Reserves increase to 3.1 Million BO
Enhanced increases proved oil reserves to 3.1 M barrels
2013-05-09 12:15 ET - News Release
Mr. Barry Lasker reports
ENHANCED OIL RESOURCES ANNOUNCES 40% INCREASE IN PROVED DEVELOPED RESERVES TO NPV(10%) $35MM AND TOTAL PROVED RESERVES OF NPV(10%) $54MM
Enhanced Oil Resources Inc. has provided the following update regarding the company's year-end 2012 oil and gas reserves and operations results for the first quarter of 2013.
The company's key business objectives for 2013 are to continue its focus toward increasing oil production and oil reserves at the Crossroads and Milnesand oil fields, to further evaluate the infill potential at the Chaveroo oil field, to further the permitting and potential construction of the company's Cortez to Milnesand pipeline connecting Kinder Morgan's Cortez CO2 (carbon dioxide) pipeline to the company's Milnesand and Chaveroo oil fields by September, 2015, and to continue the company's successful compliance activity across its oil fields.
Oil production during the first quarter of 2013 averaged 418 barrels of oil per day. At the company's Crossroads oil field, oil production has averaged 266 barrels of oil per day, a gain of 14 per cent from year-end 2012 rates. At the Milnesand field, oil production for the first quarter of 2013 has averaged approximately 91 barrels of oil per day, a 9-per-cent decline from December, 2012. Oil production from the recently drilled MSU No. 141 and No. 522 wells appears to have levelled off at approximately 22 barrels of oil per day per well, in line with the company's predrill estimates.
Reserves update
The company is pleased to report that the total net proved reserves of the company increased 11 per cent during 2012 to 3.1 million barrels of oil compared to 2.8 million barrels at year-end 2011. During the year the company replaced 270 per cent of production. The total proved PV10 value of these reserves was consistent with year-end 2011 levels at $54.2-million; however, the company's proved developed reserves increased by 40 per cent, approximately $10-million, to $34.9-million. The increase in proved developed reserves values occurred during a period where service costs increased by approximately 30 per cent and oil prices were lower by approximately $3.50 per barrel. The reserve report was audited by Cawley Gillespie and Associates, the company's independent engineering firm for the last five years.
Crossroads update
Crossroads production has averaged approximately 266 barrels of oil per day with approximately 100 to 125 barrels of oil per day currently shut in pending resolution of the water handling issues. The Crossroads No. 303 well was placed on submersible pump lift toward the end of March and, since that time, has averaged approximately 70 barrels of oil per day. The production is consistent with preworkover rates and confirms the value the company saw in that well that necessitated the expenditure of approximately $2-million to bring that well back on line. The Crossroads No. 101 well continues to perform well with current production consistently around the 70-barrel-of-oil-per-day level. As previously disclosed, the company has three wells shut in pending additional water handling and, when brought back on line, should add another 100 to 125 barrels of oil per day to the company's production levels. The company expects to complete the execution of a water disposal strategy at Crossroads, which will provide an additional 6,000-barrel-of-water-per-day handling capacity by Sept. 1, 2013. The short-term strategy involves on-lease reinjection, with a longer-term solution being investigated that involves water transfer to the Milnesand field. This reinjection plan was formulated in the first quarter of 2013, and involved production and injection testing of several wells to determine the best injection well candidate. Identified wells were the Crossroads No. 303, No. 302 and No. 106. An additional plugged and abandoned well, the No. 310 well, is also being considered for re-entry. The production testing of the No. 303 well resulted in rates of 75 barrels of oil per day and 2,400 barrels of water per day, similar to rates seen prior to the well problems the company had during late 2011. Injection well testing in the No. 302 and No. 106 will be conducted following the engineering review of the No. 310 well and followed by a final injection candidate selection. This plan will be submitted to the Oil Conservation Division in New Mexico for approval in mid-May. Approval is expected during the second quarter, with execution of injection wells during the third quarter. In regard to the longer-term disposal plan of transferring produced water off lease to the Milnesand oil field, engineering studies are in progress to assess water compatibility potential and pipeline installation options.
The 12-square-mile three-dimensional seismic survey planned for the first quarter of 2013 has been acquired, and the company is now waiting on delivery of the final data tapes, which are expected to arrive within the next week. The 12-square-mile Crossroads 3-D seismic survey is intended to delineate potential infill locations at the Crossroads field, to improve structural mapping and fault locations, and to further evaluate shallow production previously encountered in the field. This survey will be the first modern seismic data set acquired over the Crossroads field since its discovery in the 1950s.
Milnesand update
After approximately eight months of production from the company's recently drilled MSU No. 141 and No. 522 lateral wells, Enhanced Oil can now see a consistent production trend with low decline rates as expected. Based on current rates of production, the company expects that it should end the initial 12-month production period at approximately 20 barrels of oil per day per well, slightly above Enhanced Oil's predrill expectations and considerably higher than the original vertical wells drilled to develop the field over 40 years ago. Enhanced Oil continues to monitor well and service costs to refine the economics of this play, and confirms the need for the future utilization of lateral wellbores in the upcoming CO2 development project.
In early 2013, plans were initiated to complete an advanced petrophysical analysis within the Milnesand field, and these should be completed by the end of the month. This work is similar in scope to work conducted by Enhanced Oil in 2012 within the Chaveroo field and will involve 83 wells, which is expected to validate and provide further insight into original oil in place and remaining oil in place, and provide the identification of potential bypassed oil zones. This work shall provide structure maps, interval isopach maps, average porosity and permeability contours, net pay, porosity, permeability contours, and original oil in place by section. This study will be used in conjunction with continuing engineering studies regarding CO2 flood wellbore utility to assess and identify potential waterflood optimization opportunities that can be executed in 2013/2014 prior to the implementation of CO2 flood operations. This work will involve activities such as pattern-by-pattern cross-section alignment opportunities, injection-rate adjustments and pump upgrades.
Regarding reservoir engineering, efforts were initiated and are under way to provide production response from CO2 flooding using existing 40-acre well spacing and 80-acre patterns with a five-spot configuration. Simulation work shall begin in the second quarter to optimize pattern spacing and address the application of horizontal technology. Matched waterflood response has been conducted using CO2 Prophet, an industry scoping tool, using in-field core lab data. This model is currently being used to provide forecasting for CO2 oil production response. Industry experts are being utilized to validate modelling assumptions and predictions.
In-depth engineering studies regarding lateral application within the Milnesand field are expected to be completed by the beginning of the fourth quarter of 2013.
Cortez to Milnesand CO2 pipeline
The company recently completed survey efforts on the proposed CO2 pipeline connecting Kinder Morgan's Cortez line to the company's Milnesand and Chaveroo oil fields. Final survey results indicate a revised pipeline length of approximately 38 miles. Updated cost estimates suggest that the pipeline can be constructed for approximately $18-million, assuming current steel prices. The company will proceed with the necessary federal and state permitting work in 2013, and expects to begin purchasing rights-of-way in early 2014. Delivery of CO2 to the company's proposed pipeline is scheduled to commence no later than September, 2015.
Chaveroo update
As mentioned previously, advanced petrophysical analysis was conducted across the field in the Chaveroo field in 2012. A total of 137 logs were used to provide petrophysical and geological analysis of the San Andres formation within this field. This study led to the validation of existing reserves in place by prior operators, and provided insight into remaining and bypassed oil in place. The study provided similar maps as mentioned previously in the Milnesand discussion. An in-depth petrophysical analysis was initiated in the first quarter in the Jennifer and Morgan federal leases, which has identified recompletion/workover opportunities within the P2 and P3 intervals of the San Andres. Additional data were collected and evaluated regarding completion/production histories, stimulation/restimulation histories within the lease and analogous San Andres fields. Analysis of the above data is expected to produce a pilot workover program involving three to six wells that will be implemented in June, 2013. This program will use new perforating and stimulation technologies for recompletion/restimulation within the P2/P3 layers of the San Andres. Expansion of the program is expected based upon positive results, and the need to reactivate or plug wells under the company's existing compliance plan.
Compliance efforts were initiated in the first quarter of 2013 with the execution of an annual plugging and abandonment campaign. Twelve wells have been plugged and abandoned at an estimated cost of $675,000, with safe and timely execution of this work.
CO2 team
The company is pleased to report that it is continuing to build its CO2 development team reporting to Mark Peavy, vice-president, CO2 operations. During the first quarter, Enhanced Oil added four CO2 development team members, two accountants and one field operator. The development team members have collectively over 120 years of industry experience in oil and gas operations and development projects. CO2 team members have significant experience within secondary and tertiary recovery projects, and will ensure that the company's Milnesand CO2 project is completed on time, on budget and with best practices.
Barry Lasker stated: "The latest year-end reserves results audited by Cawley Gillespie confirm we are on the right path to adding corporate values and reserves. With our new CO2 team now in place, we can continue the process of implementing our Milnesand CO2 flood by September, 2015. We continue with subsurface evaluation and surface facility designs, and expect to have these studies completed later this year. Our oil production is holding steady, and we expect further increases in daily oil production will continue once our second water injector at Crossroads is on line, and our reactivation work at both Chaveroo and Milnesand is restarted.
"Improvements in processes regarding fiscal control are being implemented and continually reviewed. These involve such things as monthly stakeholder meetings involving lease operating performance reviews and project AFE status reviews, implementing strategic supply chain strategies with service providers, and improvements in the work flow and payment process to better capture and monitor ongoing costs and payment.
"Moving forward, the company will be providing quarterly period shareholder updates that augment the quarterly filings."
We seek Safe Harbor.