Current Activities
Operations Update: November 19, 2009
Sefton Resources Inc, (Sefton), the AIM listed oil and gas production company with assets in California and Kansas, announces further advances in its planned development programmes for its two wholly owned subsidiaries, TEG Oil and Gas USA, Inc (TEG USA) and TEG MidContinent (TEG). These follow on from the last update on August 24, 2009.
TEG Oil & Gas USA
Steaming Progress
TEG commenced with a field-wide cyclic steaming program in the month of September and is currently steaming its fourth well in the core of the oilfield. In this program, TEG intends to steam an average of two wells per month through 2010. The data collected during the initial stages of the pilot steam program indicated that a steam injection volume of approximately 6,000 bbls of stream equivalent and a heat-soak period of approximately three-weeks is appropriate for an average Tapia oil well. These parameters will be adjusted for individual wells as more data is collected. The first two wells steamed in September are now producing oil. Well response in the pilot steam program showed a high degree of variability, however, the average response was greater than a three-fold increase in oil production for the initial production month following the steam-soak cycle. These results are very encouraging and support the oil production forecast as presented in our 2009-10 Budget developed by Sefton management.
Gas Supply Contract - TEG commenced with a field-wide cyclic steaming program in the month of September and is currently steaming its fourth well in the core of the oilfield. In this program, TEG intends to steam an average of two wells per month through 2010. The data collected during the initial stages of the pilot steam program indicated that a steam injection volume of approximately 6,000 bbls of stream equivalent and a heat-soak period of approximately three-weeks is appropriate for an average Tapia oil well. These parameters will be adjusted for individual wells as more data is collected. The first two wells steamed in September are now producing oil. Well response in the pilot steam program showed a high degree of variability, however, the average response was greater than a three-fold increase in oil production for the initial production month following the steam-soak cycle. These results are very encouraging and support the oil production forecast as presented in our 2009-10 Budget developed by Sefton management.
Facilities In Place - The bulk of all Tapia facilities necessary for planned cyclic steaming and associated production increases are already in place. There is a small amount of fuel-gas piping and water supply piping yet to be installed. This will complete the supply piping through the core of the field and finalize these facilities improvements. The piping will be installed over the next 30 to 45 days (by mid-December). The State of California Division of Oil, Gas and Geothermal Resources has taken note of TEG’s efforts in this regard and in May of this year, awarded TEG USA with a State Award for Excellence in Lease Maintenance. Cited were for the overall cleanup of the oilfield (left from years of neglect by previous operators) and the rebuilding of the tank batteries to safe and efficient levels that are a model to others.
Steaming Plans - TEG plans to spend the remaining months of 2009 and 2010 steam stimulating the Tapia producing wells and later drilling remaining infill development wells to the point of full development. Data will be collected during the cyclic steam process to aid in the design of the next planned step in the steaming program, the steam flood. The additional reserves to be added by the steam flood, once implemented, will greatly enhance the value of the Tapia asset. The steam flood will require the addition of dedicated steam injector wells (and/or conversion of existing wellbores), the addition of steam equipment necessary for increased steam injection volume, and field unitization. TEG will realize the value of these investments in the months ahead.
Drilling Results
TEG USA completed three wells in 2009, two oil wells (Hartje #18 and Yule #11) drilled to the Yule Oil Sand and one well Yule #9 that targeted and encountered both the shallow Saugus Gas Sands and the deeper Yule Oil Sand. The Hartje #18 and Yule # 11 had 30-day initial production rates of 81 BOPD and 15 BOPD, respectively for a combined average I.P of 48 BOPD - well above the average for the field.
Yule #9 Well - The Yule #9 well was initially completed in the Saugus Gas Sands at a depth of 790’ for the purpose of utilizing the gas to fuel the steam generator at Tapia. Despite using gas-check additives in the cement slurry, the cementing of the 9-5/8” diameter casing was poor across the gas interval. Cement bond logs and sonic images showed strong indications of gas channeling in the behind-pipe cement. TEG conducted remedial cementing of this zone prior to completing the well. The zone was then perforated and a well screen was then installed across the gas interval. The well has produced water and gas in small quantities over a number of months. Tests to this point indicate that the gas from this particular well would not provide the steam generator the consistent gas stream needed for effective and continuous steaming due to the poor cement results and resultant water influx combining with the gas. The decision was made in August to utilize utility fuel gas for the steaming in order to provide an uninterrupted fuel source and move the program forward.
The Yule # 9 well was drilled and logged through the oil sand horizons and therefore, the well can be re-completed in this zone for the production of oil and subsequent steaming. The well was drilled in a location that is part of the normal infill drilling pattern for the Yule Zone. Despite the fact that a well drilled in this manner (two targets: Primary –gas zone; Secondary/Bailout: oil zone) costs about 25 % - 35% greater than one drilled to produce from a singular target, the method provides for risk reduction in the overall project in that the likelihood of a successful well is greatly enhanced. TEG can accomplish the completion of the oil zone using a small service rig and is planning for this work to be completed in 2010.
Both the Mudlog and the Wireline Log suites show good indications of oil consistent with the surrounding Yule Lease wells that are oil productive. These logs are depicted in the diagram below:
WELL PRODUCTION
Three key wells in the Tapia field have suffered a corrosion issue and are currently shut-in pending mechanical repair. These include Hartje #14, #16 & #17. As a result of these wells being down and addition wells shut-in for the planned steam/soak periods, production at Tapia has suffered on the short term. The monthly production at Tapia for the month of October was approximately (final numbers still pending) 2,700 BO - down significantly from previous months. TEG expects to see recovery from this downturn now that steamed wells are coming back on line. Additionally, TEG has made plans and has budgeted for repair of the aforementioned Hartje wells that will return these wells to primary oil production and make them available for steaming as scheduled. Given this, TEG anticipates a resultant increase in oil production by year-end 2009 to forecast levels and an associated reserves calculation at a level that would remain steady or possibly increase in response to the observed strengthening in oil prices since the interim reserves calculations completed in June, 2009.
Corrosion – Analysis and Preventative Program - Down hole corrosion issues are not unusual in the oilfield environment and can be caused by a number of different factors. TEG has, since 2005, treated wells and surface equipment with corrosion inhibitor chemical program that operates on a continuous basis. The corrosion issues that have manifested themselves over the past few months are of a different nature and after recent testing and analyses, it is suspected that it is likely associated with the reactivation of one of the Tapia produced water injection wells. TEG has taken the following steps to analyze and correct the issue.
- Run down-hole video cameras in affected wells - results identified holes in the production liners particularly in mild steel tubulars causing liner failure consistent with CO2 corrosion.
- Test the solution gas production stream (4 locations) – results indicate CO2 now present that was not present before. No H2S is present in concentrations that would cause corrosion as observed.
- Test the active wells and tanks for Sulfate Producing Bacteria (SRBs) and for Acid Producing Bacteria (APBs) - results indicate the presence of some SRB/ARB activity that can be addressed with shock and batch chemical treatments.
- Initiated fluorescein dye tracer program for the two produced water injector wells to determine if produced water is being recycled through the oilfield and if so to what extent and area(s) involved.
- Devised preliminary chemical treatment programs for the wells and facilities - to be finalized pending receipt of additional analyses results.
- Investigated alternate well completion methods to include corrosion resistant materials to replace mild steel. These to be incorporated into well repairs and future wells drilled.
Again, this type of issues are rather common to the oilfield environment, but is something TEG has not had to deal with up to this point. The corrective actions will now be part of our normal operational procedures.
Tapia Steam Generator Moved To Core Of Field Adjacent To The Hartje #12 and Yule #5 Wells
Steam Generator
New Hartje Tanks
Yule Structure – Future Wells
New Well Installation – Snow
Tapia Proposed Steam Lines
Utility Gas Supply Meter
TEG MidContinent
Anderson Franklin County
During the 4Q of 2008 TEG drilled the Miller A2-1 well. With depressed natural gas prices, Completion of the well is scheduled 2Q 2010 and management has determined that completion of the well should precede the proposed construction of pipeline into the acquired Petrol gathering and disposal line and further should precede additional drilling. Following the results of testing, TEG could commence immediately with the drilling of additional wells on the three locations which are permitted and concurrently initiate construction of the gathering system.
Petrol Acquisition
During 2009 TEG MidContinent “Closed” on its option to purchase from Petrol all of its assets, to include 17 wells and associated equipment, located in the Petrol Waverly Project (immediately west of TEG drilling in Anderson/Franklin County). The assets included a gas gathering and water disposal system, two Salt Water Disposal wells and a 10 million per day processing facility. The connection point for the gathering and disposal pipelines are located three miles west of TEG’s CBM Pilot Program (see map). By completing this acquisition TEG has assured itself access into a major purchaser/interstate pipeline through the above described facility and availed itself to salt water disposal for its pilot program at a greatly reduced cost (AFE for Salt Water Disposal Well exceeded $250,000.00). Total Purchase price for these Waverly assets was $100,000.00
Leavenworth Project
During 2009 TEG MidContinent “Closed” on its option to purchase from HDP, the inactive “Vanguard Pipeline,” which is located west and north of TEG’s Leavenworth project, an area presently subject to “curtailed/seasonal gas sales (see map). The pipeline will provide a gathering system for TEG’s future drilling and will establish a basis for potential joint ventures in both exploration and gas gathering and transportation. Total Purchase price was $115,000.00.
Summary
Management believes that natural gas prices will again re-align with oil prices in the not too distant future and therefore is delaying drilling of new wells until there is evidence of an upturn. The current depressed market for natural gas is an opportune time to acquire some infrastructure at reasonable prices.
