TXCO and its partners have recorded seven successful Georgetown horizontal gas wells in a row by using an improved seismic processing technique to better predict the location of the formation's faults and fractures, starting with the Vivian 1-687 that went on production in October 2003.
"We're very encouraged by our success in the gas-prone portion of the Georgetown," said TXCO President and Chief Executive Officer James E. Sigmon. "This series of successful wells is most impressive considering that the Georgetown has historically been a hit-or-miss play for Maverick Basin producers. We have demonstrated that our Georgetown success is repeatable at widely varied locations across the 300,000-acre portion of our lease block containing the play. The Georgetown play reaffirms organic growth from the drillbit continues to contribute to shareholder value."
On the southern portion of TXCO's lease block, where the Georgetown is gas prone, the Company, as operator, has drilled six successful Georgetown horizontal gas wells in a row, which have flow tested at rates as high as 6 million cubic feet of gas per day (MMcfd). Three of these wells are on production with current rates between 1.3 MMcfd and 1.9 MMcfd. Of the three remaining wells, one is completed and awaits a pipeline connection while two remaining wells are in completion. Initial reserve estimates prepared by Netherland, Sewell and Associates of Dallas, the Company's independent reservoir engineering firm, for the first three TXCO-operated Georgetown wells, have averaged 1.3 billion cubic feet equivalent (Bcfe) per well, with a high of 1.7 Bcfe, at year-end 2003. However, TXCO's internal reservoir engineers believe that reserves will increase once additional production history from the zone is obtained. In addition, TXCO's partner, Saxet Energy Ltd., put a seventh Georgetown well on production last week at 617 Mcfd and is currently drilling its next targeted location.
On the northern portion of the TXCO lease block, where the Georgetown produces both oil and gas, one well went on production in mid February at 38 barrels of oil per day (BOPD) while a second well flowed both oil and gas in tests and is in completion. TXCO's engineers continue to study the oil-producing wells to determine the ultimate reserves these wells may produce.
The new seismic technique has identified several hundred potential Georgetown locations across TXCO's 480,000-acre lease block. To date, TXCO has drilled five of 25 Georgetown wells initially budgeted for this year. Georgetown projects represent the largest share of the Company's $23.4 million, 2004 capital expenditure budget.
Oil and Gas Reserves Rise
TXCO's ongoing reserve growth trend continued last year. Estimated 2003 year-end, proved reserves rose to 28.4 Bcfe, a 21 percent increase from 23.5 Bcfe at year-end 2002 -- virtually all from drilling. Since year-end 2000, the Company's reserves have increased over 400 percent with more than 80 percent of that increase from drilling. TXCO's proved reserve mix stands at 55 percent natural gas and 45 percent crude oil. Approximately 63 percent of both gas and oil reserves are proved developed. TXCO's reserve life index at year end reached 5.9 years, up from 5.3 years at the end of 2002.
The Company's estimated, pre-tax future net cash flows discounted at 10 percent (commonly known as the Securities and Exchange Commission PV-10 figure) for proved reserves at year end was $56.8 million, a 25 percent increase from year-end 2002 PV-10 of $45.4 million.
The 2003 PV-10 calculation used year-end commodity prices of $27.50 per barrel of oil and $5.76 per million Btu (MMBtu) of gas. These prices compare to year-end prices of $26.25 per barrel of oil and $4.49 per MMBtu of gas at December 2002. Netherland Sewell and Associates prepared the reserve estimates in accordance with SEC and Financial Accounting Standards Board requirements.
TXCO's cumulative net production in 2003 rose to 4.83 Bcfe, a 10.5 percent increase from 4.37 Bcfe in the prior year. The Company's production mix at year end was 44 percent oil and 56 percent gas. Net daily production at year end stood at 1,197 BOPD and 8.9 MMcfd, up from a 2002 exit rate of 1,036 BOPD and 7.8 MMcfd.
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