the primary crude oil producing area is Kakwa. The horizons being pursued within Kaybob are in the Deep Basin, which are high pressure, liquids rich, tight gas formations with large reservoir potential.
Total sales for Kaybob averaged 4,245 Boe/d in 2007, comprised of 22.3 MMcf/d of natural gas and 533 Bbl/d of crude oil and NGLs. Sales volumes increased in 2007 by 42 percent from 2006, primarily as a result of drilling and tie-in activities at Musreau and Resthaven.
Kaybob’s capital expenditures for 2007 totaled $136 million (excluding land), and were focused on drilling, completion and facility work, including the addition of compression and dehydration capacity, in the Musreau area.
Since 2004, Paramount has invested over $350 million in the Deep Basin areas of Kakwa, Musreau, Resthaven and Smoky; acquiring significant undeveloped acreage, constructing production infrastructure, and commencing a drilling program to further delineate the potential of this long-term development. To date, project economics have been challenging because of the high costs of drilling, completing and equipping these deep multi-zone wells, lower per-well reserves additions than originally expected, and depressed natural gas prices over the past 12 to 18 months. The Company continues to believe that development of the Kaybob Deep Basin area provides significant value potential, and is working to improve project economics. A significant focus of this effort is on reducing per-well drilling, completion, equipping and tie-in costs – by a targeted one third. Based on knowledge gained over the past three years, cost reductions are expected from downspacing to four wells per section and using a pad drilling and group production facility approach to reduce rig mobilization / demobilization and equipping costs. Paramount is working with its partners to obtain the required regulatory approval for downspacing. Additional cost savings are anticipated by using new drilling mud technology to reduce fluid loss and eliminate the need for intermediate casing, and by improving the efficiency of fracturing the multiple prospective producing zones of wells. The Company has reduced budgeted 2008 spending in the Kaybob Deep Basin area to allow for further development of Kaybob’s cost reduction strategy, and the return of natural gas prices to sustained levels that will support project economics. The Deep Basin continues to be the core area for Kaybob, and as project economics improve, is expected to be developed as a significant growth platform for the Company over the next five to ten years.
In 2008, Paramount plans to drill 10 (5.5 net) wells and complete and tie-in 10 (6.3 net) wells that were drilled in prior years in Kaybob. The majority of the 2008 capital investment will be focused in the Musreau, Resthaven, and Smoky areas targeting multiple Cretaceous formations.
Previous investments in the Smoky and Resthaven gas plants and contractual agreements with a third-party-operated facility in Musreau are anticipated to meet Kaybob’s near term processing requirements.
