HOUSTON, Feb. 15, 2012 /CNW/ - Enhanced Oil Resources Inc. (TSX-V: EOR) is pleased to provide the following update regarding the Company's proposed activity for 2012.
During the previous year the Company focused its efforts on several fronts, including the monetization of the St John helium/ CO2 field, the planning for, design of, and the purchase of right of way options for the previously announced CO2 pipeline connecting the Company's oilfields in Chavez and Roosevelt Counties and the preparation for the commencement of our infill lateral program at Milnesand oil field. In addition, we spent considerable time and money working over and plugging and abandoning several wells in our Milnesand and Chaveroo fields to reduce the number of non-compliant wells in those fields. Our efforts resulted in an Agreed Compliance Order that will allow for the commencement of the infill drilling program we announced earlier that year.
As we begin 2012, the Company has never been in a stronger position with cash in the bank of approximately $25.5mm, zero debt and estimated proven oil reserves of approximately $60mm (internal unaudited, Dec 2011 reserve report in prep). With the developments of 2011 behind us, the Company's focus for 2012 is the accelerated development of the Company's oil reserves at the Milnesand, Chaveroo and Crossroads oilfields. Specifically, during 2012 the Company will focus on:
- Adding production from existing wells at our Milnesand, Chaveroo, Crossroads and Texas oilfields.
- Initiating our San Andres lateral infill program at Milnesand and potentially at Chaveroo.
- Extending and exercising our pipeline right of way options for the Company's proposed 40 mile pipeline connection from Kinder Morgan CO2 Company LP's Cortez pipeline to the Company's Milnesand and Chaveroo oil fields.
- Adding reserves at our Chaveroo field where we carry no reserves currently and continuing the improvements gained in its production performance demonstrated in 2011 and accelerating the significant compliance requirements in this 20,000 acre oil field.
- Seeking acquisitions of strategic bolt-on oil weighted production near to our existing fields and other strategic opportunities with long life reserves
- Market and industry exposure of Enhanced Oil Resources.
The acquisition of legacy oilfields comes with tremendous opportunity for reserves and production growth, yet at the same time, we have to deal with poor well bore and surface conditions left by prior operators. Last year alone, we spent considerable time, effort and finances working over approximately 60 well bores, bringing 38 wells back to production and plugging and abandoning 12 well bores. During 2012 we have allocated up to $1.7 mm to work over, reactivate and plug several wells across our fields, with a focus towards getting our Chaveroo field into compliance. While we do not expect significant production growth from these endeavors, we expect that our considerable effort to right the wrongs of previous operators will ultimately reward us, longer term, with the required approvals to expand our infill programs across our fields and CO2 flooding of both Milnesand and Chaveroo.
At our Crossroads field we recently announced the downhole failure at our 303 well bore. To date, attempts to retrieve the stuck sub-pump have not yet been successful. We have currently suspended activity on that well to review several options to bring that well back on, including modifying existing tools to fit over the pump, milling the pump entirely or sidetracking around the obstruction. In the meantime, on February 6th, we were successful in bringing the 105 wellbore back to production by temporarily transferring the production equipment from the 303 well and installing a new, high volume, submersible pump. Production from the 105 well has averaged approximately 80 barrels of oil per day (bopd) since being brought back on-line, however we anticipate that this flush production will decrease over time and level out around +/- 50 bopd. In addition, as part of our Agreed Compliance Order (ACO) we have initiated the conversion of the Crossroads 106 well to a new water injector well that will allow for greater water handling, currently limited at the 104 injector.
In Texas, we are commencing a long-standing workover plan that we expect, if successful, could improve production rates significantly. We will continue to review the results from these properties and determine if any further activity is then warranted.
Production volumes for January averaged approximately 300 bopd, similar to our December results. The reduction is principally related to the downtime associated with the Crossroads 303 well and weather related issues normal to this period. In addition, during the fourth quarter of 2011 very little workover activity was approved internally due to uncertainties with our then drilling obligations at our St. Johns Helium/ CO2 field. With that now resolved, and after allocating available funds to working capital, we can now resume our work over activity. Production for February, to date, has averaged approximately 360 bopd, principally because of the start up of the Crossroads 105 well. Additional activity is planned to get back to our pre 303 levels as soon as possible. Longer term, we expect that our production levels can increase substantially once our infill drilling activity at Milnesand and exploitation activity at Crossroads is initiated.
San Andres Infill Program
The Company has received all approvals to initiate our previously announced infill program at the 4,800 acre Milnesand San Andres Unit where prior development on 40 acre spacing is estimated to have recovered only 14% of the original oil in place. Many operators of similar San Andres fields elsewhere in the Permian Basin have had tremendous success and reserve growth by downspacing from 40 acres to 20 acres and we believe the same potential exists across our 25,000 acres of San Andres legacy oilfields. We have currently permitted 5 wells for infill drilling and intend to drill up to 2,000 ft of lateral pay section through the San Andres reservoir to maximize the amount of pay, and production, from these locations. We intend to drill 3 wells back to back and will then review the results, production trends and economics to determine the best means of moving forward. It is estimated that, if successful, we would have up to 30 additional laterals at Milnesand and, by analogy, up to 100 laterals in the Chaveroo field.
We are currently in line for services for the drilling rig, directional tools and other equipment and services required for this program and we hope to start our first well within the next 30 days. In addition, as part of our existing ACO at Milnesand we have contracted a plugging crew to complete the four well plugging commitment and expect that program to start towards the end of this month.
Cortez to Milnesand Pipeline
In April 2010, the Company announced a CO2 gas purchase contract with Kinder Morgan CO2 Company, L.P. providing for the delivery of certain volumes of CO2 from the Cortez pipeline interconnect to a proposed 40 mile, 8 inch diameter pipeline delivering to the Company's planned CO2 projects at Milnesand and Chaveroo. In connection with the sale of the St Johns asset to Kinder Morgan the Gas Purchase Agreement and Pipeline Connection Agreement were amended to provide for the extension of certain commitment dates.
The agreement in respect of the sale of the St. Johns Assets includes an amendment to the Gas Purchase Agreement which extended the Company's cancellation right date to a date on or before February 28, 2014, and extends the initial delivery date to September 1, 2015. In addition, the amendment eliminates the termination payment that would have been due prior to exercising the cancellation right date on or before February 28, 2014, and returned the $1.0 million letter of credit previously provided by the Company as security for the termination payment. The Cortez Connection Pipeline connection requirement was also modified by the Agreement. With this latest amendment, the Company achieved an extension to the required take-or-pay commitment date, thereby allowing an additional two years to conclude the Cortez Connection Pipeline approval process, purchase the required right-of-way and construct the Cortez to Milnesand pipeline.
The investigation and consultations with multiple regulators for the pipeline spur began in June of 2010 and has reached a point where the design has been completed and the path to be used has been identified. The pipeline, anticipated to be 8 inches in diameter and 40 miles long, requires approximately 9 months for construction following formal approvals. The Company has negotiated right of way purchase options for the planned path and is beginning to prepare the State and Federal permitting required for the commencement of construction. The balance of 2012 will be focused on regulatory requirements with any construction not being considered now until late 2014 or early 2015.
We are considering and evaluating acquisitions of strategic assets near to our existing fields where considerable synergy exists or that include natural gas components that present medium-term potential for gas price recovery. Currently, the natural gas market is at a decade low as near term delivery of gas supply has reached an all time high, making gas reserve pricing relatively affordable on BTU basis. With cash in the bank and interest rates for producing properties at an all time low we believe acquisions to be a necessary part of our business plan for the next year.
Market and Industry Exposure
Following the sale of St Johns field the Company now has productive assets that are now relatively more quantifiable. Beginning February, with $25.5 million cash on hand and over $60 mm anticipated in proved reserves the Company has never been stronger. While many shareholders are disappointed with the outcome at St Johns the Company can now move forward and build on our oil and gas reserves in the near term and use those reserves to finance additional activity. We now have a multitude of opportunities to build a domestic oil and gas production company based on productive and marketable assets that can result in real growth in shareholder value.
We have mentioned in the past of our desire to list on a senior exchange. With our current asset base, a stronger balance sheet and a business plan balanced between reserve growth and expenditures to overcome the accelerated activity of regulators, we believe can move forward in these activities. Our application to apply for a senior exchange is nearing completion and we would expect to apply to be invited to a senior exchange listing in the next few months, either in the USA or Canada. In the meantime we intend to increase our Investor Relations program and get out and tell the story of the new Enhanced Oil Resources. While the Company is receiving some industry exposure, we will endeavor to increase market awareness by participating in road shows and conferences beginning in February at the NAPE conference in Houston. Additional conferences are planned and these will be announced in the near term.
The Company's President and CEO Mr. Barry Lasker states "Last year was a watershed year for the Company. We are no longer hamstrung by the long term carrying costs and commitments at St Johns and we can now move forward with an asset base that is tangible and with nearer term objectives. Our development program at Milnesand, Crossroads and Chaveroo can set the platform for reserves, production and shareholder growth for many years to come. Last year was a transitional year for the Company and 2012 offers tremendous growth opportunities. We are excited about the year ahead. As always, we thank the shareholders for their support and we look forward to reporting the progress toward these objectives as they develop."
About Enhanced Oil Resources Inc.
Enhanced Oil Resources Inc. is an early-stage company, with a principal goal of increasing crude oil and natural gas production through enhanced oil recovery ("EOR") and infill drilling projects it is initiating in the Permian Basin on oil fields acquired by the Company in 2007 and 2008 for that purpose.
Certain statements contained herein are "forward-looking statements" and "forward-looking information" under applicable securities laws, including statements regarding beliefs, plans, expectations or intentions regarding the future relating to Enhanced Oil Resources Inc.'s operations, business prospects, expansion plans and strategies.
Forward-looking information typically contains statements with words such as "intends", "anticipate", "estimate", "expect", "potential", "could", "plan" or similar words suggesting future outcomes. Readers are cautioned not to place undue reliance on forward-looking statements because it is possible that expectations, predictions, forecasts, projections and other forms of forward-looking information will not be achieved. Forward-looking statements are based on the opinion and estimates of management at the date the statements are made, and are based on a number of assumptions and subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. Although Enhanced Oil Resources believes that the expectations reflected in such forward-looking statements are reasonable, Enhanced Oil Resources can give no assurance that such expectations will prove to be correct. Assumptions upon which such forward-looking statements are based include that the Company will be able to carry out its proposed activity for 2012, that the end of year reserve report will be completed and the estimated proven oil reserves confirmed, that there will be accelerated development of our oil reserves, that production may increase at from our oilfields will be added, that our infill program will commence be initiated as expected, that right of way options and permitting approvals for the Company's Cortez to Milnesand pipeline will be purchased exercised and received, and that the Company can find suitable acquisitions of a strategic nature to purchase, that application will be made for a senior exchange listing and that our investor relations program will be increased. Readers should refer to Enhanced Oil Resources' current filings, which are available at www.sedar.com, for a detailed discussion of these factors, risks and uncertainties. The forward-looking statements or information contained in this news release are made as of the date hereof and Enhanced Oil Resources undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable laws or regulatory policies.
ON BEHALF OF THE BOARD OF DIRECTORS
Barry D Lasker, CEO
NEITHER TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE
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For more information visit our Website at www.enhancedoilres.com. or please call Don Currie on 1-888-990-3551.