Monday, November 30, 2020
 
Columnist
Martin Hennecke
 
SUNSHINE OIL
HKEx Stock Code : 02012 
 
Corporate Profile
The Corporation is engaged in the exploration for, and the development of, oil properties for the future production of bitumen in the Athabasca oil sands region in Alberta, Canada.

Business Review - For the year ended December 31, 2012

Sunshine is a major holder and developer of oil sands resources, with approximately 70 billion barrels of total PIIP. Total PIIP is a sum of discovered and undiscovered PIIP components. The Corporation is focused on evaluating and developing these assets with the first phase of a 10,000 barrels per day project, currently under construction at West Ells, scheduled for first steam in the third quarter of 2013. Sunshine is also progressing regulatory approvals for two additional 10,000 barrels per day (total 20,000 barrels per day) projects at Thickwood and Legend. Approvals are expected in the first half of 2013 and later in 2013, respectively. With approximately 5.1 billion barrels of contingent resources and 446 million barrels of proved plus probable (¡§2P¡¨) reserves, the Corporation has significant commercial development potential.

West Ells Development

As at December 31, 2012, significant progress was achieved on Sunshine's Steam Assisted Gravity Drainage (¡§SAGD¡¨) project at West Ells. Sunshine completed the West Ells access and spur roads, built a pipeway corridor to provide pipeline and road access from the Central Processing Facility (¡§CPF¡¨) to the wellpads, constructed the first wellpad, and readied the CPF site for mechanical construction. Approximately 33% of the pilings had been installed with three pile rigs active and onsite. Major equipment, including the heat recovery steam generators, free water knockouts, glycol coolers, and office modules had arrived on site. Furthermore, 82 modules and skids are currently in various fabrication phases. A production drilling rig was mobilized with Sunshine successfully drilling its first horizontal SAGD producer well pair in December. As at year end, of the 16 SAGD well pairs planned for the project, Sunshine successfully drilled ten surface, four intermediate, and two horizontal sections. Seven of eleven observation wells have been drilled.

$202.7 million has been incurred for West Ells equipment, engineering, construction, civil works, drilling, completions and other project related expenditures. At year end, civil construction of the CPF was approximately 40% finished, with facilities engineering approximately 75% complete. With respect to capital commitments, 100% of the long lead equipment has been ordered and approximately 80% of the secondary long lead equipment was procured. Also, all Phase 1 downhole completion and production equipment has been ordered.

As at the date of this MD&A, Sunshine continues to achieve several West Ells milestones. In relation to construction progress, this includes the standing of the West Ells' Phase 1 evaporator tower without incident, delivery of the Phase 1 steam generator and installation of the site office. With respect to drilling, all eleven observation wells, five SAGD wellpairs (ten wells), and six surface sections have been drilled. As of the date of this MD&A, progress increased to approximately, 64% for the pilings, 95% for the civil construction of the CPF, 90% for the facilities general engineering, and 88% for the procurement of secondary long lead equipment.

West Ells remains on schedule and budget with funding fully secured. The total capital cost of West Ells (Phase 1 and Phase 2) remains unchanged at approximately $468 million, excluding road construction costs. First steam for Phase 1 continues to be expected in the third quarter of 2013 with production to follow by year end or early 2014. West Ells Phase 1 is designed to produce 5,000 barrels per day of bitumen followed by an expansion for an additional 5,000 barrels per day from Phase 2 to be complete in early 2014.

Thickwood and Legend

The Thickwood 10,000 barrels per day SAGD project continued to progress through the regulatory approval process as expected, including full completion of two rounds of supplemental information requests and responses in 2012. Full regulatory approval of the project is expected in the first half of 2013. In addition, the Corporation has advanced Front End Engineering Design (¡§FEED¡¨) activities for the project. The Corporation is finishing environmental fieldwork and analysis to support planned significant commercial expansions in both areas.

The Legend 10,000 barrels per day SAGD project also progressed in the regulatory approval process, with responses to the initial round of supplemental information requests submitted in the third quarter of 2012. Full regulatory approval of this project is anticipated later in 2013.

Cold flow assets

The Corporation continued with the evaluation of development of its cold flow heavy oil assets. At the Muskwa project, cumulative production for the year ended December 31, 2012 was approximately 215,000 barrels, representing an average of approximately 590 barrels per day. As at December 31, 2012, 39 development wells drilled from five surface pads have produced a cumulative total of approximately 352,000 barrels since project inception.

During 2012, the Corporation continued production optimization activities at the Muskwa project through evaluation of new technologies for enhancing production and recovery, including sand clean outs, wellbore stimulation and downhole heating. In the third quarter, Sunshine received regulatory approval for the installation of downhole electrical heating at Muskwa. Since year end, field work was completed for the installation of a downhole heater in a horizontal wellbore and initial heating commenced. The Corporation is in the early stages of optimization and analysis of this process. In addition, the Corporation commenced construction of its planned pad extension to accommodate future drilling. Since Muskwa remains in the resource definition stage, the Corporation capitalizes all costs incurred to date, including operating costs net of revenues, for financial reporting purposes.

Alberta Government Initiatives

On August 22, 2012 the Government of Alberta approved the LARP to conserve land for conservation, tourism and recreation. The implementation of, and compliance with the terms of, the LARP may adversely impact Sunshinefs current properties in northern Alberta, as there is the potential for specific oil sands leases to be cancelled by the government. The Corporation is currently evaluating its options including approaching the Government of Alberta for compensation of all expenditures incurred plus loss of future opportunities. The impact of LARP on the Corporationfs land holdings and exploration plans is yet to be determined.

Non-IFRS Financial Measures

This MD&A includes references to financial measures commonly used in the oil and natural gas industry, such as cash flow from operations. These financial measures are not defined by IFRS as issued by the International Accounting Standards Board and therefore are referred to as non-IFRS measures. The non-IFRS measures used by the Corporation may not be comparable to similar measures presented by other companies. The Corporation uses these non-IFRS measures to help evaluate its performance. Management uses cash flow from operations to measure the Corporation''''s ability to generate funds to finance capital expenditures and repay debt.

These non-IFRS measures should not be considered as an alternative to or more meaningful than net income or net cash provided by operating activities, as determined in accordance with IFRS. The data is intended to provide additional information and should not be considered in isolation or as substitute for measures of performances prepared in accordance with IFRS. The non-IFRS measure of cash flow from operations can be reconciled to net cash provided by operating activities, as determined in accordance with IFRS.

Business Outlook - For the year ended December 31, 2012

2012 was an exciting year for Sunshine with achievements that set the groundwork for future milestones and accomplishments. 2013 is a pivotal year for Sunshine as we continue to develop West Ells with first steam in the third quarter. By the end of 2013, we should be at or near first production at West Ells and we expect to be moving forward on developments at Thickwood and Legend, with additional commercial applications filed in support of our 300,000 barrel per day growth plan. Sunshine's significant presence in the north-western part of the Athabasca oil sands region represents an opportunity for investors seeking value growth. As a management team, we continue to believe in our execution capabilities and in the experience of our technical team which strives for operational excellence. It is our dedication and commitment to achieve results which will help to deliver on our projects.

Source: Sunshine Oilsands (02012) Annual Results Announcement
Chairman Michael John Hibberd Issued Capital (shares) 2,884M
Par Value N/A Market Capitalisation (HKD) 5,047M
 
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