Field & Production Update – October 24th-30th 2010
The Stotts lease land survey is to commence next week by People’s Electric after Jim Witcraft, our Operator with Rainbow Oil & Gas, was able to negotiate and get an easement from the landowner to lay-in the upgraded electrical line, and allow us to run more power on the lease. Our field supervisor Jake Stewart thinks we can increase our production from 50-60 bopd now to 100 bopd with another ‘submersible pump’ installation in our Stotts #1, and with our new electrical updates on the lease. We move a lot of water and will move more oil from the Cromwell zone, which is our principal zone of production on the Stotts lease, when we can take our generator off-line and will have full time electricity available after the People’s Electric update.
We finished ‘pulling’ the four wells on the Ewell lease, so we’re back to (11) producers on-line which includes one water disposal well. We have met new requirements of the Oklahoma Corporate Commission (OCC) relative to dealing with rain water, or what they call water spills, and lease re-seeding they are now requiring at our lease location…the OCC is often on us like ‘fly’s on shit’, excuse my French…and as you can imagine, we deal with local, state, and federal laws relative to managing oil & gas production, and development operations all of the time. We deal with the agencies with legal, and field support, as well as working through long time contacts with representatives such as Terry White, our ally, who is the head of the Corporate Commission for Okmulgee County, but remember, we have leases in five counties. Jurisdiction is specific for each county. Argh! We expect the Ewell Lease do regularly do about 50-60 bopd when our electricity stays on, and the OCC like the ‘Murphy Family’ goes to bug others in our business.
We are now paying-off our new drilling rig with all peripherals enabling us to drill to all productive depths to reach all desired target zones on our six fields, and leases. This includes the Simpson sand group, Wilcox, and the deepest zone normally, which is the Arbuckle. We will keep our drilling rig working at all times. We plan to drill many new wells in 2011, including; the Stotts #8, a new Ewell Lease Arbuckle test, a new well on the Doneghy lease, a new well on the North Skinner Lease, Osage Lease wells in groups of three, and numerous wells on the North Stone Bluff leases (NSB), which include the Brice, Franklin, Parker, and Stancil leases.
We just finished two new water injection wells to increase oil production from 29 of 65 well bores on the NSB, using the water & Nitrogen gas drive (WAG) program, and we expect this to double our current production. We have a development plan for the NSB which has been reviewed and approved by Dr. Myron Kuhlman, who is is both a petroleum engineers, and a chemical engineer, and another ‘field petroleum engineer’ hired by Kevin Doty, who is our 50% operating partner and manager of C & J Petroleum. Mr. Doty has Ryan Kerr, who is another geologist on the project overseeing day to day development operations. We expect to peak at between 250-450 bopd on the NSB, depending on whose estimate you accept. We expect to finish the project in 2011. Our share of the development costs on the NSB leases will be about $700,000. By the way both Gulf Oil, and Shell Oil have proven the WAG system on several leases where the Dutcher Zone was the principal target, and had great results in the same area as our NSB leases. So we know the WAG method of using Nitrogen and Water to push the recoverable oil from the Dutcher zone will work, and if fact, this WAG process is already moving oil on our NSB leases. We’ll keep you posted on our results of course.
On Monday we will be ‘perforating’, and using the new major oil company invented ‘shots’ with chemically explosive reactions occurring an average of 39″ through, and away from the borehole ‘casing’ we pierce, and this process occurs at temperatures of 2,000 degrees Fahrenheit when shooting the ‘perfs’ in the S-1 well on the Doneghy lease. We will also be using the new ‘shots’ on the Priegal #1, since it produces only oil, and we want to increase its production. We’re looking for 25-50 bopd from these two re-entry wells on the Doneghy leases. As most of you know we have 29 boreholes to try various techniques involving new technological advance to recover more oil from these old well bores.
We will begin drilling new wells on our Osage lease by drilling the shallow Bartleville wells in groups of three at a time on our new Osage lease in the first quarter of 2011. We are waiting for the drilling permits now from the Bureau of Indian Affairs (BIA).
All together we have about 113 wells on-line or being worked-on, or are about to be drilled to recover the maximum amount of oil possible right now at $80 plus oil prices. So, we have 87 more new wells to drill, as part of our 200 well ‘turn-key’ investment program, involving our highly diversified development plan to establish a healthy & consistent amount of daily oil & gas production from our leases. We’ve bought leases at ‘rock bottom’ prices when demand was low, and oil prices were very low, and we are doing our development work at costs, and extending these benefits to our investors. We micro manage our development plan and leases on a daily basis, and have our highly experienced crews working in the field for wages you won’t find anywhere, but we do take care of our employees. Since we have 90% of the equipment needed to conduct an oil & gas development operation we also save money as Tar Water Oil & Gas, (TOG) as the Operator of our leases and assets. We provide gas for our employee trucks, and feed them during work operations. We have highly motivated field, and office workers, and we regularly fire those employees who attempt to get by without working to get the job done in timely fashion, are lazy, or who we discover are not up to the challenge of our standards.
Now the part everyone wants to know when investing…what’s my cash flow going to be? It looks like our oil production is averaging about 1 tank at (160 net barrels of oil per tank), of oil produced per week from our five fields, and leases collectively. However, much of our our recent production increases are recent, and the numbers are increasing as new wells, or newly completed re-entries, and work-overs are completed. The next 30-60 days should get exciting! Bottom-line oil is being sold regularly from our various lease to different oil buyers. Our next quarterly distribution is planned after Thanks-giving, and we expect to be sending-out about $200,000 in production revenue to our investors.We are waiting for production sold in the first three weeks of November to be included in our next distribution. This is nearly 3 times what we distributed on July 31, 2010. Our returns are subject to delays based on weather, electrical shut-downs by the county, and conditions involving muddy roads, or being able to access some of our leases to do work when roads are impassible. That said, oil prices are going up and our oil is still ‘trapped’ in the closures, anomalies, and structures originally trapping our oil millions of years ago…bottom-line, our oil isn’t going anywhere, and as we continually improve our leases, establish, or book more oil recoverable oil reserves our assets, and lease go up in value. This bodes well for a future sale of the assets as a nice multiple return on investment dollars. We will of course continue to distribute cash flow, and as oil production goes up, this amount will increase. We only need a well or two to come-in at the 100-200 bopd level, and the returns are then rapidly skewed upwards, return of capital is quicker, and the risk profile goes down considerable for investors.
