The Canadian Heavy Oil Business Unit accounts for more than 60% of current production and more than 70% of oil-equivalent reserves. Baytex's heavy oil operations consist predominantly of cold primary production, without the assistance of steam injection. In some cases, Baytex's heavy oil reservoirs are waterflooded, occasionally with hot water. Baytex's heavy oil fields often have multiple productive zones, some of which can be commingled within the same producing wellbore. Production is generated from vertical, slant and horizontal wells using progressive cavity pumps capable of handling large volumes of heavy oil combined with gas, water and sand. Initial production from these wells usually averages between 40 and 500 bbl/d of crude with gravities ranging from 11 to 18 degrees API. Once produced, the oil is trucked or pipelined to markets in both Canada and the United States. Heavy crude is usually blended with light-hydrocarbon diluents (such as condensate) prior to being introduced into a sales pipeline. The blended crude oil is then sold by Baytex and may be upgraded into lighter grades of crude or refined into petroleum products such as fuel oil, lubricants and asphalt by the crude purchasers. All production rates reported are for heavy crude only, before the addition of diluents.
In 2009, production in the Canadian Heavy Oil Business Unit averaged approximately 25,913 boe/d, which was comprised of 24,678 bbl/d of heavy oil and 7,409 Mcf/d of natural gas. During 2009, Baytex drilled 90 (82.3 net) wells in the Canadian Heavy Oil Business Unit resulting in 83 (76.3 net) oil wells, 2 (2.0 net) stratigraphic test wells, 2 (1.0 net) service wells, and 3 (3.0 net) dry and abandoned wells, for a success rate of 97% (96% net).
The Canadian Heavy Oil Business Unit possesses a large inventory of development projects within the operating areas of west-central Saskatchewan and Cold Lake/Ardmore and Peace River in Alberta. Baytex's ability to generate relatively low-cost replacement production through conventional cold production methods is key to maintaining our overall production rate. Due to the size of inventory of heavy oil projects, we are able to select from a wide range of investment opportunities to maintain heavy oil production rates.
Baytex will continue to build value through internal heavy oil property development and selective acquisitions. Future heavy oil development will focus both on the Peace River oil sands area and Baytex's historical area of emphasis around Lloydminster. Our net undeveloped lands in the Canadian Heavy Oil Business Unit totalled approximately 382,000 acres at year-end 2009.
Listed below is a brief description of the principal properties within the Canadian Heavy Oil Business Unit:
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Ardmore - Alberta
Acquired in 2002, this property has since been extensively developed in the Sparky, McLaren and Colony formations. Average production during 2009 was approximately 1,012 bbl/d of oil and 374 Mcf/d of natural gas (1,074 boe/d). Two successful oil wells were drilled in the area during 2009. Baytex anticipates drilling one well in this area in 2010. Net undeveloped lands were 39,000 acres at year-end 2009.
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Carruthers - Saskatchewan
The Carruthers property was acquired by Baytex in 1997. This property consists of separate "North" and "South" oil pools in the Cummings formation. Five new wells were drilled in 2009 which, combined with relatively low production declines due mostly to strong performance of the ongoing waterflood, led to a year-over-year production increase. The waterflood was expanded in 2009 and Baytex plans to further expand the waterflood area in 2010. We plan to drill 16 wells in the Carruthers area in 2010. Average production in 2009 was approximately 2,164 bbl/d of heavy oil and 583 Mcf/d of natural gas (2,261 boe/d). Net undeveloped lands were 12,600 acres at year-end 2009.
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Celtic
This producing property was acquired in October 2005, in a transaction where Baytex purchased cold heavy oil production of 1,600 bbl/d and natural gas production of 900 Mcf/d. As a result of Baytex's well re-completion and drilling activities, production averaged 4,326 bbl/d of heavy oil and 878 Mcf/d of natural gas (4,472 boe/d) during 2009. Celtic is a key asset for Baytex because, like the adjacent Tangleflags property, it contains a large resource base with multiple prospective horizons. As a result, the Celtic property provides a multi-year inventory of drilling locations and re-completion opportunities. The heavy oil at Celtic is relatively highly gas-saturated and the existing infrastructure allows for efficient capture and marketing of co-produced solution gas. In 2010, Baytex expects to drill 7 new wells and re-complete approximately 20 existing wells. Net undeveloped lands were 8,700 acres at year-end 2009.
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Cold Lake - Alberta
Located on Cold Lake First Nations lands, this heavy oil property was acquired by Baytex in 2001. Production is primarily from the Colony formation. Average oil production during 2009 was approximately 476 bbl/d. Baytex drilled five successful oil wells in the Cold Lake area in 2009, and we plan to drill one new well in the area in 2010. Net undeveloped lands were 13,600 acres at year-end 2009.
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Kerrobert/Coleville - Saskatchewan
Baytex acquired assets in the Kerrobert and Coleville areas of Saskatchewan on July 30, 2009. The acquisition provides numerous opportunities for cold infill drilling and steam-assisted gravity drainage (SAGD) optimization. In addition, the Kerrobert area offers significant potential for light oil development in the Viking formation using horizontal wells with multi-stage hydraulic fractures, similar to the Dodsland Viking opportunities described above. Baytex also holds a 50% non-operated interest in a pilot project in the Kerrobert area using toe-to-heel air injection in horizontal wells. At the time of the acquisition, the acquired assets produced approximately 3,000 boe/d. Baytex drilled two (1.0 net) oil wells and two (1.0 net) service wells in this area in 2009, and performed workovers on several wells. Baytex plans to drill 9 wells in this area in 2010. Net undeveloped lands were 50,135 acres at year-and 2009.
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- Lindbergh – Alberta
Lindbergh is a primarily non-operated heavy oil property that was purchased in June 2007. Baytex has a 21.25% working interest in this property, which is operated by a senior Canadian producer. Average production in this area during 2009 was approximately 577 bbl/d of heavy oil. Like Tangleflags and Celtic, Lindbergh is a multi-zone property that is expected to provide future development projects for many years. Thus far, economic production has been obtained from the Dina, Cummings, General Petroleum, Sparky and Colony formations. Seven (1.5 net) wells were drilled in this area in 2009. Net undeveloped lands were 1,400 acres at year-end 2009.
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- Marsden/Epping/Macklin/Silverdale - Saskatchewan
This area of Saskatchewan is characterized by low access costs and generally higher quality crude oil that ranges up to 18 degrees API. Initial per well production rates are typically 40 to 70 bbl/d. Primary recovery factors can be as high as 30% of the original oil in-place because of the relatively high oil gravity and the existence of strong water drive in many of the oil pools in this area. Average production in this area during 2009 was approximately 3,270 bbl/d of oil and 409 Mcf/d of natural gas (3,338 boe/d). Seven (7.0 net) successful oil wells and two (2.0 net) dry holes were drilled in this region in 2009. For 2010, a further 10 wells are planned. Net undeveloped lands were 24,000 acres at year-end 2009.
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Tangleflags - Saskatchewan
Baytex acquired the Tangleflags property in 2000. Tangleflags is characterized by multiple-zone reservoirs with production from the Colony, McLaren, Waseca, Sparky, General Petroleum and Lloydminster formations. In 2009, Baytex drilled 8 (8.0 net) wells in the area. We plan to drill approximately 17 wells in the area in 2010. Average production during 2009 was approximately 2,062 bbl/d of heavy oil and 683 Mcf/d of natural gas (2,176 boe/d). Net undeveloped lands were 7,800 acres at year-end 2009.
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