Allied provided the following report for its horizontal drilling and other current field operations in Grimes and Leon Counties, Texas and Northern Ohio.
Allied Howard #1H (Grimes County, Texas) -- Production Operations
The Allied Howard #1H produced and sold 67 million cubic feet of natural gas equivalent, including approximately 45 million cubic feet of methane gas and 840 BOE (barrels of oil equivalent) of condensate and NGL (natural gas liquids) for the 31-day period from December 1, 2010 to December 31, 2010. Excluding downtime of approximately five days, the well actually produced at a rate approximating 80 million cubic feet of gas (MCFG) for the month while in its first month of production.
It generally takes 4-6 months to better manage downtime and lease operating expenses (LOE) for a horizontal well of this size and depth. Typically, LOEs decline as a percentage of gross revenue for a significant portion of the life of the well. Although production for this well may or may not increase over the short-term, oil and gas wells typically decline for the long-term. The Company is projecting LOEs equal to 10% of gross revenues for the long-term although they may be higher for the short-term. These LOEs include but are not limited to water disposal/hauling, electricity, pumping/administration, gas transmission, severance taxes, compression and general maintenance.
Allied Howard #2H -- Production Test
The Howard #2H tested at a rate of approximately 4,000 MCFG per day with associated condensate. We have constructed production facilities, gas flow lines, processing facilities and other necessary surface equipment in preparation to begin ongoing production operations for the Howard #2H.
The Company is pleased with the volumes of gas, wellhead pressure, etc. demonstrated during the production test for the Allied Howard #2H and expects to have the well on-line as early as this week. Although no assurances can be made and risks do exist, we would like to target approximately 100 million cubic feet of gas equivalent per month for an initial production rate for this well in the near future including methane, condensate and NGL sales. Again, this is a target estimate for an initial production rate for the well, and whatever the level of initial production, it will decline in the near future and over the life of the well. No assurances can be made that this level of initial production will be achieved.
The Company has an approximate 13% working interest and a 9.75% net revenue interest in the Allied Howard #2H well.
Allied "Champion Ranch" Wallrath #1H Drilling Operations -- Leon County, Texas
Allied Operating Texas successfully drilled the directional curve and set / cemented casing in preparation to begin drilling our horizontal lateral in the Woodbine formation for the Wallrath #1H in Leon County, Texas. A formal oil show was encountered immediately upon drilling the curve into the Woodbine Sand and the well had a continued oil show reported by the mudlogger while drilling the majority section of the lateral. Although oil and/or gas shows are considered favorable indications that the well may be capable of production, there are numerous wells that have such shows but that never become capable of commercial production for any of a number of reasons. Halliburton Services is tentatively scheduled to perform a frac treatment for the Wallrath #1H in the latter part of February. We will keep you updated as to our projected timelines.
The Company has an approximate 13% working interest and a 9.75% net revenue interest in the Wallrath #1H well.
Allied A-1 "SubClarksville" Re-entry (Leon County, Texas)
Upon drilling through the SubClarksville formation in Leon County, we encountered an increase in the rate of penetration and had a formal gas show reported by the mudlog. As stated above, although gas shows are considered favorable, they are not determinative of commercial production, and many wells with formal gas shows never become commercially productive. The Company plans to move directly to the A-1 re-entry well-bore immediately following the treatment and completion of the above Wallrath #1H horizontal well. Our tentative operations re-entry schedule is February-March 2011. The Company has an approximate 20% working interest and a 15% net revenue interest in the A-1 well-bore.
Northern Ohio -- Trempeleau Drilling Project
Allied participated as a non-operator in this exploratory drilling program with a subcontracted operator and industry partner in Ohio. The Dumbaugh #1 was drilled to approximately 3,400' to test the Trempeleau Dolomite formation and any other potentially productive reservoirs. Oil shows and increased porosity were reported in several intervals at the target depth; however, oil shows often do not result in commercial production. The Company is now evaluating its plans for completion. The Company has an approximate 50% working interest and a 40% net revenue interest in the Dumbaugh #1 well.
Saltwater Disposal Well -- Grimes County, Texas
We just recently received our approved injection permit and are working to secure a rig in the very near future to begin drilling our water disposal well in Grimes County. This should allow us to dispose of water directly into a well-bore and prevent us from continued hauling at a much more expensive cost to Allied and its partners in the Howard #1H and #2H wells.
2011 Horizontal JV Program -- Grimes County, Texas
We have selected our planned location as a direct offset to the Apache Wells E #1H location and are currently making preparations to drill in the future. The Apache Wells E #1H well, to date, has been the best producer in this area, as per reported by the Texas Railroad Commission and DrillingInfo.com. It is anticipated that the Company will have an approximate 13% of working interest and a 9.75% net revenue interest in this well. The actual amounts are yet to be determined based on a number of currently unknown factors.
"We are currently making preparations to drill our third horizontal well in Grimes County and plan to utilize many the latest technological advancements in horizontal drilling in this area of Texas," said Steve Stengell, Allied's President and CEO.
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