Continous Improvement

Liquids-rich Ellerslie Hybrid Resource Play in Edson

Velvet entered into the Edson area through the acquisition of Vero’s deep basin gas assets in early 2012. This basin-entering acquisition included a total of 125,000 net acres of land in the Edson area and 7,000 boe/d of largely gas-weighted production. Velvet has since amassed over 325,000 net acres in the Edson corridor through Crown land sales and several tuck-in acquisitions.

Multi-zone geological horizons exist in the Deep Basin across our land base and subsequent to the Vero purchase, the Company systematically evaluated these horizons using state of the art horizontal drilling and multi-stage completion technology to determine scalable, commercial opportunities. From this evaluation and rigorous geological and geophysical analysis, the Company unlocked a large, contiguous opportunity in the liquids-rich Lower Mannville group, spanning from West Pembina to Whitecourt. While historical norms characterized the Lower Mannville as a fluvial (channel) depositional environment, our work confirmed a far more expansive marine setting, with commensurately greater hydrocarbons in-place.

Over the past five years, Velvet has drilled 96 gross (68.2 net) Ellerslie wells, which has grown area production to 17,000 boe/d. Today, over 90% of our production has been added via the drill bit. We have made consistent progress in reducing costs and optimizing recoveries to generate high rates of return in Edson, and today, several third-party research studies have defined our liquids-rich Edson Ellerslie as the low cost play in the Deep Basin of Alberta.

Velvet plans to spend $85million in the Edson area in 2018. This pace of activity will hold area production flat and allow the Company to generate free field cash flow to reinvest in our Montney light oil growth project at Gold Creek.

Edson Area Land, Gathering & Processing Infrastructure

Liquids recoveries drive the economics of the Ellerslie, with a typical well yielding 80 barrels of liquids per million cubic feet of natural gas. Approximately 70% of our liquids recoveries consist of condensate and light oil, which yield premium pricing relative to benchmark light oil in western Canada. Through our development and delineation program, Velvet has built its deep basin inventory to over 1,000 gross (700 net) locations.

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