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Vauxhall, Alberta
The Corporation entered into a seismic and joint operating agreement with Acanthus Resources Ltd. on March 22, 2004 (as amended May 26, 2004). On September 22, 2004, Baytex Energy Trust acquired the majority of Acanthus' petroleum and natural gas assets. The Vauxhall Project was included in this acquisition and Baytex assumed Acanthus' role as operator of the Vauxhall Project.
Prospect Map
click to enlarge | Pursuant to the Farmin Agreement, the Corporation has the right to participate with Baytex in an oil and gas exploration program in the Vauxhall area of southeastern Alberta. Under the terms of the Farmin Agreement, the Corporation is entitled to earn a forty percent (40%) title share of Baytex's interest in the Vauxhall Crown Leases by funding one hundred (100%) of initial exploration expenses until such point in time that such expenses are equal to the amount of money that Baytex expended on the acquisition and maintenance of the subject Vauxhall Crown Leases. Under the terms of the Farmin Agreement, both parties acknowledged that Baytex had expended the sum of $1,130,000 on the acquisition and maintenance of the Vauxhall Crown Leases. Once the Corporation has funded exploration expenses of $1,130,000, the Corporation will earn a forty percent (40%) title share of Baytex's interest in the leases and the lands would become jointly owned by the Corporation and Baytex. Thereafter the Corporation and Baytex would participate as working interest partners in all future exploration and development activity on the joint lands, each partner funding its working interest share of expenses (Magnum -- 40%; Baytex -- 60%; of the combined interest).
Baytex was designated at the operator of the exploration program on the Vauxhall Project.
The Farmin Agreement also established the AMI surrounding the Vauxhall Crown Leases, as set forth in Figure 1. This AMI is effective until December 31, 2005.
Vauxhall Work Program
Before negotiating the Farmin Agreement, Acanthus undertook a detailed geological review of the Vauxhall area and acquired the Vauxhall Crown Leases. Acanthus drilled and/or re-entered at least one well in the area, the 02/15-19-12-15W4 well. Acanthus identified a number of potential exploration leads and mapped several Glauconitic lithic channels systems. However, Acanthus (and now Baytex) recognized that a detailed 3D seismic program was required in order to identify drillable hydrocarbon targets on the Vauxhall Project.
Under the terms of the Farmin Agreement, the Corporation is required to fund, at its sole expense, an initial work program consisting of a minimum of 15 square miles of 3D seismic. Acanthus, as operator of the exploration program, supervised the 3D seismic program. The Vauxhall South portion of the 3D seismic program was conducted in late 2004 and the Vauxhall North portion of the 3D seismic was conducted in early 2005.
Geology And Hydrocarbon Potential Of The Vauxhall Project
Introduction
There is one primary exploration target and three or more secondary targets in the Vauxhall Project. Jurassic Sawtooth sandstone oil reservoirs are the primary targets and secondary targets with existing production in the Vauxhall area include sands within the Mannville and Colorado Groups.
Primary Target - Sawtooth Sandstone Reservoir
The primary target reservoir in the Vauxhall prospect is the Jurassic Sawtooth sandstone. Locally the Sawtooth sand deposits form excellent stratigraphic traps where younger incised Glauconitic aged lithic channels have cut down into the Sawtooth sands forming impermeable barriers. In some cases structural drape over underlying Mississippian highs may also contribute to trapping hydrocarbons in the Sawtooth. The Sawtooth reservoirs usually contain a down-dip water leg, which locally provides pressure support (water drive). In general within the region, a successful Sawtooth well must have a minimum of 3 metres of oil pay above the water with more prolific wells having in excess of 6 metres of net oil pay above the water line.
The Sawtooth sands form excellent hydrocarbon reservoirs with average porosities of approximately 26 percent and permeability in the 1 to 2 darcy range.
Secondary Targets
Secondary targets with existing production in the region include Lower Cretaceous Upper Mannville lithic channel deposits and Bow Island sands of the Colorado Group.
Upper Mannville sandstone reservoirs have recently become a target for exploitation to the west of the prospect in Twp 13, Rge 17, W4. These relatively tight lithic channels have proven to attain reservoir quality when porosities exceed 12 percent with associated permeability greater than 1 millidarcy. An existing well, 7-35-12-16W4, located on the Farmin Lands, produced natural gas from what McDaniel interprets to possibly be an Upper Mannville lithic channel deposit (EUB designation is Basal Colorado). The well produced approximately 521 MMcf of natural gas before being suspended.
Bow Island sands are also prospective in the area, where fine-grained sands sometimes, in communication with a conglomeritic lag deposits, are capable of economic production. Acanthus re-entered and completed one such well, the 02/15-19-12-15W4, on the Farmin Lands in December of 2002. The 02/15-19-12-15W4 well was completed in the Bow Island zone and placed on production in June of 2003 and is currently producing at approximately 25 Mcf/d. The well is situated within a large Bow Island pool (EUB designation Bow Island I) extending to the northwest.
Under the terms of the Farmin Agreement, the Vauxhall Crown Leases do not include the rights to the productive zones in the two above mentioned wells, 7-35-12-16W4 and 02/15-19-12-15W4.
Vauxhall Project Activities
3D Seismic Program
The Vauxhall South portion of the 3D seismic program was completed in 2004, and McDaniel met with personnel from Acanthus on September 9, 2004 and briefly reviewed the available interpreted seismic data. A more detailed review and interpretation of the seismic data by Magnum was deferred pending acquisition of the North 3D data and the subsequent merge of the two data sets.
Acanthus's interpretation of the 3D seismic identified the Sawtooth horizon as a trough event immediately above the Mississippian Livingstone seismic peak. During McDaniel's brief review of the seismic data, they were unable to identify any locations where the Sawtooth appeared to have sufficient structural drape over the Mississippian nor any location with potential for stratigraphic trapping for the accumulation of hydrocarbons. However, they noted that the interpreted seismic data does suggest that the Sawtooth sandstone deposit is climbing structurally towards the north part of the Farmin Lands. The Vauxhall North 3D seismic program may yield drillable Sawtooth targets provided sufficient structural and/or stratigraphic traps are identified. Secondary targets within the Upper Mannville and Bow Island have not been sufficiently interpreted within the Vauxhall South 3D area to confirm nor discount potential drilling locations.
The Vauxhall North 3D Seismic was shot in early 2005 and merged with the previously shot South 3D data. Interpretation of the processed data is currently underway by Baytex and Magnum. Magnum has engaged the services of an experienced consulting geophysicist to perform this interpretation, independent of the seismic interpretation being carried out by Baytex.
Drilling Program
The original Vauxhall work plan that was reviewed by McDaniel had anticipated that exploration drilling activities would commence in Q1/Q2 2005. This was based on the assumption that the North 3D would be completed in Q4 2004. Due to surface access and weather related delays, the seismic was shot approximately three months later than planned. As a result, the exploration drilling activity at Vauxhall will now likely occur in Q3/Q4 2005. Equipping of successful wells for production will follow, along with a development drilling program, likely to be carried out in 2006.
Land Acquisition
Under the Vauxhall work plan the acquisition of additional lands in the Vauxhall area, (some of which would be governed under the terms of the AMI that is in place until December 31, 2005), was contingent on the seismic interpretation and drilling results. Pending exploration results at Vauxhall, Magnum is currently evaluating a number of opportunities to acquire prospective lands in other areas.
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