September 3, 2012

New oilsands facility proposed

RICHARD GILBERT

staff writer

A Vancouver-based mining company is planning to submit applications next year for the construction of a 12,000-barrel-per-day oilsands facility in northeastern Alberta, after acquiring full ownership of a pre-production company.

SilverWillow Energy Corporation is focused on the development of the Audet Lands, which is a 23,040 acre property located 110 kilometres northeast of Fort McMurray.

In a second-quarter financial update, SilverWillow’s president and chief executive officer Howard Lutley said the company is analyzing data gained from the winter field program.

It was designed to test the performance of steam-assisted gravity drainage technology (SAGD).

As a result, the company initiated a series of tests, including reservoir simulation studies and a geo-mechanical evaluation program.

This involved resource delineation drilling; cap rock evaluation, including mini-frac tests; hydrogeological evaluation and flow testing; and a 2D seismic acquisition program.

“This technical work will be a key part of the regulatory application we are planning to submit in 2013 for a 12,000 barrel per day production facility at Audet,” said Lutley. “We have prepared tender packages for preliminary engineering of the production facilities and environmental and regulatory support at Audet and expect to award this work in the third quarter of 2012.”

SAGD is a form of steam stimulation for producing heavy crude oil and bitumen, in which a pair of horizontal wells are drilled into the oil reservoir, one a few metres above the other.

High pressure steam is continuously injected into the upper wellbore to heat the oil and reduce its viscosity.

This causes the heated oil to drain into the lower wellbore, where it is pumped out.

According to the financial update, the Audet Lands have discovered resources of 1.69 billion barrels of bitumen initially in place.

During the first quarter of 2012, SilverWillow completed the winter field program to determine the development potential of the project.

However, the financial report said results of such studies and tests are subject to varying interpretations.

In addition, it is still too early in the construction process to estimate the total cost of designing, building and operating the facility at Audet.

This can’t be fully determined until the commissioning of any future project is completed.

All of this means that SilverWillow can’t guarantee that future development or construction activities will ever happen.

Other risk factors that could impact this project include oil prices, exploration costs, development costs, possible changes to the fiscal regime and possible changes to environmental or other relevant regulations or delays in receiving regulatory approvals and lease tenure.

Established in April, SilverWillow Energy Corporation was formed as a result of a deal involving SilverBirch Energy Corporation, Teck Resources Limited, 8071667 Canada Inc. (the purchaser) and SilverWillow.

Under the deal, the numbered company or purchaser, which is a wholly owned subsidiary of Teck, acquires all of SilverBirch’s outstanding shares, other than those already held by Teck.

SilverBirch shareholders received $8.50 for each SilverBirch share and one common share of SilverWillow.

As part of the deal, Teck Resources Ltd. gained 100 per cent ownership of the Frontier and Equinox oilsands mining projects for $435 million.

SilverWillow is a pre-production oilsands company with a plan to move its properties toward commercial production.

The primary assets of SilverWillow include the proposed oilsands project on the Audet lands, the Birch Mountain lands and 57,600 net acres of additional exploration land.

The Audet lands are about 40 kilometres north of Cenovus Energy Inc.’s proposed Telephone Lake project.

Teck Resources is a resource company involved in mining and mineral development with business units focused on copper, steelmaking coal, zinc and energy, as well as the production of specialty metals such as germanium and indium.

The company owns, or has an interest in 13 mines in Canada, the U.S, Chile and Peru.

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