We are convinced that our idea to use different approaches and new clean technologies to create zero emissions
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gas production in Quebec is the right one.
An aspirational goal of near zero environmental impact has transformed how we look at development of our resources and our approach to social acceptability. The conventional incremental approach focused only on economic solutions is no longer good enough. People understand we need to balance the environment and the economy but they are looking for a leap forward.
Our goal is to achieve true sustainability with projects aimed at near zero environmental impacts. We are revisiting our business plan with the idea of taking this approach throughout our business.
Highlights
Farm-in partner exercises option to drill fourth well at Kakwa North
Agreements reached with Schlumberger and SNC-Lavalin to advance the Clean Tech Energy project in
Quebec
Invited by Government of Jordan to apply for concession agreement for oil shale project
Average daily production of 2,035 boe/d for the quarter with adjusted funds flow from operations of $2.66
million
During the quarter, we continued to build support for our Clean Tech Energy project. Teamsters Canada, one of the largest trade unions in Canada, publicly declared their support for natural gas development proceeding in Quebec. SNC-Lavalin, a Quebec-based engineering firm, was engaged to develop the engineering for our project and validate its feasibility and environmental benefits. We also formed a relationship with Schlumberger to apply their stewardship tool to model and measure environmental impacts.
While the vision for this project is ambitious - producing zero emissions natural gas with zero fresh water usage and zero toxic chemicals below ground - we are confident it can be done. By integrating new and existing technologies, Quebec could become a leader in clean natural gas production. In addition to replacing imports, the natural gas could provide the feedstock for cleaner high value products such as fertilizer and methanol.
Communicating these economic and environmental benefits to the government and other stakeholders is taking longer than we originally hoped. It is, however, a prerequisite to any approvals. On the basis that our discussions for the Clean Tech Energy project continue and to allow SNC-Lavalin time to complete the engineering, we are applying to extend the deferral of our judicial review until early next year.
At Kakwa North, our partner continues to delineate producing intervals in the Montney. A third earning well was completed in the quarter with initial results in line with the previous wells. Based on these results, they elected to drill the next well and it should spud shortly.
Next year we could see our first joint well at Kakwa North. It will benefit from the ongoing work to optimize completions. The goal is to balance the sand tonnage, water volumes and fracture treatment spacing to increase both initial production and ultimate recoverable reserves.
We are growing more optimistic about a third interval lower in the Montney formation at both Kakwa North and Kakwa Central. If proved up, it could increase the number of undrilled locations. The largest operator in the Kakwa area reported positive results from a triple stack, or three stacked wells with each of them targeting one specific interval into the Upper, Middle and Lower Montney. We are discussing with both operators a test of this interval next year subject to commodity prices.
Our oil shale project in Jordan is moving to the next stage. The Government recently invited us to apply for a concession agreement to include work program commitments and other fiscal terms. These negotiations will start soon and will leverage the engineering by Red Leaf to prove the commerciality of their EcoShale process.
Operating & Financial
Relatively unchanged from last year, production of 2,035 boe/d in the quarter reflects the investment in Kakwa Central last year as well as incremental royalty volumes from Kakwa North. With materially lower oil prices in 2019, adjusted funds flow from operations for the quarter of $2.66 million remained consistent with the first quarter but declined over the second quarter of last year. Capital expenditures for the six months ended June 30, 2019 were $10.44 million with 90% invested at Kakwa Central.
Outlook
In Quebec, our plans are to align the schedule for the technical work with the timeline for social acceptability and regulatory approvals. Given the considerable work needed to build this support by stakeholders, our step by step approach is very important. We are targeting to complete the preliminary engineering work by this year end and
the local acceptability needed for the Clean Tech Energy project next year.
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