MESSAGE TO OUR SHAREHOLDERS
As we complete our second year of operations we find our accomplishments of the past year are somewhat tempered by the difficult market conditions facing the junior oil sands sector and increasingly stringent regulatory requirements that threaten the pace of development of our most advanced project at Audet. With constrained opportunities for financing and the prospect of a protracted approval process for the Audet steam assisted gravity drainage (SAGD) Project, our Board of Directors initiated a formal strategic review process to enhance shareholder value on March 17th 2014. Over the coming weeks we expect to review our options with our advisors from RBC Capital Markets and will report back to shareholders once we have determined our preferred strategy.
Over the past year our focus has been to advance the Audet SAGD Project culminating with the submission of the project application to the Alberta Energy Regulator (AER). This was achieved late in the fourth quarter following intensive technical work on reservoir simulation and geo-mechanical modelling, completion of preliminary engineering and cost estimates for the production facilities and well pads, and an extensive environmental assessment to understand and quantify the impacts of the project. As these activities were in progress we also maintained extensive consultation with local and regional stakeholders. With the completion of the technical studies our independent resource evaluators, Sproule Unconventional Ltd., were able to assign an increase in best estimate of contingent resources at the Audet Lands to 83.6 million barrels from the previous year’s 68 million barrels. This was accompanied by a modest decline in discovered bitumen initially-in-place from 1.85 billion barrels to 1.8 billion barrels following analysis of the drilling data from the 2013 Audet drilling program.
Shortly after filing our application for the Audet SAGD Project, the AER announced, unexpectedly, that regulatory decisions on shallow SAGD oil sands projects that fall within a designated area would be deferred until formal regulatory requirements are developed. The Audet SAGD Project lies within the designated area. This change in regulatory requirements was not anticipated by SilverWillow and other operators in the designated area, and may result in a considerable extension to the regulatory timeframe and increased uncertainty regarding receipt of approvals. This change in regulatory approach is the primary trigger for the strategic process initiated by the Board of Directors.
On our 100% working interest Birch Mountains Lands, we completed a 2D seismic program in the first quarter of 2013 followed by analysis of the seismic data. We have identified prospective targets for drilling with the objective of locating possible SAGD development areas. Our pace of future development, if any, will be dependent on the outcome of the strategic process.
While we face an uncertain future as we work our way through our strategic process, we remain convinced that we have significant value identified in our well delineated Audet SAGD Project as well as exciting upside potential in our Birch Mountains oil sand leases. We thank you, our shareholders, for your continued support through this difficult year and look forward to a positive outcome as the year progresses. For more information on SilverWillow’s development please visit our website at www.swenergy.ca.
President and Chief Executive Officer
Calgary, Alberta, Canada
April 16, 2014