(MENAFN - ProactiveInvestors - Australia) Mako Hydrocarbons (ASX: MKE) plans to sell its non-core Provost heavy oil project following a strategic review, with the company to now focus all of its capital expenditure on the Duvernay and Rock Creek plays.
The company has determined that rather than apply further capital to continue to enhance the value of the Provost project, funds would be better used to advance and focus on both the Duvernay and Rock Creek plays, as well as to supplement future capital requirements.
Paul Griese, president and managing director, said: "Whilst Provost remains a very commercial asset which provides over C200,000 (A192,444) of net revenue per month, and with further development potential, the Board has now determined that it does not intend to apply any further capital towards its development as it is not considered a fit with Mako's focus on liquids rich resource developments.
"This step will also allow us to avoid ongoing operational expenses and reduce our ongoing 'G&A' overheads."
Last week Mako spudded its first Duvernay well on its Rimbey, Alberta, acreage to evaluate the shale horizon.
Operator Black Swan Energy is drilling the well as a commitment vertical test well to a planned depth of 3,300 metres.
The well is being drilled at no cost to Mako, which retains a 10% working interest in the well.
The Duvernay Shale is an emerging world class liquids rich resource play that is the source rock for most of the conventional oil fields in Alberta that has recently attracted the attention of companies such as ExxonMobil (NYSE:XON).
It came to prominence in 2010 and 2011 when more than C2 billion was spent in land auctions for mineral rights and is widely considered to be Canada's analog to the highly productive Eagle Ford Shale in Texas.
Wells drilled in the Duvernay have production at initial rates ranging from 900 to 1200 barrels of oil equivalent per day with high ratios of valuable natural gas liquids.
Recent horizontal wells have yielded between 100 barrels and 200 barrels of natural gas liquids for every million cubic feet of gas produced.
Importantly, significant activity has been carried out near Mako's acreage, which de-risks its acreage while giving it a better understanding of what it holds.
Independent Provost report
Following development drilling earlier this year, Mako commissioned a revised independent engineering report on the Provost field.
Due to the new wells performing marginally below anticipated production levels it is expected the property value for the entire field will be reduced.
While the extent of this reduction, and the new reserves report, remains to be finalised, Mako expects the impairment to the book value of the asset could be as high as C4 million to C6 million, after taking into account all other costs associated with its development to date.