Giddings Field
Following the closing of our Delhi Farmout, we initiated a project within our Conventional Redevelopment of Bypassed Resources initiative. Bypassed resources are primary and secondary oil and gas resources in fields that matured prior to current commodity prices and technology. These fields fell out of favor by industry for many reasons, including declining economics at times when oil and gas prices were below $25/bbl and $2.50/MMBTU and when drilling and completion technologies were less developed than today. To these resources, we apply our expertise in horizontal drilling, artificial lift and innovative completions. The EPM team has more than 40 years of combined experience in these areas, including the Giddings Field.
Our Giddings Field project targets proved undeveloped horizontal drilling locations in the Austin Chalk, Georgetown and Buda formations in the Giddings Field. These locations are offset locations to existing commercial wells. The targeted reservoirs are generally at a vertical depth of 9,000' – 13,000' and horizontal drilling ranges from single 1200' laterals to dual 4,000' laterals. The locations include both re-entries within existing wells at a cost of $1 – 1.7 million, and new, grassroots wells at a cost of $2 – 3 million. EPM owns 100% of the working interests in these leases that total approximately 18,000 net acres, except for leases that were assigned to an industry joint venture in July 2010.
To date, EPM has drilled 11 wells and added 2 more wells to production through work-overs. Early drilling results led us to highgrade our portfolio of drilling locations in the area of our best successes and downgrade locations in one area. The drilling success achieved in the last 5 wells drilled, indicates that the highgrading was effective.
As of February 1, 2011, we have fully leased 13 proved and 2 probable drilling locations in addition to the 13 wells that we have drilled and completed. The three recently completed wells are part of our joint venture with an industry partner. The Lightsey-Lightsey #1H is a single lateral horizontal well completed in the naturally fractured Buda Formation and had an initial steady rate of 1.24 MMCFD of rich gas and 124 BOPD. The Dodd #1H is a dual lateral horizontal well completed in the naturally fractured Georgetown Formation with over 7,000’ of lateral penetration compared to EPM’s offsetting Pearson #1H with 2600’ of lateral penetration. The Pearson is estimated to have ultimate reserves of 200-300 MBOE and the Dodd tested at a high rate of production during wellbore cleanout operations. The Dodd is shut in-waiting on pipeline. The third well in the program, the Supak-Brinkman #1H, is a single lateral completed in the Austin Chalk formation. To date, the well has continued making back a portion of the 100,000 barrels of water lost during drilling and our expectations are minimal for commercial production. In aggregate, the three wells appear to meet our expectations. Our partner has the right to elect to participate in up to two more locations.
The Austin Chalk, Buda and Georgetown formations are naturally fractured, dual porosity reservoirs containing either lean gas or rich gas with oil. Successful wells generally have high initial production rates and rapid initial declines. Typically, half of a well’s reserves may be produced in the first two years, following which the decline rate slows substantially. This type of development can generate substantial net value and income.
Neptune Project – South Texas Oil
Late in fiscal 2008, we initiated a new project, Neptune, in south Texas to apply what we learned about producing moderately heavy oil associated with water in the Tullos Urania Field in Louisiana, since divested. In such reservoirs that have oil “floating” on top of water, wells can reach their economic limit prematurely due to water “coning” in which the water is preferentially produced. Leasing was completed with a total of 1710 net acres in the Lopez Field. Two test wells were drilled and completed and we re-entered several wells in an attempt to establish adequate water injection rates. The re-entries were not successful in establishing adequate injection rates and a permit to convert one of the newly drilled wells to injection was substantially delayed until November, 2010. At that time, we began full production testing in one well. To date, the production rate has not been as expected and further development is on hold.
Artificial Lift Technology
We developed a proprietary technology, for which a patent is pending, to provide artificial lift in horizontal wells in which oil and gas reserves are left behind due to the inability of industry to extend conventional rod pumps into the horizontal section of a well bore. This technology was installed in several of our wholly owned wells in the Giddings Field and, to date, has been successful. While we believe that this technology may be extended to many horizontal wells in which production includes oil and/or water, additional field testing will be required to commercialize the technology. Our capital budget for Fiscal 2011 includes funds to conduct commercialization demonstrations with third parties (see Corporate Presentation for additional information).
