Operational Strategies

Our production base is 61% weighted towards natural gas and geographically focused within select, multi-zone regions of Alberta, British Columbia, and Saskatchewan. Year-round access in most of these regions has provided a consistent and predictable production base largely operated by Bonavista.

Maintaining operatorship and a high working interest in our assets is a strategy we've employed for many years. This provides us the opportunity to continually optimize our assets while enabling us to control the pace of our future development.

Sustaining an industry leading cost profile has been a principal strategy since inception. The low cost structure of our asset base maintains attractive cash flow netbacks even during low points in the commodity price cycle.

A key operational strategy is to focus on full cycle profitability with every investment decision. Whether evaluating exploration and development or acquisition opportunities, Bonavista's approach is to consistently generate attractive recycle ratios on a full cycle development basis. We have been successful in this approach having managed our capital programs over the past 13 years to generate an average 2.1:1 recycle ratio.

Until recently, much of the remaining resource deposited within the Western Canadian Sedimentary Basin was considered "non-recoverable" or marginally economic. Producers are now applying technology in the form of horizontal drilling, multi-stage fracture techniques and micro-seismic measurement to enhance the incremental recovery of these resources.

Horizontal drilling, together with multi-stage fracture stimulation yield significantly more exposure to tight reservoirs compared to a vertically drilled well. This technology offers the opportunity to fracture stimulate specific sections of the well bore creating enhanced permeability and depletion of the reservoir along the entire horizontal length of the wellbore. With the appropriate application of this technology, incremental development of these resources will yield long-term, predictable growth in reserves and production.

Over the past several years, Bonavista has significantly increased its application of horizontal drilling and multi-stage fracture stimulation. As illustrated below, our commitment to the application of this technology is obvious:

The use of this technology can significantly reduce geological risk creating repeatable development opportunities within existing heterogeneous reservoirs that were historically considered uneconomic. Additionally, this technology has proven to commercialize numerous emerging tight oil and natural gas reservoirs that would have previously gone undeveloped.

Using the development of our Hoadley Glauconite pool as an example, substituting horizontal development for vertical development has increased initial production rates by 4 to 6 times and enhanced reserve capture by 3 to 4 times. This is accomplished while spending less than two times that of a vertical well.

The application of this technology drives significantly enhanced initial production rates. Although costs and initial decline rates are higher than vertical well analogs, production typically stabilizes at a level where incremental recovery of the reserves becomes highly profitable. The end result of a horizontal development program is enhanced payout metrics and substantially more reserves per well resulting in superior capital efficiencies.

We have also employed micro-seismic technology, which utilizes advanced subsurface sound measurement and analysis to effectively map the dimensions of each individual fracture stimulation event. Employing micro-seismic technology at an early stage of resource development enhances the design of wellbore orientation and fracture stimulation, resulting in optimum well results and improved resource recovery.

Furthermore, we've begun the application of drilling multiple horizontal wells from single surface locations. Pad drilling enhances the opportunity to efficiently develop the resource, minimizing our surface disturbance and improving our cost and onstream efficiencies. We believe that pad drilling not only provides improved economics for Bonavista shareholders but also reduces the environmental impact of our development activities which benefits all stakeholders.

Through the appropriate application of these technologies we have transformed a large, mature and underdeveloped resource into a highly repeatable development opportunity, which affords a substantial degree of capital flexibility.