Pinecrest Energy Inc. Provides Update on Slave Point Waterflood Performance

TSX Venture Exchange:  PRY

CALGARY, Nov. 14, 2012 /CNW/ - Pinecrest Energy Inc. ("Pinecrest" or the "Company") is pleased to provide an update on the performance of the Company's waterflood schemes as well as an operational update.

WATERFLOOD UPDATE

EVI - Project #1

The results to date from the Company's first joint waterflood in the Evi area have been encouraging.  Water injection commenced on a continuous basis in May, 2012 with initial incremental oil response observed within 2-3 months.  Since first response, oil production rates from the Company's joint offsetting wells have increased rapidly and significantly. Three wells (one horizontal and two vertical wells) offsetting the injector have increased by factors of between three and six times their respective rates prior to the commencement of water injection.  This response is consistent with those observed in other water injection scheme areas within the Company's Greater Red Earth core area.  In aggregate, production has increased from 16 bbls/d to 88 bbls/d.  These results provide support for the low cost repeatable upside associated with pressure maintenance by way of waterflooding.

After injecting approximately 70,000 bbls of water, the offsetting producing wells have increased as follows:

Well Oil Rate Prior
to Water
Injection
(bopd)
Current Oil
Rate
(bopd)
% Change Water Cut
Prior to
Injection (%)
Current Water
Cut (%)
Horizontal
Producer #1
12 70 583 30% 14%
Vertical
Producer #1
2 12 600 56% 7%
Vertical
Producer #2
2 6 300 23% 1%

Future Projects

Pinecrest plans the implementation of an additional seven waterflood schemes prior to the end of 2013.  Within these schemes, eight wells will be converted to injectors supporting approximately 20 producing wells. The 20 producing wells have current aggregate production of approximately 850 barrels of oil per day. Management is projecting that all of the proposed schemes will see similar production responses and within the same time frames (two to three months) as the other five existing waterflood schemes in the immediate area.

Pinecrest's first 100% operated waterflood scheme has received ERCB approval; facility construction has commenced and water injection is scheduled to begin in December 2012.  Approval for the second waterflood scheme is anticipated to be received prior to year end 2012 with injection commencing prior to the end of Q1 2013.  The five remaining projects are expected to be phased in throughout the second and third quarters of 2013.

The location of the seven waterflood schemes are dispersed throughout the Greater Red Earth area, encompassing the Evi, Otter, Loon and Red Earth fields.  All of the proposed waterflood schemes will utilize existing wells and will enjoy similar or lower capital efficiencies as the initial Evi - Project #1 waterflood.  It is anticipated that an equal number of waterflood schemes will be commissioned in 2014.

Impact of Waterflood Projects

Management estimates that the seven planned 2013 waterflood schemes will provide the Company with waterflood specific capital efficiencies of less than $10,000 per flowing barrel.  Additionally, the introduction of the pressure maintained production stream is anticipated to materially change the Company's overall production decline profile.  The combination of the Company's large drilling inventory, industry leading production netback, improving capital efficiencies and attenuated corporate decline rate will drive the growth profile of the Company for the foreseeable future.

The implementation of the waterflood schemes is an integral piece of the Company's strategy of increasing the recovery factor of the large contingent oil resource.  Effective January 31, 2012, Sproule Associates Ltd. ("Sproule") provided a best estimate that the Company has over 580 million barrels of discovered oil originally-in-place, with the best estimate of contingent resources being 67.5 million barrels of oil.  The best estimate of the contingent oil resources plus proved plus probable reserves associated with the area incorporates a 13% recovery factor and is based solely on primary recovery.  The empirical data from the offsetting historical waterfloods suggests that overall recoveries of 20% or greater are possible.

PRODUCTION AND DRILLING

Current field production is estimated to be in excess of 4,000 boe/day. As well, between 9-13 additional wells will commence production before year end. The Company is maintaining its exit production guidance of 5,000 - 5,200 boe/day.

Advisory 

Forward-Looking Statements

The information in this press release contains certain forward-looking statements. These statements relate to future events or our future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "would" and similar expressions. In particular, forward looking statements in this press release includes, but is not limited to: Pinecrest's capital program and 2012 business objectives, Pinecrest's 2012 budget, oil recovery rates, the effects of waterfloods on recovery factors, decline rates and type curves for wells, production rates, exit rates for production and bank debt, downspacing opportunities, the quantity of reserves, and projections of market prices and costs. These statements involve substantial known and unknown risks and uncertainties, certain of which are beyond Pinecrest's control, including: the impact of general economic conditions; industry conditions; changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced; fluctuations in commodity prices and foreign exchange and interest rates; stock market volatility and market valuations; volatility in market prices for oil and natural gas; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions, of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry; geological, technical, drilling and processing problems and other difficulties in producing petroleum reserves. Pinecrest's actual results, performance or achievement could differ materially from those expressed in, or implied by, such forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur or, if any of them do, what benefits that Pinecrest will derive from them. Except as required by law, Pinecrest undertakes no obligation to publicly update or revise any forward-looking statements.

Many of the risks and uncertainties described above and additional risk factors are described in the Company's Annual Information Form which is available at www.sedar.com and www.pinecrestenergy.com.  Readers are also referred to risk factors described in other documents Pinecrest files with Canadian securities authorities.

Statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the resources or reserves described can be profitably produced in the future.

Reserves and Resource Estimates

The estimates of discovered oil initially-in-place and contingent resources presented herein are based on an assessment by Sproule of the Company's Contingent Slave Point Oil Resources (the "Sproule Assessment") in the Greater Red Earth Area effective January 31, 2012. All estimates of resources and reserves as well as the cumulative production volumes presented herein represent Pinecrest's gross interest resources, reserves or production before the deduction of any royalties and without including any royalty interests of Pinecrest.

The Sproule Assessment was prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook ("COGE") and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities.  Certain resource definitions as set out in the COGE Handbook are set out below:

Discovered oil initially-in-place is that quantity of oil that is estimated, as of a given date, to be contained in known accumulations prior to production. The recoverable portion of discovered oil initially-in-place includes cumulative production, reserves, and contingent resources; the remainder is categorized as unrecoverable. The best estimate of discovered oil initially-in-place presented herein includes 0.96 mmbbls of cumulative production (as at December 31, 2011), 8.1376 mmbls of reserves (proved plus probable as at December 31, 2011), 67.5 mmbbls contingent resources (best estimate as at January 31, 2012) and 507.4 mmbbls of unrecoverable discovered oil-initially-in-place resources.

Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include such factors as economic, legal, environmental, political and regulatory matters or a lack of markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage. With respect to the contingent resources associated with the Company's interests in the Great Red Earth Area, the primary contingency which prevents the classification of the contingent resources as reserves is the current early stage of development.  Additional drilling, completion, and testing data will be required before the contingent resources can be classified as reserves.

There is no certainty that it will be commercially viable to produce any portion of the contingent resources or that any portion of the volumes currently classified as contingent resources will be produced. The recovery and resource estimates provided herein are estimates. Actual contingent resources (and any volumes that may be classified as reserves) and future production from such contingent resources may be greater than or less than the estimates provided herein.

Unrecoverable discovered petroleum initially-in-place is that portion of discovered oil initially-in-place which is estimated, as of a given date, not to be recoverable by future development projects. A portion of these quantities may become recoverable in the future as commercial circumstances change or technological developments occur; the remaining portion may never be recovered due to the physical/chemical constraints represented by subsurface interaction of fluids and reservoir rocks.

Best Estimate of a resource represents the best estimate of the quantity that will actually be recovered.  It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate.  If probabilistic methods are used, there should be at least a 50 percent probability (P50) that quantities actually recovered will equal or exceed the best estimate.

Certain information provided in this press release in relation to the results of waterflooding Slave Point reservoirs on lands in close proximity to the land in which the Company has an interest, is considered analogous information under National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities.  Such information is based on publicly available information from governmental agencies and other industry producers and has been provided to give an indication of possible incremental recovery factors in the specified area.  Other than comparing such information to the Company's own limited results in the specified area, the Company has not independently confirmed the accuracy of this information.  There is no certainty that such incremental recovery factors will be obtained of even if so obtained, whether such factors can be achieved on an economic basis.

Barrels of Oil Equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of 6MCF:1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1,utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.

 

SOURCE: Pinecrest Energy Inc.

For further information:

Pinecrest Energy Inc.
Suite 500, 255 - 5th Avenue S.W.
Calgary, Alberta  T2P 3G6

Wade Becker, President and CEO
or
Dan Toews, V.P. Finance& CFO

Tel: (403) 817-2550 or
Fax: (403) 817-2599