Innovative Energy Technologies Program Application 01-023 Taber S Mannville B Alkaline-Surfactant-Polymer Flood Warner ASP Flood Annual Report June 28, 2007 Innovative Energy Technologies Program Taber S Mannville B Alkaline-Surfactant-Polymer Flood (Warner ASP Flood) Summary of Project Introduction Husky Oil Operations Limited (Husky) implemented the first field-wide Alkaline-SurfactantPolymer (ASP) Flood in Canada on May 17, 2006. Incremental oil production is expected to be 1 006 103m3 (6 332 MBO) from the Taber S Mannville B pool (Mannville B Pool), an incremental oil recovery factor equal to 14.5% of the original-oil-in-place (OOIP). This report is supplemental to the June 2006 Annual Report in which laboratory, geological, and other applicable reservoir data was submitted. The field is located in 7-16W4 and the project is proceeding satisfactorily to date. Timeline Table 1 outlines some of the major activities that were required as part of the Warner ASP project in 2006. Table 1: Chronology of major activities and operations Activity Description EUB Applications Procure chemical suppliers Implement plan of development Etzikom refurbishment, replacement and additions Construction of ASP Transfer Pipelines Construction of 11-16 Injection Satellite Construction of gathering and distribution pipelines Warner Oil Battery Modifications Existing Injection line Cleanouts Commissioning ASP Injection Surfactant Force Majeure Caustic Force Majeure Injection well timers Polymer only injection Husky Oil Operations Limited Start End Directive 51&65 injection approvals Solicit bids from chemical suppliers, award chemical contracts, and finalize logistics. Alter reservoir from 29 producers & 11 injectors to 45 producers & 18 injectors by drilling 7, reactivating 11, and converting 6 wells. Refurbish and modify facility to prepare ASP solution for EOR purposes. 6” poly lined pipeline to transfer produced water & 8” poly lined pipeline to transfer ASP solution. Build satellite for ASP injection pumps September 2005 September 2005 March 2006 March 2006 October 2005 July 2006 November 2005 March 2006 November 2005 March 2006 February 2006 April 2006 Test satellites and 25 km of injection and production pipelines for oil wells and injectors. Modify facility to send higher quality produced water to Etzikom ASP facility Clean existing injection pipelines to remove solids that could be released by surfactant injection. Commission Warner Modifications, Etzikom, and 11-16 Injection Satellite. 30% Pore Volume of ASP injection Declared due to raw material availability Declared due to CN rail strike Install timers to shut injection wells on/off 30% Pore Volume of Polymer injection February 2006 May 2006 March 2006 April 2006 March 2006 May 2006 April 2006 May 2006 May 2006 October 2006 February 2007 April 2007 July2008 June 2008 February 2007 March 2007 September 2010 September 2010 Page 2 of 16 Annual Report – June 2007 Innovative Energy Technologies Program Taber S Mannville B Alkaline-Surfactant-Polymer Flood (Warner ASP Flood) Pilot Data The following data was submitted as part of the June 2006 Annual Report: Geological Map Laboratory Studies Reservoir Data Well information The following data was submitted as part of the June 2006 Annual Report: Well Layout Plan of Development Wellbore schematics Spacing and Patterns Drilling Well operations Well operations such as drilling, injection conversions and reactivations were submitted as part of the June 2006 Annual Report. As production and injection rates were monitored, perforations were added to the 10 wells listed in Table 2 as required to improve inflow or oil production. The results are a comparison between tests before and after the production optimization. Often there was an immediate benefit although the objective was long term well optimization. Table 2: Production Optimizations in the Mannville B pool Well 3/02-09-7-16W4 0/03-09-7-16W4 3/14-09-7-16W4 2/02-16-7-16W4 3/08-20-7-16W4 0/09-20-7-16W4 0/02-29-7-16W4 0/10-29-7-16W4 4/10-29-7-16W4 2/11-29-7-16W4 Date 6-Jun-07 2-Oct-06 26-Mar-07 16-Feb-07 11-Sep-06 26-Sep-06 14-Jun-07 9-Nov-06 31-Jul-06 4-Jun-07 Status Producer Producer Producer Producer Producer Producer Producer Producer Producer Producer Results Inflow increase 10 m3/d, +3.5m3/d oil Inflow increase 6 m3/d, +2.5m3/d oil 10m3/d, 2% oil to 7m3/d, 7% oil +0.3m3/d Inflow increase 20 m3/d, 0% oil cut 24m3/d, 2% oil to 52m3/d, 3% oil +1.1m3/d 48m3/d, 4% oil to 52m3/d, 4% oil +0.2m3/d Still bringing well up to speed. 15m3/d, 5% oil to 23m3/d, 4% oil +0.2m3/d 34m3/d, 3% oil to 12m3/d, 0% oil -1.0m3/d 22m3/d, 30% oil to 33m3/d, 26% oil +2m3/d Production Performance and Data Warner ASP injection started on May 17, 2006. To the end of May 2007, the project produced 37 103m3 of oil, 1,239 103m3 of water with a corresponding cumulative voidage replacement ratio (VRR) of 0.972. During this time period, the daily oil production increased from 50m 3/d at 1.5% oil cut to 150m3/d at 4.4% oil cut. Incremental oil from ASP flooding is on target and the forecast remains unchanged since last year. Oil production due to ASP is expected to be 1.0 106m3 (6.3 MMBO), an incremental recovery factor of 14.5% OOIP as summarized in Table 3. Husky Oil Operations Limited Page 3 of 16 Annual Report – June 2007 Innovative Energy Technologies Program Taber S Mannville B Alkaline-Surfactant-Polymer Flood (Warner ASP Flood) Table 3: Reserve Summary for the Taber S Mannville B pool Production Values as of May 2007 Original Oil in Place (OOIP) Cumulative Production to date (CTD) Waterflood Ultimate Oil Production ASP Forecast Ultimate Oil Production Incremental Production (CTD) Remaining Incremental Production Total Incremental Oil Production from ASP Oil Volume 103m3 (MBO) 6,992 (44.0) 2731 (17.2) 2763 (17.4) 3769 (23.7) 23 (0.14) 983 (6.2) 1006 (6.3) Percent of OOIP (%) 39.1% 39.5% 53.9% 0.3% 14.2% 14.5% The project has been performing satisfactorily. Oil and fluid production has closely matched the original December 2005 prediction. Injection rates fluctuated somewhat between the fall of 2006 and the early spring of 2007 due to supply difficulties of surfactant and NaOH caused by the Force Majeure, but VRR’s were kept at the acceptable level by adjusting production rates. Based on predictions from the model, oil production is expected to increase from a waterflood forecast of 42 m3/d in June 2006 to a peak oil rate of 519 m3/d approximately 4 years after ASP injection begins. Oil cuts are expected to increase from 2% to 14.5% (Figure 1). Forecast production rates as well as the oil production profile required to achieve an incremental 10% recovery factor (4.4 MMBO) are also plotted. As of May 2007, the average daily production was 150 m3/d. The forecast for May using a range of 10-14.5% incremental oil recovery requires an oil production rate between 121-159m3/d. Warner ASP Flood Forecast vs Actual Oil Rate, Fluid Rate (m³/d) and Oilcut (%) 10000.0 1000.0 100.0 10.0 1.0 Jan-05 May-06 Sep-07 Feb-09 Jun-10 Nov-11 Mar-13 Date Oil Rate - Waterflood Forecast Oilcut - Actual Oilcut - Dec 05 ASP POS 100% Forecast Oil Rate - Calender Oil Rate - Average Fluid Rate - Calender Oil Rate - Dec 05 ASP POS 70% Forecast Fluid Rate - Calender Fluid Rate - Average Fluid Rate - Dec 05 Forecast Oilcut - Dec 05 ASP POS 75% Forecast Figure 1: Comparison of production to waterflood and ASP predictions Husky Oil Operations Limited Page 4 of 16 Annual Report – June 2006 Innovative Energy Technologies Program Taber S Mannville B Alkaline-Surfactant-Polymer Flood (Warner ASP Flood) ASP injection volumes are approximately 2 weeks behind due Force Majeure declared by two chemical vendors. Plotting the predicted oil rate based on ASP volumes injected, the actual oil rate is on forecast. For 1187 103m3 ASP solution injected (May volume), the oil rate was expected to be in the range of 119-155 m3/d (using 10%-14.5% incremental recovery forecasts). To date, out of a target 30% pore volume (PV), approximately 14.5% PV of ASP solution has been injected. Final ASP injection is expected to be completed in June 2008 and will be followed by 30% PV of polymer solution. Warner ASP Flood - Rate vs Cum Inj Forecast vs Actual Oil Rate, Fluid Rate (m³/d) and Oilcut (%) 1000 100 10 1 0 500 1000 1500 2000 2500 3000 3500 4000 Cum Injection (10³m³) Oil Rate - Average Oilcut - Actual Oil Forecast P100 Oil Cut Forecast P70 Oil Cut Forecast P100 Oil Rate - Calender Oil Forecast P70 Figure 2: Oil production based on ASP volumes injected. Daily oil production and oil cuts for each well are provided in electronic Attachment # 1 – Monitoring - Warner Production DOE 2007. Calendar daily oil production and oil cuts are summarized in Figure 3 which reflects producer and injection downtime. 200 10.0 180 9.0 160 8.0 140 7.0 120 6.0 100 5.0 80 4.0 60 3.0 40 2.0 20 1.0 0 0.0 Oil Cut, % Oil Prod, m3/d Daily Oil Production vs Oil Cut Warner ASP 7/16/07 6/25/07 6/4/07 5/14/07 4/23/07 4/2/07 3/12/07 2/19/07 1/29/07 1/8/07 12/18/06 11/27/06 11/6/06 10/16/06 9/25/06 9/4/06 8/14/06 7/24/06 7/3/06 6/12/06 5/22/06 5/1/06 DD-M M -YY Oil, m3/d Oil Cut, % Figure 3: Daily Oil Production and Oil Cut of the Mannville B pool Husky Oil Operations Limited Page 5 of 16 Annual Report – June 2006 Innovative Energy Technologies Program Taber S Mannville B Alkaline-Surfactant-Polymer Flood (Warner ASP Flood) Another positive indication the flood is working throughout the reservoir is the observed oil cut response (Table 4). When the project started, 56% of the wells had oil cuts greater than 2% and only 6 wells had oil cuts greater than 10%. Currently, 81% of the wells have oil cuts greater than 2% and the number of wells with an oil cut greater than 10% has doubled to 12 wells. Table 4: Oil cut response in the Mannville B pool. Injection Performance and Data The target injection rate for the Mannville B pool is 3300 m3/d but it is only since April 2007 that this target rate has been achieved for an extended period (Figure 4), mostly due to nontechnical reasons. First the ASP transfer line has to be shut down for 3 days. The pipeline did not fail (it is lined) but there was a leak in the liner on the stub end where the liner fused to the flange. This likely occurred during liner installation due to the load placed on the liner prior to fusion. Next a Force Majeure was declared by the surfactant manufacturer in October 2006 due to a Force Majeure that was declared by a raw material supplier for the surfactant. Fortunately the surfactant supplier was able to maintain 50% of the normal deliveries and there was a high level of inventory on Husky’s site and in transit. Injection rates were decreased to 3000 m3/d in October and then to 2500 m3/d in December before returning to 3300 m3/d in early February 2007. On February 21, 2007, the caustic manufacturer declared Force Majeure due to the CN rail strike. Injection rates had to be reduced to 2500 m3/d again until mid March when the rail strike ended. Average wellhead injection pressure decreased from 14 MPa before ASP injection to 9 MPa when new injection wells were tied in and added to the injection scheme. As a higher viscosity fluid is injected further into the reservoir, the injection pressure has steadily increased to the current average injection pressure of 13.5MPa. There have also been corresponding injection pressure decreases when total injection rates were decreased. Injection rates at the wells can not be controlled using chokes as pressure drop shears the polymer reducing solution viscosity in the reservoir. In April 2007, timers were installed on injection wells so that fluid is only injected for a certain length of time each day which has also increased injection pressures recently. In addition, producing wells are sped up or slowed down to ensure chemicals are placed in the reservoir efficiently and performance is maximized. Injectors have been divided into groups shown in Table 5, each group with a separate injection pump. Table 5 – Injection well groups. Group A Group B 2/3-9 0/8-9 2/9-9 0/11-9 0/3-16 Husky Oil Operations Limited 0/2-16 3/7-16 0/14-16 Group C 2/13-16 2/5-21 2/9-20 Group D 3/16-20 0/1-29 2/2-29 Page 6 of 16 2/10-29 2/15-29 3/11-29 4/6-29 Annual Report – June 2006 Innovative Energy Technologies Program Taber S Mannville B Alkaline-Surfactant-Polymer Flood (Warner ASP Flood) Even though the average injection pressure is 13.5 MPa, injection pressures in each group varies. In May 2007, the average injection pressure for Group A is 16 MPa, Group B is 9 MPa, and Group C & D are 13 MPa. Injection group and individual well information is included in tabular and chart format in electronic Attachment #2 – Monitoring - Warner Injection Rates DOE 2007. 18.0 4500 17.0 4000 16.0 3500 15.0 3000 14.0 2500 13.0 2000 12.0 1500 11.0 Field Inj Rate Field Inj Pressure Avg Inj Press Avg Inj Rate 1000 500 Injection Pressure (MPa) Injection Rate (m³/d) Inj Rate and Pressure 5000 10.0 9.0 20/Jun/07 2/Dec/06 12/Mar/07 Date 24/Aug/06 16/May/06 5/Feb/06 28/Oct/05 8.0 20/Jul/05 0 Figure 4: Taber South Mannville B pool injection rates and average wellhead pressure The pool was divided into 7 areas (Figure 5) for performance monitoring purposes and efforts are continuously being made to ensure the best possible distribution of injection fluids and VRR in each area and that both production and injection rates are optimized. Voidage Replacement Ratio Cumulative VRR by area ranges between 1.18 and 0.77 with an average of 0.972 (Figure 6 and Table 6). Efforts are being made to increase injection into the low cumulative VRR areas (3 and 4) to above 1.0 and reduce injection into the high cumulative VRR areas (1 and 6) to just below 1.0 by adjusting individual well injection targets as well as reallocating injection pump outputs. Excessive ASP fluid has been injected into areas 6, but the total over injection is expected to be small due to its small pore volume. Husky Oil Operations Limited Page 7 of 16 Figure 5: Warner Region Map Annual Report – June 2006 Innovative Energy Technologies Program Taber S Mannville B Alkaline-Surfactant-Polymer Flood (Warner ASP Flood) Warner ASP - VRR by Area 1.6 1.4 1.2 VRR 1.0 0.8 0.6 0.4 0.2 0.0 Cum May-07 Apr-07 Mar-07 Feb-07 Jan-07 Dec-06 Nov-06 Oct-06 Sep-06 Aug-06 Jul-06 Jun-06 May-06 MM-YY Area 1 (Sec 9 - S) Area 2 (Sec 9 - N) Area 3 (Sec 16) Area 4 (Sec 21 - S) Area 5 (Sec 21 - N & Sec 20) Area 6 (Sec 29 - E) Area 7 (Sec 29 - W) Pool Total Figure 6: Warner Voidage Replacement Ratio by Area Table 6: Mannville B Pool VRR VRR by Area - Warner ASP AREA 4 1 2 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Cum 1.148 1.002 0.849 0.910 0.888 1.035 0.776 0.822 0.761 0.859 0.831 0.825 0.834 0.889 0.606 0.533 0.764 0.946 0.845 1.207 1.293 1.223 0.979 0.868 0.972 1.142 1.250 0.918 1.453 1.274 1.344 1.110 0.956 0.839 0.814 0.722 0.744 0.889 0.938 0.918 0.888 0.939 0.447 0.650 0.977 1.033 0.859 0.884 0.818 0.928 0.885 1.012 0.968 0.977 0.834 0.881 % PV Inj % Target % Pool Cum Injected 25.7 85.7 6.5 17.9 59.7 13.4 11.5 38.2 26.0 12.4 41.2 15.9 PV, m3 30% PV, m3 % Total 3 5 Total Pool 6 7 1.117 1.160 0.939 1.227 1.244 1.182 1.294 1.509 1.216 1.241 1.202 1.242 1.004 1.185 1.221 1.214 1.082 0.923 0.917 0.898 0.892 1.042 1.008 1.261 1.248 1.154 1.062 1.064 0.029 0.314 0.722 1.124 1.043 0.846 0.739 0.668 0.744 0.684 0.818 0.793 0.805 0.767 0.933 0.892 0.975 1.056 0.967 0.968 0.946 0.958 0.908 0.985 1.005 1.022 0.940 0.969 16.3 54.2 24.3 40.9 136.3 7.6 17.1 57.1 6.2 15.1 50.5 100.0 300,512 880,439 2,680,000 1,520,000 1,760,000 219,653 429,756 7,790,360 90,154 264,132 804,000 456,000 528,000 65,896 128,927 2,337,108 3.9% 11.3% 34.4% 19.5% 22.6% 2.8% 5.5% 100.0% Husky Oil Operations Limited Page 8 of 16 Annual Report – June 2006 Innovative Energy Technologies Program Taber S Mannville B Alkaline-Surfactant-Polymer Flood (Warner ASP Flood) Composition of Production Fluid Each production well is sampled monthly and detailed analysis of the water is preformed by a laboratory and reviewed internally to monitor if there is a change in the properties of the produced fluid. Areas of the Mannville B pool are monitored and detailed produced water analysis are provided in electronic Attachment #3 - Monitoring Warner Produced Water Analysis DOE 2007 including composition, TDS, density, pH, and polymer concentration. ASP flood performance to the end of May 2007 in terms of produced water polymer concentrations and produced water pH levels is described in this report. Produced water polymer production: Warner ASP - Average Polymer Concentration by Area 600 Polymer Concentration, ppm 500 400 300 200 100 0 May-07 Apr-07 Mar-07 Feb-07 Jan-07 Dec-06 Nov-06 Oct-06 Sep-06 Aug-06 Jul-06 Jun-06 May-06 MM-YY Area 1 Area 2 Area 3 Area 4 Area 5 Area 6 Area 7 Figure 7: Average produced polymer concentration by area Polymer production essentially started in September 2006, about 3.5 months after ASP injection started. Currently only 2 wells are producing polymer in areas 3 and 4. In the other areas, 4 to 5 wells are producing polymer. The number of wells producing polymer appear to be influenced by the level of pore volume (PV) injected and the inter-well distances. Polymer concentration in the produced water ranges between 100 ppm in area 3 to about 450 ppm in area 2 with a typical concentration of about 300 ppm. Polymer concentration levels in the produced emulsion have been increasing steadily since first appearing in September 2006 as expected. Husky Oil Operations Limited Page 9 of 16 Annual Report – June 2006 Innovative Energy Technologies Program Taber S Mannville B Alkaline-Surfactant-Polymer Flood (Warner ASP Flood) Table 7: Well count of oil producers with presence of polymer in produced water Polymer Producing Well Count - Warner ASP Area 1 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Area 2 0 1 2 1 2 2 3 3 3 6 6 5 5 Area 3 0 0 0 2 3 4 5 4 4 4 4 4 5 Area 4 0 0 0 0 0 0 0 1 1 2 2 3 2 Area 5 0 0 0 0 0 1 1 1 1 1 1 1 2 Area 6 0 0 0 0 0 3 4 4 4 5 5 5 5 Area 7 0 1 2 1 2 4 3 3 4 5 4 4 4 Total 0 2 0 2 2 2 6 5 5 5 5 6 5 0 4 4 6 9 16 22 21 22 28 27 28 28 Produced water pH: Due to caustic injection, pH of produced water is expected to increase. From the pre-ASP base pH level of 8.0, pH levels have increased to about 9.0 (Figure 8). In areas 2 and 5 the average pH is 9.5 but the pH still remain at below 8.5 in areas 3 and 4. In area 7, pH levels were at 9.5 for a few months due to excessive injection at one injector, but have declined to just above 8.5 after the injection rates were successfully reduced to the target rate. Warner ASP - pH by Area 10.0 9.5 pH 9.0 8.5 8.0 7.5 7.0 May-07 Apr-07 Mar-07 Feb-07 Jan-07 Dec-06 Nov-06 Oct-06 Sep-06 Aug-06 Jul-06 Jun-06 May-06 MM-YY Area 1 Area 2 Area 3 Area 4 Area 5 Area 6 Area 7 Figure 8: Average produced water pH by area Husky Oil Operations Limited Page 10 of 16 Annual Report – June 2006 Innovative Energy Technologies Program Taber S Mannville B Alkaline-Surfactant-Polymer Flood (Warner ASP Flood) The chemical analysis data of the produced water to date has confirmed that the ASP chemical system being used in Warner is excellent and that it is working in the reservoir as designed. Composition of the Injection fluid Injection is monitored daily to ensure the correct concentration of ASP is injected in the reservoir. The fluid viscosity as measured at the plant and at a B pool injection well in each region. Values range between 20-26 cp with screen factors equal to 55-65. There is very little difference between the values at the plant and at the injection wells. During initial design meetings there was a concern that the polymer would degrade after being pumped through up to 20 km of pipeline but this was not observed. Figure 9 shows daily fluid composition and viscosity. Warner ASP - Injection Fluid Chemical Concentration (Targets: 1200 ppm, 20~26 cp, 0.75 wt%, 1.5 wt%) Polymer @ Plant( ppm), Viscosity (cp), NaOH (wt%), Surfactant(wt%) 10000 1000 100 10 1 0.1 0.01 6/29/07 6/15/07 6/1/07 5/18/07 5/4/07 4/20/07 4/6/07 3/23/07 3/9/07 2/23/07 2/9/07 1/26/07 1/12/07 12/29/06 12/15/06 12/1/06 11/17/06 11/3/06 10/20/06 10/6/06 9/22/06 9/8/06 8/25/06 8/11/06 7/28/06 7/14/06 6/30/06 6/16/06 6/2/06 5/19/06 MM/DD/YY Polym er, ppm Viscosity @ Etzikom , cp NaOH, w t% Polym er Vis @ Warner, cp Surfactant, w t% Figure 9: ASP injection fluid composition Pilot Economics to date A description of the project costs was provided in the last annual report. Capital, operating costs and production are all very close to the values presented in the economics in 2006. The project started May 2006 and approximately 23 103m3 of incremental oil has be produced to date which was forecasted. The expected revenue, capital, operating costs, and royalties are included in Husky Oil Operations Limited Page 11 of 16 Annual Report – June 2006 Innovative Energy Technologies Program Taber S Mannville B Alkaline-Surfactant-Polymer Flood (Warner ASP Flood) Appendix A – IETP Project Economic Tables in the same format as the March 2005 IETP application. The final capital cost is expected to be $71.6 million, or one million dollars above AFE estimates as shown in Table 8. Table 8: Comparison of actual costs to original estimates Operating costs Operating costs as presented in the IETP tables in the June 2006 Annual report last year were budgeted to be $981 M in 2006. Since May 2006 when ASP injection began, actual incremental operating costs in 2006 were $985M (Table 9). In the updated pilot economics submitted as part of the indicated operating costs in 2007 will be $1 700M, slightly higher than the annualized costs from 2006 due to increasing oil production rates Husky Oil Operations Limited Page 12 of 16 Annual Report – June 2006 Innovative Energy Technologies Program Taber S Mannville B Alkaline-Surfactant-Polymer Flood (Warner ASP Flood) Table 9: Warner ASP 2006 Incremental Operating Costs. Facilities A description of the major capital items was provided in the June 2006 Annual Report. Operational Issues – Facilities The ASP facility has operated quite well to date. The water treating, chemical preparation, and ASP solution blending processes are operating without major issues. The main problems that have occurred are related to the final ASP injection part of the process, specifically, the 11.4 km distance between the ASP plant at 6-13-6-17W4 and the injection satellite at 11-16-7-16W4. Two low pressure transfer pumps located at the ASP plant pump ASP injection fluid to 4 high pressure pumps located at 11-16. Some difficulties were experienced after the facility was down (power fail, planned shut down, etc) and was started up again. One issue is that there have been seal leaks on the transfer pumps caused by a high suction pressure. While starting the transfer pumps, the fluid is recycled through the first pump while waiting for the suction pressure at 1116 to reach the minimum pressure permissive to start the high pressure injection pumps. To rectify the problem a few sequence changes were made: 1. Originally, the second transfer pump started after the first pump was transferring 1800 m3/d fluid and the same RPM as the first pump. The sequence was modified to start when the first ASP transfer pump was at a rate of 500 m3/d, started at a slower speed than the first pump and radually ramped up. 2. Changed the start up sequence at 11-16 and also slowed the VFD start time down. a. The first pump with target injection rate of 1000 m3/d starts b. The second pump with target injection rate of 600 m3/d starts c. The third pump with target injection rate of 1000 m3/d starts d. The fourth pump with target injection rate of 700 m3/d starts Also, when injection wells opened or closed on timers, the discharge pressure changed which originally caused some operational problems. The other main issue was at 11-16. All 4 motors had to be replaced in the first year. One motor was balanced incorrectly and failed due to excessive vibrations but all eventually failed. The Husky Oil Operations Limited Page 13 of 16 Annual Report – June 2006 Innovative Energy Technologies Program Taber S Mannville B Alkaline-Surfactant-Polymer Flood (Warner ASP Flood) manufacturer’s recommendation was to insulate the housing to protect the bearings but this was not done. The housing were insulated when the motors were repaired and to date there haven’t been any problems. Husky is also investigating the electrical design of the power to the pumps. Specifically there is a review of the loads that were put on the pumps. . Operational Issues - Wells The main issue is controlling the volume of fluid that is injected into each injector. Timers and actuated valves have been installed to help achieve established targets. The operators manually set the timer clock and continually adjust the length of time the injector is shut in until the target is achieved. A reverse PCP pump has also been ordered to test at one injection well. The objective is to increase the injection rate in a low injectivity well and increase the control of the well so that the target rate can be achieved. Scale has been observed on the stator of four producing wells: 102/14-16-7-16W4, 100/10-9-716W4, 104/10-29-7-16W4, and 100/13-29-7-16W4. Production problems seem to correlate with the presence of polymer in the produced water but these are the only wells with scale problems even though 28 wells have evidence of polymer in the produced fluid. The issue will be monitored but may not be as widespread as originally feared. 102/14-16 and 0/10-9 are high volume wells (greater than 200 m3/d fluid) with foamy oil. Since de-foam was started in December 2006, there have been less problems. Therefore, part of the problem may have been producing the well with too low of fluid level. When the tubing for 00/13-29 was pulled it was described as looking like a honeycomb. After analysis of the scale it was determined it was a mixture of sand and polymer. Sand production is not common in this reservoir so this type of scale is not expected to be a problem for the remaining wells but again, will be monitored because the potential implications would be severe it all producers experience this problem. The scale from 2/14-16 is being analyzed and a recommendation for inhibiting the scale is currently being developed by Core labs and Baker Chemical. To date, acid, benzene, bleach, and xylene have been tried in the laboratory with no positive results. Environmental/Regulatory/Compliance Regulatory A Conservation and Reclamation Study was completed for the ASP Transfer Lines from Warner to Etzikom and from Etzikom to the Injection Satellite. A post-construction reclamation assessment was conducted in August 2006 on 15.1 km of right-of-way to ensure construction practices were conducted accordingly. This included evaluation of slumping and erosion, monitoring for weed populations, topsoil depths, subsoil salinity, and the identification of any problem areas. The conclusion of the report, issued in November 2006, was that “…pipeline construction practices were adequate to achieve appropriate reclamation success in the first growing season following construction.”1 In 2008, a Land Capability Assessment will be conducted to compare the land capability and vegetation success following pipeline reclamation along the pipeline ROW compared to off the ROW. 1 Husky Warner-Etzikom Pipeline Post-Construction Monitoring Project, Golder Associates Ltd., November 2006 Husky Oil Operations Limited Page 14 of 16 Annual Report – June 2006 Innovative Energy Technologies Program Taber S Mannville B Alkaline-Surfactant-Polymer Flood (Warner ASP Flood) The injection wells were approved under Directive 51 with a Maximum Wellhead Injection Pressure of 16 200 kPag. No injection wells have exceeded this pressure. Average injection pressure is currently 13 500 kPag. The project received Directive 65 Approval (Approval 10418B) to inject ASP into the Taber South Mannville B pool with the following requirements: The ASP solution will be 0.75wt% NaOH, 0.15wt% surfactant, and 0.12wt% polyacrylamide polymer The polymer solution will be polyacrylamide polymer between 0.06 and 0.12 wt%. ASP injection will be not less than 2480 103m3 followed by not less than 2480 103m3 polymer solution Must maintain a VRR = 1.0 on a project basis Shall target a VRR = 1.0 on a monthly basis Monthly sampling of produced water to determine ASP breakthrough Presentation to the EUB required annually with the first to occur before June 30, 2007. Husky is satisfying the requirements of Directive 65. Environment and Safety Husky has a management system that contains elements such as auditing, incident reporting, contacting residents, and site maintenance. Issues identified comprising of these elements will be managed and acted on appropriately. Shut down and Environmental Clean Up The facility will be in operation until at least 2010. Reclamation of the ASP Plant and injection site will meet all Alberta Environment requirements. At the time of abandonment a Phase I Environmental Assessment will be completed. If any issues are identified following this, a Phase II Environmental Assessment will be completed. Remediation will be conducted if necessary. The site will be reclaimed and a Reclamation Certificate will be applied for. Future Operating Plan Injection and production rates are continually being monitored and adjusted to meet targets. Targets will be review regularly as additional production results and produced water analysis are obtained. 30% pore volumes (PV) of injected ASP fluid is expected to achieved by June 2008 followed by 30% PV of polymer only solution. It is estimated this will occur by the end of 2010. Husky is currently reviewing the economics of injecting greater than 30% PV polymer solution which could mean the plant is in operation for as many as 3 more years. In light of this, the salvage value of the facility has not been determined. Conclusions Although there were many challenges designing the plant due to the available human and capital resources in the industry, ASP start-up went smoothly and the facility is effectively treating and softening the produced water. Alkali, surfactant, and polymer are being blended in correct concentrations. Dedicating one pump to one region of the reservoir is proving to be a cost effective method of controlling injection rates without using well chokes that would shear polymer. The installation of timers on injection wells has improved control significantly. Husky Oil Operations Limited Page 15 of 16 Annual Report – June 2006 Innovative Energy Technologies Program Taber S Mannville B Alkaline-Surfactant-Polymer Flood (Warner ASP Flood) Husky is pleased with the project to date as it is on budget for oil production, operating costs, and capital costs. Demonstration that the technology is working is observed through water analysis and oil cut changes of oil production wells. The oil production rate is currently 150m3/d which is above the 33 m3/d the pool would have had if the ASP project was not implemented. The results are encouraging but the December 2007 target oil rate is 289 m3/d and the peak forecast oil production rate in June 2010 is 519 m3/d. There is still a long way to go before the technology can be proven. Although only 23 103m3 (0.14 MMBO) incremental oil has been produced to date, representing only 2% of the final incremental oil volume forecast, the project is on trend to achieve incremental oil production due to ASP flooding between 700-1000 103m3 (4.4 to 6.3 MMBO). The fact remains that there are very few enhanced oil recovery methods for medium crude oil reservoirs after waterflooding despite the fact that a sizable target of oil remains trapped in the reservoir. The advantage with tertiary recovery, compared to exploration, is that the target is often known to a high degree of certainty. The challenge is to understand the technical risk of this tertiary recovery process. Husky and the Alberta Department of Energy have invested resources to increase understanding of ASP technology in anticipation of a successful project. Interest in the technology has increased over the last year as demonstrated through increased products from chemical vendors and the announcement of a junior oil and gas company that will be implementing an ASP flood in a southern Alberta reservoir in the second quarter of 2008. This is very encouraging news as greater application of ASP flooding will help develop new technologies. Husky intends to continue to technically and economically advance the process to help justify additional ASP floods in suitable reservoirs in Alberta by increasing oil recovery and reducing costs through facility optimization and ASP chemical system improvements. Husky Oil Operations Limited Page 16 of 16 Annual Report – June 2006