President's Message

Manitok has been created specifically to focus on and succeed in the foothills. Our technical team has been assembled for their extensive drilling experience and successful track records in foothills exploration and development. Prior to joining Manitok, much of our group spent many years at Talisman Energy, which had been the leader in foothills exploration and development for more than 20 years. Collectively, our technical team has more than 100 years of experience, involving billions of dollars of capital expenditures in foothills operations.

Now with Manitok, they are focused on shallower oil and liquids-rich natural gas plays that have been overlooked by the majors. Energy companies are fond of saying their people are their biggest assets, but for us this is true in the most tangible and immediate sense. Our people are the cornerstone of our foothills strategy.

Unlike the plains, where today’s focus is on unconventional, tight reservoirs, much of the opportunity in the foothills still lies in conventional reservoirs. These reservoirs, because of their physical properties, require much less capital to access the same reserves value. There is still a tremendous magnitude of reserves to be exploited in the foothills through vertical drilling with little fracture stimulation. However, where advantageous, horizontal drilling and today’s new completion technologies can be applied to enhance returns.

We currently have an inventory of more than 40 prospective drilling targets, most of which can be effectively accessed with lower-cost vertical wells. We believe this drilling inventory gives us the ability, with adequate financing in place and the necessary time to execute the drilling, to exceed 5,000 barrels of oil equivalent production per day without adding any additional lands or acquisitions.

Admittedly, the foothills are no place for those without the requisite education, training and experience. The folding and faulting of reservoirs in the region makes it a significant challenge for most companies. With the knowledge and training gained by Manitok’s technical team in the pursuit of deeper gas targets, we are now taking a different approach. We are pursuing the shallower, more modest oil and liquids-rich natural gas pools that the larger companies drilled through, and ignored, in their hunt for deep sour gas.

We are one of very few early entrants into the shallow foothills, which have to date, been largely underexploited. As a result, there are few competitors at this time and this will likely remain unchanged in the near future due to the technical experience required to understand and execute drilling programs in the foothills. Drilling experience in the foothills forms a substantial barrier to entry for companies.  It takes many millions, if not billions, of dollars of drilling to understand what works and, more importantly, what doesn’t work in the foothills. This low level of competition has enabled us to assemble more than 72,000 net acres of foothills leases, over the last 20 months, in the areas we consider the most prospective for early success.

There is plenty of running room for Manitok in the foothills, both because of the bypass opportunities and because the region is still substantially under-drilled, as compared with the rest of the basin. The previous exploration efforts of the majors have left the area substantially covered by 2-D and 3-D seismic surveys; much of which can be purchased at a fraction of the cost of acquisition. Similarly, the previous drilling of many deep wells means drill cuttings and well logs are readily available to provide a better understanding of the complex geology of our shallower targets.

Large tracts of crown land are still available for lease in the foothills and shallow rights reversions will make additional lands available in the coming years. Manitok anticipates that within the next several years, the reversions will begin to be enforced in the foothills which could ultimately lead to tens of thousands of acres of shallower rights reverting back to the crown over time.

Finally, the previous activities of the majors, over more than 20 years, mean that infrastructure is already in place throughout our prospective areas. Roads, pipelines and processing plants have all been built which will significantly reduce the costs of future development. This means more of our capital will be allocated to drilling and completions, rather than to roads and facilities.

The first major test of our foothills strategy was completed in the first quarter of 2011 with the drilling of our Stolberg #1 well, some 80 km west of Rocky Mountain House, Alberta.

We completed a successful liquids-rich natural gas well to a Cretaceous zone, at a depth of 3,200 metres. After initially perforating this zone, the flow test registered a rate of 739 barrels of oil equivalent per day, consisting of 75 barrels per day of 52° API wellhead condensate and four million cubic feet per day of sweet, liquids-rich natural gas. We have a 75% working interest in the well. After  assessing the pressure build up data, getting an industry respected third party’s opinion on that data, and our own internal evaluation involving other information like a nearby well analog, we believe that with a small volume fracture stimulation the well’s production capability could be over 2,000 boe/d.

Based on the strong results of our first well, Manitok plans to follow up by drilling three locations near the discovery, likely beginning in the third quarter of this year. We hold a 97.7-per-cent working interest in a total of 17,600 acres in the area with multi-zone oil and liquids-rich natural gas potential.

Initial success at Stolberg demonstrates the efficacy of our approach to the foothills. It shows that risks can be managed and that our strategy can produce impressive rates of return.   

The Manitok management team fully understands that pursuing foothills oil and liquids-rich natural gas is a challenging undertaking that needs to be balanced by play type, as well as by product. Accordingly, we have developed several core areas other than Stolberg, which are prospective for oil, liquids-rich natural gas and dry natural gas.

Our first production was established in the heavy oil region of East Central Alberta. A discovery well was drilled in 2007 that resulted in a new-pool designation for Manitok near Vermilion, some 80 km west of Lloydminster, Alberta. We followed this in 2010 with five new wells that will give us a total of about 190 barrels of daily heavy crude oil production capability, all with a 100-per-cent working interest.

Our 24,960 acres at Fallen Timber are very prospective for liquids-rich gas and oil. Six competitor wells offsetting our Fallen Timber lands are currently producing both oil and liquids rich natural gas, some with a ten-year production history. Production data from the area indicates that the natural gas wells could yield up to 70 barrels of natural gas liquids for every million cubic feet of natural gas. We have over 8 initial development locations, many with multi-zone potential. 

While we are focusing our capital on oil and liquids rich natural gas for now, natural gas production in sufficient quantities is still a valuable commodity and will return to higher, economically sustainable, prices sometime in the near future. That is why we hold 14,240 net acres of natural gas-prone lands in the Coleman area. We hold a 50-per-cent working interest in two producing gas wells. Both of these wells are vertical and have not been able to effectively drain the reserves in place. Manitok believes that there is over 40 Bcf of natural gas in place per section (640 acres) and the 2 wells have only produced 4 Bcf to date. Horizontal re-entries are required to exploit the significant amount of reserves still remaining. Each re-entry could have initial production rates of 6 to 12 Mmcf per day or 1,000 to 2,000 boe/d based on a 6:1 conversion rate. The re-entries also provide a low cost approach, relative to a drilling operation from surface, to proving the economics of the play. If the two re-entries are successful, there would be 6 to 10 future drills from surface.

The diversification of play type and product within our existing drilling inventory will allow Manitok to quickly capitalize on opportunities created by large commodity price swings. Also, the ability to drill high rate wells, with development type risk, differentiates us from other junior oil and gas companies that have difficulty growing once they reach a certain corporate production threshold.

Manitok has opened 2011 with an excellent demonstration of our foothills strategy at Stolberg. This success highlights our ability to acquire and economically drill foothills targets with substantial reserves in place which ultimately generates very high rates of return on our capital for our shareholders. The highly specialized skill set of our technical team, along with the many years of experience, provides Manitok with the competitive advantage needed to achieve continued success in the foothills.

As a result of our expertise, extensive land base and success to date, we have been able to attract a significant amount of new capital in a recent equity financing which has increased our cash position to over $40 million at the time of this message. The Manitok team is very excited about the amount of shareholder value that we can create with further drilling on our lands over the next year. Manitok intends to continue to vigorously pursue the exceptional growth opportunities that exist in the foothills today. We have built this company with the right mix of specialized professional talent, an outstanding land base and the leadership required to achieve above-average growth for our shareholders, both immediately, and over the long term.