TECH CORP. Another Side of Teck

Teck’s oil and gas division stems from a predecessor company called Canadian Devonian Petroleums. In 1963 Devonian was amalgamated with other associated companies to form Teck Corp. Canadian Devonian was the discoverer of the Steelman field in southeastern Saskatchewan. Over the years significant reserves were added to the initial Canadian Devonian assets, but the Steelman production is still the mainstay of Teck’s oil interests.

In 1983 Teck sold to Trilogy Resource Corp. about one-third of its Canadian production and all of its U.S. petroleum interests for cash and shares, announcing that Trilogy would be its vehicle for future growth in the oil and gas business. Teck retained all of its Saskatchewan oil-producing properties, including the Steelman field; its oil-producing property in the Otter Lake area of Alberta; its Monogram, Tide Lake and Edson gas- producing properties in Alberta; and its North Tsea gas-producing property in B.C. The oil and gas division now has a staff of five, including resident manager Walter Bowles and Vancouver manager Norm Rudden.

Teck produces oil and natural gas from several fields in western Canada. Production in fiscal 1986 amounted to 509,400 barrels of oil and 1.8 bcf of natural gas. The average daily oil production was 1,396 barrels per day and gas production was 5,040 mcf per day. Net revenue totalled $12.4 million and operating profit amounted to $8.2 million despite the significant reduction in petroleum prices. The average price per barrel and per mcf received by Teck in 1986 was $23.70 and $2.16 respectively.

Proven and probable reserves (before royalties) as of Sept 30, 1986, were 4.3 million barrels of oil and natural gas liquids and 55.9 bcf of natural gas. Reserves of oil and gas liquids are 3.8 million barrels in Saskatchewan; 419, 226 in Alberta; and 7,612 in Manitoba.

Reserves of gas are 3 bcf in Saskatchewan; 51 in Alberta; and 1.9 in British Columbia, for a total of 55.9 bcf.

The company also owns land in western Canada (predominantly Alberta), totalling 227,699 gross acres (51,982 net acres) and interests in certain frontier acreage, primarily in the Beaufort Sea.

The Steelman field has been Teck’s most important oil-producing property since it was developed in the 1950s. Teck’s share of Steelman production for 1986 totalled 400,000 barrels of oil. A new unit was formed during 1986, resulting in 11 Steelman Units in which Teck participates. Two non-unit development wells in which Teck has a 50% interest were drilled and completed as Frobisher oil wells during the past year, and two more have been drilled in 1987.

Teck holds varying interests in more than 47,000 acres in East Bantry — a m ulti-zone shallow gas area in southeastern Alberta. Production comes essentially from two units — the Monogram gas unit (21.3% Teck) and the Tide Lake gas unit (11% Teck). The former is Teck’s largest gas property, having 272 wells including 83 which were drilled in 1986. Production from Monogram in 1986 averaged 13,300 mcf per day with Teck’s share of annual production totalling 1.0 bcf. Production during 1987 should increase as a result of the new wells and additional sales under industrial contracts. The area is capable of producing 40,000 mcf of gas daily.

Tide Lake, with more than 80 wells, produced at an average rate of 5,300 mcf per day in 1986 with Teck’s share of annual production being 0.21 bcf.

Teck has an average 12.4% interest in more than 40,000 acres in the multi- zone Edson gas field of westcentral Alberta. Twelve of the 20 wells drilled to date are producing, seven are shut-in and one was abandoned. Two of the shut-in gas wells were drilled in 1986. During the year the Edson field produced 2.2 bcf of gas of which Teck’s share was 0.3 bcf. Liquid gas production enhances the revenue from this area.

Teck has working interests varying from 6.25% to 40% in 16,640 acres in the Otter Lake area of northcentral Alberta and has an overriding royalty interest in a further 480 acres. Teck has an interest in 30 oil wells on this property, five of which were drilled in 1986. Teck’s share of production this year was 40,800 barrels of oil.

Teck has a 15% interest in a Slave Point gas well, in northeastern British Columbia, which was placed on production in 1986 and which was yielding 5,100 mcf daily at year-end. This volume is expected to be maintained throughout 1987 under sales contracts in place. No further development drilling on the project is planned for next year, although the 2,920 acres involved will permit additional drilling in the future.

During 1986 Teck was involved in the drilling of 97 wells (mostly development), 96 by way of direct participation and one resulting from a farm- out. These drilling programs resulted in eight oil wells and 85 gas wells of which 90 were producing at Sept 30, 1986. Teck’s interest in conventional petroleum exploration in the future will be primarily through its share interest in Trilogy.

Teck has an 80% interest in Teck Frontier Corp., a company formed in 1981 to explore in the Beaufort Sea and Labrador Shelf on lands held by Canterra Energy. The farm-in agreement terminated at the end of 1984. Teck Frontier prticipated in the drilling of 14 wells, six in the Beaufort Sea and eight off the coast of Labrador, earning interests from 0.75% to 10.4% in about a half-million gross acres. Teck’s share of reserves established by this drilling total 25 bcf of gas and 900,000 barrels of oil. But economic development of these reserves remains uncertain at present.They are not included in conventional reserve calculations and were fully written off for accounting purposes as of Sept 30, 1986. Trilogy Resource Corp. 006

Teck is the largest shareholder of Trilogy, holding about 30% of the Calgary oil and gas company’s common shares. Trilogy is a publicly traded company listed on the Toronto Stock Exchange and the Montreal Exchange with 20 million shares outstanding. The company has about 20 employees, the chief of which is President Gerry Roe.

As of March 1, 1986, Trilogy estimated its total proven and probable reserves to be 4.54 million barrels of oil and natural gas liquids and 113.3 bcf of natural gas, of which 75% and 73% respectively are proven reserves. The average life of oil and natural gas reserves is 15 years; of natural gas reserves it is 26 years. Trilogy’s total land holdings of 8.9 million gross ac res (3.8 million net) as of Jan 1, 1986, represent a significant inventory for further exploration and development activities.

During the nine months ended Sept. 30, 1986, Trilogy generated gross revenues of $12.3 million and cash flow from operations of $2.6 million. A net loss of $1.1 million, or 6 cents per share, was experienced during that period, mainly as a result of a decline in the price of crude oil. Trilogy’s oil production for the 9-month period averaged 818 barrels of oil per day and natural gas production averaged 11.4 million cubic feet per day. Its average price per barrel of oil and per thousand cubic feet of natural gas to Sept 30, 1986, was $17.10 per barrel and $2.16 per mcf respectively. Trilogy expects some firming in the oil price in 1987, but this will be offset by a lower gas price because of the deregulated gas environment.

Trilogy participated in the drilling of 41 wells in Canada and one well in the U.S. in the nine months ended Sept 30, 1986. This activity resulted in 27 gas wells, eight oil wells and seven dry and abandoned wells, representing a success ratio of 83% and a capital expenditure of about $3.7 million. Trilogy’s development drilling strategy is to drill only those wells which will provide a payback in fewer than two years at current prices. In its exploration activities, Trilogy is proceeding cautiously, concentrating on securing exploration plays through the acquisitin of additional land and defining new large prospects for future drilling.