Current Activities
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Operations Updated: December 2008
Sefton Resources Inc, (Sefton) the AIM listed oil and gas production company
with assets in California and Kansas announces operational and trading updates
as it approaches its year end. Plans are progressing on the development of its
assets in both of these areas. Production levels have averaged approximately
5,060 bbl per month in the second half year to end November. The Company’s total
revenues have been impacted by the substantial fall in oil prices but
pre-exceptional profits in pounds sterling at current exchange rates are little
changed from market expectations. Sefton operates through its wholly owned
subsidiaries, TEG Oil and Gas USA Inc (TEG USA) and TEG Midcontinent, Inc (TEG)
OPERATIONS UPDATE
TEG USA
TEG USA has accomplished the following since Sefton released its interim results
in early September:
At Tapia
- Successfully stimulated and re-completed the Yule #8 gas well;
- Started the steam stimulation of the Snow #5 oil well on December 4, 2008 using
Yule #8 lease gas. Steaming of the Snow #3 and Snow #4 will follow;
- Signed a drilling rig contract with Kenai Drilling for a three well drilling
programme at Tapia with anticipated rig arrival in late December; and
- Completed a new lease road on the Tapia Hartje lease that will allow the
granting of an access easement to a telecommunications company in respect of one
of the two mobile telephone towers, located on the Hartje lease.
At Eureka Completed the follow–up geochemical field sampling over the Eureka
Canyon prospect area. Detailed infill grid samples are currently being
chromatographically analyzed.
TEG USA Production
TEG USA sold a gross total (before royalties) of 4,971, 4,924 and 4,269 bbl. of
oil during the month of September, October and November respectively. Other than
normal fluctuation and decline, the decrease in oil sales during November was
largely due to the servicing of two of the better oil producing wells at Tapia,
namely Hartje #13 and #16. Both wells had pump, rod and tubing changes and were
out of service for a total of 12 well days. Total oil sales in the second half
to date (July through November) are 25,172 gross barrels, averaging a little
over 5,000 bbl per month.
Tapia Canyon Field
Gas Well Re-completion
TEG monitored pressures and flow from the Snow #1 and Yule #8 wells following
the coiled tubing/nitrogen clean out of each. The Yule #8 responded the best to
the work and showed over 300 psi at the wellhead, however only a small amount of
gas flowed from the well when opened to the atmosphere before the flowing
pressure would drop to well below 50 psi and the well would die. However, after
shutting the well in, the pressure would quickly build back up to over 300 psi.
The well file indicated that the gas zone was originally completed over a 6 foot
interval using perforating guns at 4 holes per foot. TEG believed with these few
holes, the perforations could have easily been partially plugged by cement from
earlier bridge plug installation and /or the nearby formation could be damaged
from the well sitting for years before attempting long-term gas production. TEG
believed that re-perforating the gas zone would aid in bypassing these issues.
The addition of more perforations would also lower the gas velocity through any
individual hole and be a better configuration for reducing the likelihood of
sand production in the future. TEG subsequently re-perforated the gas zone in
Yule #8 using 6 holes per foot through-tubing guns.
Cyclic Steaming
Steam
Generator Being Installed On The Snow Lease Well Pad
The steam generator was moved to the Snow lease well pad in early December. The
burner in the steam generator was then reconfigured for lease gas. Steaming of
the Snow #5 well commenced on December 4, 2008. The steam generator was operated
for four days at approximately 50% capacity in order to limit the gas use to a
moderate rate and thereby protect against gas well sanding and plugging. The
steam rate may be gradually increased to approximately 75% capacity while
monitoring the injection parameters. The steam unit is currently burning 220
Mcf/day lease gas at the 50% capacity level.
On completion of the steaming of Snow #5, steaming of Snow #3 and Snow #4 will
successively commence using a programme similar to that of the successful
steaming of Yule #10, that is, approximately 4000 bbl steam equivalent followed
by a two week soak period. Flowline temperature for the Yule #10 (pilot steam)
well dropped down to near before steaming levels (approx. 90º F) near the end of
October (from 100º F in early October). This equates to an approximate 4 month
heat decline cycle from the 1 week steam injection and 2 week soak period.
Allocated production from well tests for the previous month of September was
calculated at approximately 25 BOPD, still nearly double the pre-steam baseline.
Well tests indicate that by the end of October, the Yule #10 production rate had
also returned to at or near the baseline rate. Overall, we consider this to be a
very good result.
There currently are eleven wells with newer completions and five older wells
that can be steamed. These wells account for approximately 97% of the current
oil production at Tapia. The remaining three wells have older downhole equipment
and would not withstand the temperature and pressure changes involved in the
cyclic steaming process.
Tapia Drilling Plans
TEG is moving forward to drill three wells in the Tapia Field anticipated to
begin in late December.
A drilling rig contract has been signed with Kenai Drilling for a three well
drilling programme. The wells to be drilled will consist of the following:
- One Hartje lease oil well that will offset the successful Hartje #16 drilled
earlier this year.
- One Yule lease oil well that will offset the successful Yule #7 well to the
north.
- One Yule lease dedicated gas well that will offset, along strike, the stacked
gas sands logged in Yule #7 to the southeast. The well will be drilled and cased
to the Yule oil zone such that it can be completed as an oil producer with a
small well servicing rig at a later time. The gas zone will be perforated and a
wire wrapped screen will be Frac-packed in place for sand protection.
New Lease Road
The Company has completed a new lease road on the Tapia Hartje lease that will
allow Global Signal Acquisitions IV LLC ('Global') to acquire from TEG a
perpetual easement on the land currently utilized by Global for its cellular
tower located immediately south of TEG's Tapia oil field but within its fee
property boundaries. Upon execution of a mutually acceptable Grant of Easement,
expected during the current financial year, the consideration payable to TEG
will amount to a total US$375,000 payable in cash, of which US$300,000 will be
deferred into the first quarter of 2009. TEG does not foresee the Grant of
Easement as interfering with its existing oil and gas operations. The Directors
believe that consummating this transaction will maximize surface land use.
Eureka Canyon Field
Geochemical Survey Planning - The field work subcontractor for W.L. Gore,
Peregrine Ventures, has now successfully completed the geochemical field
sampling for an infill survey. Modules were collected and have been shipped to
the W.L. Gore laboratory for gas chromatography analysis. The resultant data
will be input into statistical model algorithms and a map of favourable
geochemical anomalies will be produced for the prospect areas. The original
survey had some sample loss due to animal interference in key areas. TEG and
Peregrine Ventures took steps this time to minimize the sample loss and were
successful by reducing the loss by approximately two-thirds. We await the
results of the work to assess the further development of the East Eureka
Prospect Area.
Area of Detailed Geochemical Sampling
TEG MIDCONTINENT
TEG Midcontinent has accomplished the following since Sefton released its
interim results in early September:
- A pilot 4 well Coal Bed Methane (“CBM”) drilling programme in the
Anderson/Franklin County area of eastern Kansas was started on December 9
- Acquired an additional 6,500 acres in the area of this CBM pilot drilling
project
- Initiated a geologic study for conventional oil and gas prospects within the CBM
project area
- Negotiated an option to purchase two salt water disposal wells in proximity to
the CBM pilot project, which if exercised would result in significant cost
savings in comparison to the drilling of a single water disposal well.
Details of these events can be found below:
Drilling & Completion
Four CBM wells will be drilled to a depth of 1350 ft., which is below the
Riverton coal (deepest coal in this area) and approximately 25 ft. into the
Mississippian. The wells will be “Air Drilled” to total depth and a pulling unit
will be used to run 4 ½ inch casing.
Drilling on the first well commenced on December 9, 2008
Once the wells have been cased, a completion programme will be designed and
testing will commence. Absent evidence of free gas, the results should be known
in 3 to 6 months time. Depending on the number of the coal seams, coal seam
characteristics, such as thickness, gas shows, etc. distance between the coal
seams, additional completion attempts may be required for testing upper coal
seams.
Salt Water Disposal
TEG has negotiated an option to purchase from Petrol (offset Operator) a gas
gathering and water disposal system to include two salt water disposal (“SWD”)
wells. The gathering and disposal system is located three miles west of TEG’s
proposed pilot programme. Additionally and importantly, TEG would have the
option to acquire access into a major purchaser/pipeline. It is expected that
the total costs for the gathering/disposal system and access into the sales
pipeline would be less than the estimated cost of drilling a separate SWD on
TEG’s acreage.
Lease Acquisition
A review of current land ownership indicated that additional leases should be
acquired in a 5 square mile area to complement/fill-in areas that TEG does not
have acreage coverage. To date approximately 6,500 additional acres have been
acquired, mostly in close proximity to the pilot programme. Total leasehold in
the Anderson/Franklin County project is now approximately 41,000 acres. Results
of the pilot programme will dictate whether further additional acreage should be
acquired.
Leavenworth County
At Leavenworth County, where TEG has 7,000 acres, it is continuing with its
negotiations to find a suitable pipeline, either through acquisition or joint
ventures, to obtain access to major markets.
TRADING UPDATE
Whilst production levels have averaged approximately 5,060 bbl per month in the
second half year to end November, the Company’s total revenues have been
impacted by the substantial fall in oil prices with total revenues expected to
be approximately $4.8 million for the full year. Pre-exceptional profits are now
not expected to exceed $1.7 million. Although the Company reports in US dollars,
in pounds sterling at current rates, the impact of the reduction will be
minimal. The Company also expects to create a retirement payment provision of
approximately $730,000 in 2008 to be charged over one to two years.
Chairman Jeremy Delmar-Morgan commented:
“We are continuing with our development programme as outlined in the interim
results announcement in early September. The work that we have carried out in
the last few months has important implications on our future production growth.
The results from our drilling and steaming programmes continue to be
encouraging, but there will always be variances in the wells response depending
on the differences in reservoir and drainage conditions. Overall, initial
steaming results are encouraging and will provide an increase in production as
it is applied across the field.
“While the initial steaming was in progress, production levels remained steady
and despite the fall in the oil price, pre-exceptional profits in pounds
sterling at current exchange rates will only be marginally reduced. The vagaries
of the oil price cannot be avoided, but it is reassuring that our lifting costs
remain very competitive by industry standards. Even at today’s lower prices cash
flow is good and with our existing bank facility, will be sufficient to complete
our planned drilling and steaming programmes.”