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Hillcrest Petroleum moves further towards restoring oil production in Western Canada

Last updated: 11:18 27 Jul 2017 EDT, First published: 06:18 27 Jul 2017 EDT

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The plan is to restore production from the fields collectively to some 400 barrels of oil per day

Hillcrest Petroleum Ltd (CVE:HRH) has taken a further step to restoring oil production in Western Canada, with a nod from the Alberta Energy Regulator (AER).

The firm has, importantly now been approved to operate oil and gas assets in Alberta.

As reported in May this year, Hillcrest had signed a binding joint venture agreement with a Canadian oil and gas company  that will see it earn a 75% working interest in two assets.

It will also become the operator of record on the prospects.

The plan is to restore production from the fields collectively to some 400 barrels of oil per day by providing capital financing and additional technical and operational expertise.

Hillcrest's working interest will revert to 50% once it has recovered all production restoration costs from the production revenues.

"The first step required to move forward with restoring production has been reached," said Donald Currie, Hillcrest chief executive.

"Being approved as operator in the province of Alberta was required for Hillcrest too co-ordinate work programs with local service companies and vendors. The company will update the shareholders as we progress towards production of the assets."

Hillcrest said total project financing, including the placement of operator deposits and licence liability rating (LLR) bonds, is estimated to cost $2.2mln and will be secured from a third party by both the assets and the company.

It is estimated that around C$900,000 will be needed to bring production back on line via equipment installation and upgrades and well workovers.

These projects are expected to reduce operating expenses and restore production, thereby increasing the operating netbacks.

Project costs include the placement of around $1.3mln LLR bonds. The company expects to recover these bonds once economic production from the fields has been re-established for a period, thereby substantially reducing the net investment in the project.

Shares in Toronto are down over 7% on Thursday at $0.06.

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