CALGARY, March 4, 2013 /CNW/ - Birch Lake Energy Inc. (" Birch Lake" or " the Company") (TSXV: BLK) is pleased to provide an operational update at its Lochend property and announces that it has entered into a letter agreement (the " Letter Agreement") with Sundance Energy Corporation (" Sundance") (TSXV: SNY) with respect to a joint venture and a proposed business combination.
Further to the stimulation and swab results of the 4-3-25-3 well announced in December 2012, the Company announces that production has recently commenced. The 14 stage fracture stimulation completed on the well was successful; however, it has been established that there was a collapse in the casing in the horizontal portion of the well. As a result, the swab rates reported December 21, 2012 represent production from only an estimated 5 of the 14 fracs completed. An assessment of similar casing failures within the industry indicated that remedial operations would be expensive and were rarely successful. In light of this, it was decided to put the well into production from the limited interval. Although the Company is disappointed the full potential of the well was not realized, it is encouraged by the swab results from the limited portion of the well, and will advise on IP30 rates following the first month of stabilized production. More importantly, the geological success of this well in encountering a porous oil productive Cardium sand at the southern extent of the Company's lands has significantly de-risked future drilling of these lands.
The second Lochend well, 16-19-25-3, was spudded late November 2013. After reaching nearly the forecast drill depth of the well, drilling difficulties were encountered which resulted in the Operator proposing a second drilling operation for the well. The Company has not, at this time, elected to participate in this operation due to the additional costs involved and is currently assessing its options with respect to this well.Sundance Joint Venture Pursuant to the Letter Agreement, Birch Lake has granted to Sundance a right to earn up to 50% of Birch Lake's working interest in its Lochend Assets, being the non-operated working interest of 38.90% in certain petroleum and natural gas rights underlying 7,840 gross acres in the Lochend-Bearspaw area of Alberta (the "Lochend Assets"). In order to earn the working interest, Sundance must pay to Birch Lake an aggregate amount of $7,710,000 (the "Total Payment"), with the initial payment of $1,340,000 due by March 29, 2013. The subsequent payments will be paid upon Birch Lake receiving the authorizations for expenditure from the operator of the Lochend Assets, in accordance with the governing CAPL Operating Procedure. Sundance will earn the proportionate interest in the Lochend Assets upon payment of each installment to Birch Lake, such that upon payment of the Total Payment, Sundance will hold 50% of Birch Lake's interest in the Lochend Assets. In addition, upon payment of the Total Payment by Sundance, Birch Lake and Sundance will pursue the closing of a business combination, such that the shareholders of each of Birch Lake and Sundance would own 50% of the resulting issuer. Completion of the business combination is subject to receipt of all required approvals, including regulatory approval (including approval of the TSX Venture Exchange) and shareholder approval.
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