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Quest Petroleum launches into Alberta oil sands project
Quest Petroleum (ASX:QPN) is forging a new production oriented direction with its entry into the 82,290 acre drill-ready Cold Lake oil sands project in Alberta, Canada.

The Cold Lake region currently produces about 500,000 barrels of oil per day and its one of three major oil sands deposits in Alberta, which ranks first in crude oil reserves and production in Canada.

Canada has the world’s third largest oil reserves of 173 billion barrels of which 167 billion barrels are located in oil sands.

Quest can earn a 50% interest in the project area from partner First Nations Exploration Company, Keyano Pimee Exploration Company Limited (KPECL), through the funding of low cost vertical well re-entries; drilling new vertical wells; and jointly funding a multi horizontal-well production development program.

The existence of oil at the Cold Lake Project has been verified by previous drilling and extensive log analysis from numerous historic and producing gas wells.

Targets include crude oil in shallow horizons with an average depth of approximately 600 metres.

Quest will manage Phase 1 & 2 operations with an established local technical team with a joint board of management to be established for phase 3 under the joint operating agreement.

Cold Lake recovery economics demonstrate viability at current oil price and the likelihood of a speedy, low-cost pathway to production revenues for Quest and KPECL.
The KPECL lands are currently producing approximately 2 million cubic feet of gas per day from 23 existing wells.

Quest is the process of changing its name to Indus Energy and is consolidating its capital through the conversion of every 20 shares into one share and 20 options into one option.

Shareholders have also approved the company issuing up to 1 billion pre-consolidation shares at an issue price of not less than 80% of the average market price for shares on the five trading days prior to the issue. Quest is currently trading at $0.001.
Farm-in Details

The 82,290 acre Cold Lake project is owned by the Cree First Nations people through KPECL, assuring approvals and consents for the proposed activities as well as access to significant infrastructure across the project area.

In addition, the proposed partnership arrangement will not be subject to short term lease constraints and pressures that are normally associated with North American onshore oil & gas exploration and development projects.

KPECL, which is owned jointly by the Cree First Nations groups of Saddle Lake and Whitefish Lake, plans to transition from a gas royalty company to an active oil producer through the proposed joint arrangement with Quest.

In Phase 1, Quest has committed to an initial four well re-entry program in areas where oil occurrences have been encountered during gas production activities on the KPECL lands.

The combined all-in cost of these four re-entries is estimated at $700,000.

On successful completion of the Phase 1 program, the company will earn a 50% interest in the four wells and four corresponding 640 acre sections of project land and the right to proceed with Phase 2 of the farm-in.

Phase 2 involves Quest funding 13 low cost (estimated to be $600,000 each) vertical conventional wells or additional re-entries to test oil occurrences across thirteen separate 640 acre project sections.

This will earn the company a 50% interest in the wells and the corresponding sections of land as well as the right to proceed to Phase 3 of the Project.

Quest is also entitled to recover all of its Phase 1 and 2 costs from 80% of the production revenue.

Phase 3 consists of drilling vertical and horizontal wells on a 50:50 working interest basis with KPECL across the remaining Project area.

During Phase 3, KPECL and Quest will jointly fund an ongoing programme where each successful vertical well will serve as the pad for the drilling of up to 12 horizontal production wells per section to recover oil from various oil sand horizon(s) using the in-situ cold oil production with sand (CHOPS) method.

CHOPS is a technique for extracting heavier crude oil where sand is used as a means enhancing the productivity of the oil well.

It is now used as a "quasi primary" production approach in unconsolidated sandstones. As early as 2002 Energy Alberta claimed that there were thousands of wells in Canada that were stably producing oil through CHOPS.


Project Execution and Work Programs

Quest has recently appointed Alberta based Apex Energy Consultants as its project adviser and technical operations manager to assist with project execution and operatorship.

Apex is a petroleum engineering firm with specialist oil sands expertise. It will provide full geological, geophysical, engineering services, reservoir and evaluation engineering and day to day management of all technical operations at the project.

It has overseen the process of selecting the four re-entry wells for the Phase 1 program and is preparing for mobilisation on execution of the Joint Operating Agreement.

Apex will also be responsible for the overall project development through Phases 2 and 3. The Phase 2 sections have been identified and the drill locations for the 13 vertical wells have been generated.


Alberta

Alberta is a proven oil sand province with more than C$514 billion (A$530 billion) invested by companies such as Baytex, CNRL, Devon and Husky International.

Revenues from all existing and new projects now exceeds C$2,484 billion as of 2013.

Oil sands-related investment is expected to generate C$79.4 billion, on an inflation-adjusted basis, in federal and provincial government revenues between 2012 and 2035.

Other well-established players in the region are gearing up for a new round of expansion in the region.

Imperial Oil, a long-time participant in the Cold Lake area, expects to start producing 40,000 barrels per day from its Nabiya Project in the near future.

Cenovus Energy is set to expand its Foster Creek project near Bonneville and Cold Lake by 90,000 barrels per day by the end of 2016.

Average oil sands cash costs are about $24.33 per barrel for in-situ production.
In addition, some of oil at Cold Lake is fluid enough to be extracted by conventional methods

Analysis

The Cold Lake oil sands joint venture offers Quest Petroleum a near-term, low-cost pathway to production revenues.

Both low-cost well re-entries and vertical wells have already been identified, providing the company with a clear direction for the first and second phases.

Partnering the First Nations company KPECL also grants the company the opportunity to forge a long term mutually beneficial partnership.

Adding further interest, the project is located in a proven oil producing basin with significant infrastructure.

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