PetroBank

[dan_s]

I talked to PetroBank last week. They now expect the Kerrobert Heavy Oil project to be on-line selling oil by the end of June. They expect production to ramp up quickly, from an initial rate of ~500 bopd to ~7,500 bopd over a 12-month period. - Dan

This is from their reserve report released in early March.

Kerrobert Expansion Project
Drilling and facilities construction activity levels at the Kerrobert 10 well-pair expansion have progressed
rapidly since the project got underway during Q3 2010. We commenced the pipeline infrastructure
construction in late September 2010 and shortly thereafter we began construction of the central processing
facility (“CPF”), which is now 75% complete. The first of two air injection pads is complete and we are
currently tying in the first of four production satellites. The CPF is expected to be operational by mid-April.
Temporary steam generating facilities for the pre-ignition heating cycle (“PIHC”) are in place and are in
operation on the first air injection pad. Drilling and completion of all 10 air injection wells is complete and
three of the new horizontal production wells are drilled and in the process of being completed. We also
abandoned the 13 pre-existing vertical and horizontal cold production wells on the property. Facilities, drilling
and completions operations are generally on schedule except for the horizontal drilling program which is
currently four weeks delayed, due to early start-up issues with the drilling rig and extreme cold weather
conditions. We are implementing changes to the drilling operations to return the program close to schedule,
including mobilizing an additional drilling rig, which should see all of the production wells completed by the
end of May. The drilling of the horizontal wells has met or exceeded our design parameters with respect to
trajectory and relationship to the air injection wells. These wells are larger in diameter, have a higher open
flow area to the reservoir, a tighter mesh in the FacsRite™ screen for improved solids control and an
improved wellhead configuration, all of which are expected to result in improved production capabilitWe expect air
injection and production on these first expansion wells to commence in the second quarter of 2011.
We initiated the PIHC in three injector wells on the first pad on March 6th. The PIHC will be performed only on
the injection wells to condition the reservoir and establish communication with the production well prior to air
injection. According to our start-up protocol, the PIHC is expected to last 20 to 60 days. with
sustained target production in each well being reached approximately one year after first air injection. The
PIHC on the second pad of five injector wells is planned for late in the second quarter of 2011. We expect to
have all of the new wells on air injection and producing THAI® oil by the end of July.
Since the beginning of the year, the on-stream time of the two pilot wells has improved dramatically to
approximately 95 percent. For the past few months we have been operating the wells in a controlled state to
minimize downtime and pump changes to ensure stability of economic production rates. The majority of
production continues to come from the KP2 well which was drilled relatively flat as compared to the KP1 well
where the toe is located higher in the reservoir, adversely affecting communication with the combustion front
and well control. The well configuration for the 10 new producer wells will mitigate this issue as they are
planned to be drilled similar to KP2. We are evaluating a remediation strategy for KP1 to improve
communication with the mobile oil zone and improve production. Peak production rates for the two wells
combined have been as high as 355 barrels of oil per day (“bopd”) in the last four months. From December
1, 2010 to February 28, 2011, average calendar day production rate from the KP2 well has been
approximately 121 bopd and KP1 has been approximately 35 bopd. The produced oil has been consistently
upgraded in-situ by 4 - 7 degrees API, requiring less diluent to meet pipeline API quality. Since we have
achieved our objective of formal reserves recognition at Kerrobert, we will focus on increasing production
towards design capacity of 600 bopd per well. Under normal operations, design capacity is expected to be
achieved approximately one-year after air injection has commenced.

[dan_s]

PetroBank is now trading at less than 3.2 X my forecast cash flow per share for 2011. The average for the Sweet-16 is about 8X forecast CFPS.