Solimar: Potential Oil Pay at San Joaquin Basin

Zodiac Exploration of Canada has announced potential oil pay of up to 1,000 feet in sandstone and fractured oil shale reservoirs in its Zodiac 4-9 well in the NW San Joaquin Basin. Solimar Energy has a 1.13% carried interest in the well and in a very large, approximately 101,000 acre surrounding acreage position. Solimar also owns a small, 0.5% royalty over some 26,000 acres of this acreage position.

In addition to the minority position in the Zodiac acreage, Solimar has approximately 20,000 mostly operated acres with interests from 33.33% to 75% in other leases within and adjacent the NW San Joaquin Basin oil shale play trend. Oil shales of the Kreyenhagen and McLure (Monterey equivalent) Formations are proven producers in the area and the main targets.

The Company also has a back in right for a 10% interest in a further approximately 2,900 acres in the trend flanking the Kettleman Middle Dome which is also productive from the fractured oil shales and is the subject of a redevelopment program.

There is accelerating industry activity in California oil shales lead mainly by major oil companies that is revaluing Solimar Energy's San Joaquin Basin acreage.

Key offset industry activity includes:

  • The Zodiac 4-9 well which is being prepared for a flow testing program after encountering potentially 1,000 feet of pay in both sandstone and shale reservoirs
  • Occidental Petroleum have become the biggest acreage holder in the NW San Joaquin oil shale trend and are already producing 45,000 bopd from fractured oil shales in California
  • Chevron are redeveloping the giant Kettleman Dome field immediately adjacent Solimar's acreage focusing on production from the Kreyenhagen Shale
  • A multi party JV has been successfully redeveloping the Kettleman Middle Dome which is productive from sandstone reservoirs and both the Kreyenhagen and McLure Oil Shales. Additional appraisal drilling immediately adjacent Solimar's back in right acreage is planned within 12 months

Update Summary

The Board of Solimar provided this brief update note to inform shareholders that very positive commercial activity is occurring within and adjacent the Company's asset focus area the San Joaquin Basin, with particular emphasis on the development of fractured oil shales.

The Company has been aggressively building its acreage position and adding to its California (Ventura) based operating team over the past 15 months and is positioning to exploit both its conventional (sandstone which includes the recent Guijarral Hills discovery) and unconventional (oil shales) reservoir projects.

The timing of execution of the Company's strategy to accumulate oil prone acreage focussed in the San Joaquin Basin has been excellent:

  • Oil prices are now very high relative to the USA domestic gas price supporting robust project economics
  • Land prices for oil shale acreage are increasing in California. However Solimar believes large uplifts are still likely to bring California into line with other states of the USA where oil shale land prices can be up to 10 times higher than in California.

The Schematic Map attached to this release shows the position of Solimar's acreage within and adjacent the NW San Joaquin Basin oil shale play trend, highlighting the acreage position relative to the key industry players.

More detail will be provided in due course about each of the Company's projects that have potential for oil shale production as the individual work plans are crystallized. The following brief descriptions are examples however of two large projects the Company has that are expected to significantly impact the Company in 2011.

The Company's largest project is at Kreyenhagen with over 15,000 operated acres under lease and containing extensive occurrences of thick Kreyenhagen and McLure Formation oil shales within targetable depths. Both these formations are oil productive in the adjacent oil fields where these rocks are the subject of active field redevelopment programs. The Company is in the early stages of evaluation of the Kreyenhagen Project which also contains a large, known shallow oil accumulation in a sandstone reservoir. There may be up to 300 million barrels of oil in place within this reservoir in the project acreage. The Kreyenhagen Project will be the subject of considerable
field activity by Solimar commencing in 2011 including re entry and production testing of some suspended wells.

The Company is also watching closely the progress of the Zodiac 4-9 well which Canadian listed Zodiac Exploration recently drilled to almost 15.000 feet and announced on 21 March a potential oil pay of over 1,000 feet in the well. Solimar has a 1.13% interest free carried through the Zodiac 4-9 and a following well in a very large acreage position totaling some 101,000 acres. In addition the Company owns a small 0.5% royalty over approximately 26,000 acres within this overall acreage position but not at the well location. The well is being prepared for production testing as part of a program to verify the commercial potential of the multiple potential pay zones encountered.

Commenting on the evolving potential of Solimar's San Joaquin Basin acreage, CEO John Begg said, "We spent much of last year securing an acreage position focused on the oil prolific San Joaquin Basin. This strategy has placed the Company in an exciting position literally and figuratively. In most cases our immediate neighbors are major oil companies that are accelerating their work
programs in the San Joaquin Basin on play types represented in our acreage. So not only do we have active programs of our own that could deliver a substantial uplift in value but escalating industry activity in and adjacent our acreage that could also be transformational at no cost to the Company."