Press Release

Sprott Resource Corp. Announces 34% Increase in Proved + Probable Reserves of Orion Oil & Gas Corporation

TORONTO, Jan. 24 /CNW/ - Sprott Resource Corp. ("SRC") announced today that Orion Oil & Gas Corporation ("Orion") (TSX:OIP), which is 78.9% owned by SRC on an undiluted basis, has announced today the results of its 2010 year-end oil and gas reserves evaluation conducted by GLJ Petroleum Consultants ("GLJ") and Sproule Associates Limited ("Sproule") as at December 31, 2010.

Highlights for year-end 2010 compared to year-end 2009 include:

  • Proved reserves of 16.3 million ("MM") boe, an increase of 32%
  • Proved plus Probable ("2P") reserves of 24.8 MMboe, an increase of 34%
  • Oil and liquids account for 48% of 2P reserves
  • Net Present Value of 2P reserves (discounted at 10% before tax) increased 32% ($106 MM), to $439 MM
  • 2P reserve life index of approximately 12.6 years based on estimated fourth quarter 2010 production
  • 2P Reserve Replacement Ratio of approximately 490% (see note 5)

Orion Oil and Gas Reserves

The tables below summarize certain information contained in the independent reserves reports prepared by GLJ and Sproule as of December 31, 2010 (collectively, the "Reports"). The information relating to reserves and the associated Net Present Value of Orion's Beaverhill Lake (Kaybob), Bigstone and Redwater properties was prepared by GLJ.  The information relating to reserves and associated Net Present Value of Orion's Redwater North property was prepared by Sproule.  Orion retained Sproule to continue its evaluation of the Redwater North acquisition which Orion announced in December 2010.

The Reports were prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook ("COGE") and National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). The Net Present Values included in the table below were based on price forecasts, effective January 1, 2011, provided by GLJ and Sproule, as applicable.

Additional reserve information in respect of Orion's reserves, as required under NI 51-101, will be included in SRC's Annual Information Form (the "AIF"), which will be filed prior to March 31, 2011 following approval by SRC's board of directors.  The AIF will also incorporate SRC's oil and gas interests held through SRC's other subsidiaries, Waseca Energy Inc. and One Earth Oil & Gas Inc.

 

Summary of Orion Oil and Gas Reserves - Forecast Prices and Costs

           
    Light and Medium
Crude Oil
Natural Gas Natural Gas
Liquids
Total Oil
Equivalent
Reserves Category Gross
(Mbbls)
Net
(Mbbls)
Gross
(MMcf)
Net
(MMcf)
Gross
(Mbbls)
Net
(Mbbls)
Gross
(Mboe)
Net
(Mboe)
Proved Developed Producing                    -            -
  Beaverhill Lake (Kaybob) 26,705 23,375 3,359 2,272 7,810 6,168
  Bigstone     2,093 1,749 1   350 292
  Redwater 1,240 1,042 2,340 1,913     1,630 1,361
  Redwater North 245 214 220 183     282 245
Total Proved Developed Producing 1,485 1,256 31,358 27,220 3,360 2,272 10,072 8,065
Proved Developed Non-Producing                    -            -
  Beaverhill Lake (Kaybob) 1,204 1,068 151 97 352 275
  Bigstone             - -
  Redwater             - -
  Redwater North 57 48 43 36     64 54
Total Proved Developed Non-Producing 57 48 1,247 1,104 151 97 416 329
Proved Undeveloped             - -
  Beaverhill Lake (Kaybob) 17,619 16,256 2,216 1,631 5,153 4,340
  Bigstone             - -
  Redwater 382 322 768 616     510 425
  Redwater North 132 106 92 74     147 118
Total Proved Undeveloped 514 428 18,479 16,946 2,216 1,631 5,810 4,883
Total Proved             - -
  Beaverhill Lake (Kaybob) 45,529 40,699 5,727 3,999 13,315 10,782
  Bigstone     2,093 1,749 1   350 292
  Redwater 1,622 1,365 3,108 2,529     2,140 1,787
  Redwater North 435 368 355 293     494 417
Total Proved 2,057 1,733 51,085 45,270 5,728 3,999 16,299 13,277
Total Probable             - -
  Beaverhill Lake (Kaybob) 22,608 19,444 2,844 1,906 6,612 5,146
  Bigstone     886 741     148 124
  Redwater 1,249 1,050 2,252 1,894     1,624 1,366
  Redwater North 121 102 109 90     139 117
Total Probable 1,370 1,152 25,855 22,169 2,844 1,906 8,523 6,753
Total Proved plus Probable         - -
  Beaverhill Lake (Kaybob) 68,137 60,144 8,571 5,905 19,927 15,929
  Bigstone     2,980 2,491 1 1 498 416
  Redwater 2,871 2,415 5,360 4,423     3,764 3,152
  Redwater North 555 470 464 383     632 534
Total Proved plus Probable 3,426 2,885 76,941 67,441 8,572 5,906 24,822 20,031
Total Possible                
  Beaverhill Lake (Kaybob) 23,431 19,891 2,948 1,943 6,853 5,258
  Bigstone             -  
  Redwater             - -
  Redwater North             - -
Total Possible - - 23,431 19,891 2,948 1,943 6,853 5,258
Total Proved plus Probable plus Possible          
  Beaverhill Lake (Kaybob) 91,568 80,034 11,519 7,848 26,780 21,187
  Bigstone     2,980 2,491 1 1 498 416
  Redwater 2,871 2,415 5,360 4,423     3,764 3,152
  Redwater North 555 470 464 383     632 534
Total Proved plus Probable plus Possible 3,426 2,885 100,372 87,331 11,520 7,849 31,675 25,289

Notes:

(1)      Gross equals Orion working interest reserves.
(2)     Net equals volumes after Royalty equivalent volumes are deducted.
(3)      Columns for all tables may not add due to rounding.
(4)      Possible reserves are those additional reserves that are less certain to be recovered than probable reserves.  There is at least a 10% probability that the quantities actually recovered will equal or exceed the sum of the estimated proved plus probable plus possible reserves. 
(5)      The reserves replacement ratio was calculated by subtracting the reserves balance at December 31, 2009 from the reserves balance at December 31, 2010; adding the estimated production for 2010; and dividing the result by the estimated 2010 production.
(6)      All dollar amounts are in Canadian dollars unless otherwise noted.

The following table sets forth the Net Present Value of estimated cash flows attributed to Orion's reserves as set forth in the Reports, both before and after deducting income taxes, and prior to general and administrative expenses.

Net Present Value of Orion Reserves - Forecast Prices and Costs

       
      Before Deducting Income Taxes Discounted at each percent
Reserves Category 0% 5% 10% 15% 20%
      ($MM) ($MM) ($MM) ($MM) ($MM)
Proved Reserves            
  Developed Producing          322.0 263.5 223.8 195.3 174.0
  Developed Non-Producing 10.6 8.6 7.2 6.1 5.3
  Undeveloped   150.2 96.8 64.6 43.9 29.9
Total Proved            482.8          368.9          295.5          245.3          209.1
Probable Reserves 305.4 200.8 143.7 109.4 87.0
Total Proved plus Probable 788.2 569.7 439.3 354.7 296.2
Possible reserves   253.7 135.6 87.3 62.9 48.7
Total Proved plus Probable plus Possible 1041.9 705.3 526.6 417.6 344.9

 

         
      After Income Taxes Discounted at each percent  
Reserves Category 0% 5% 10% 15% 20%
      ($MM) ($MM) ($MM) ($MM) ($MM)
Proved Reserves            
  Developed Producing          300.8          248.0          212.1          186.2          166.7
  Developed Non-Producing 7.9 6.5 5.4 4.6 4.0
  Undeveloped   113.5 71.0 45.5 29.1 18.1
Total Proved            422.2          325.5          263.0          220.0          188.8
Probable Reserves          230.4          150.5          107.2            81.2            64.3
Total Proved plus Probable 652.6 476.1 370.2 301.1 253.2
Possible reserves   191.0 101.6 65.0 46.7 36.0
Total Proved plus Probable plus Possible 843.6 577.6 435.2 347.8 289.2

Price Forecast

The GLJ and Sproule price forecasts used in the Reports are summarized below:

             
Year WTI Crude Oil
at Cushing
(GLJ)
Light Crude Oil
at Edmonton
(GLJ)
Light Crude Oil
at Edmonton
(Sproule)
Natural Gas
AECO
(GLJ)
Alberta
Sulphur
(GLJ)
Natural Gas
AECO
(Sproule)
  $US/bbl $Cdn/bbl $Cdn/bbl $Cdn/mmbtu $Cdn/LT $Cdn/Mcf
2011 88.00 86.22 93.08 4.16 99.86 4.04
2012 89.00 89.29 93.85 4.74 84.55 4.66
2013 90.00 90.92 93.43 5.31 84.55 4.99
2014 92.00 92.96 93.54 5.77 59.04 6.58
2015 95.17 96.19 94.95 6.22 59.04 6.69
2016 97.55 98.62 96.38 6.53 59.04 6.80
2017 100.26 101.39 97.84 6.76 61.08 6.91
2018 102.74 103.92 99.32 6.90 63.16 7.02
2019 105.45 106.68 100.81 7.06 65.29 7.14
2020 107.56 108.84 102.34 7.21 67.45 7.26
2021+ +2.0%/yr +2.0%/yr +1.5%/yr +2.0%/yr +2.0%/yr + 1.5%/yr

GLJ - $US/$CDN exchange rate assumed to be $0.98.  Inflation rate assumed to be 2.0% per year.

Sproule - $US/CDN exchange rate assumed to be $0.932.  Inflation rate assumed to be 1.5% per year.

 
Alberta Natural Gas Liquids (GLJ)
         
Year   Spec
Ethane
Edmonton
Propane
  Edmonton
Butane
Edmonton
Pentanes
Plus
  $Cdn/bbl $Cdn/bbl $Cdn/bbl $Cdn/bbl
         
2011 13.66 54.32 67.26 90.54
2012 15.68 56.25 68.75 91.96
2013 17.62 57.28 70.01 92.74
2014 19.21 58.56 71.58 94.82
2015 20.79 60.60 74.07 98.12
2016 21.85 62.13 75.94 100.59
2017 22.62 63.87 78.07 103.42
2018 23.14 65.47 80.02 106.00
2019 23.67 67.21 82.15 108.82
2020 24.20 68.57 83.80 111.01
2021+ +2.0%/yr +2.0%/yr +2.0%/yr +2.0%/yr

On a Net Present Value basis (10% discount rate, before tax), approximately 79% of the value of reserves is attributable to the Kaybob area (including Bigstone) and 21% is attributable to the Redwater area (including Redwater North).

About Sprott Resource Corp.

SRC is a Canadian based company, the primary purpose of which is to invest, directly and indirectly, in natural resources. Through acquisitions, joint ventures and other investments, SRC seeks to provide its shareholders with exposure to the natural resource sector for the purposes of capital appreciation and real wealth preservation. SRC is well positioned to draw upon the considerable experience and expertise of both its Board of Directors and Sprott Consulting Limited Partnership ("SCLP'"), of which Sprott Inc. is the sole limited partner. Pursuant to a management services agreement between SCLP and SRC, SCLP provides day-to-day business management for SRC as well as other management and administrative services. For more information, please visit www.sprottresource.com.

Cautionary Statements

Certain information contained in this press release constitutes forward-looking information or statements. Forward-looking information and statements are often, but not always, identified by the use of words such as "anticipate", "seek", "believe", "expect", "hope", "plan", "intend", "forecast", "target", "project", "guidance", "may", "might", "will", "should", "could", "estimate", "predict" or similar words or expressions suggesting future outcomes or language suggesting an outlook.  Statements relating to "reserves" and "resources" are forward-looking information as they involve the implied assessment, based on certain estimates and assumptions that, among others, the reserves and resources described exist in the quantities predicted or estimated. By their very nature, forward-looking information and statements involve inherent risks and uncertainties, both general and specific, and risks that predictions, forecasts and projections.

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