Kulczyk Oil announced the successful completion of the second reservoir stimulation in Ukraine using modern hydraulic fracturing ("fracking") technology. The frac was undertaken by KUB-Gas LLC ("KUB-Gas"), a partially-owned indirect subsidiary of KOV, on the R30c zone in the Ologovskoye-8 ("O-8") well. After being fracked, the O-8 well flowed gas at a rate of 1 million cubic feet per day ("MMcf/d") through a 7 mm choke, from a previously non-commercial zone. The O-8 well was drilled by KUB-Gas in the first quarter of 2011 to a total depth ("TD") of 2,780 meters but did not test commercial volumes of natural gas prior to the fracking operation.
The O-8 frac was implemented in the first week of November 2011 utilizing a cross-linked gel water frac fluid with 40 tonnes of ceramic proppant. The target zone for the fracking of the O-8 well was the R30c unit, a Middle Bashkirian silty sandstone interval with a gross thickness of 13 meters which occurs at a depth of approximately 2,300 meters. The zone had an indicated permeability of less than 1 millidarcy and was not capable of flowing gas at commercial rates before the fracking operation. The frac was designed to penetrate beyond the immediate vicinity of the well bore in to the R30c unit by creating fractures to liberate gas trapped in the tight formation. The successful frac of the R30c unit in the O-8 well, the second well in the frac program confirms the potential for enhancement of productivity utilizing fracking. On November 2, 2011 the Company announced that the R30c zone in the Olgovskoye-6 ("O-6") well was fracked successfully and flowed 2.3 MMcf/d through an 8 mm choke. The O-8 and O-6 wells are both expected to be tied-in for regular production prior to the end of 2011. Based upon the positive results of this first fracture stimulation program, the Company is selecting candidates and planning for a second multi-well fracking program in mid-2012.
The total cost of the two-well hydraulic fracturing program is expected to be approximately $1.6 million ($800,000 per frac). By way of comparison, the estimated costs to drill and complete a new 2,500 meter well are approximately $2.5 million.
Jock Graham, Executive Vice President stated that, "The successful fracs in the O-8 and O-6 wells confirms our belief that modern frac technology can have a material impact on the Company by unlocking new production and reserves from zones that had previously been considered to be uneconomic. The economics of fracking appears to be quite favourable and, by proving that some of the zones in our license areas respond to modern frac technology, we appear to have opened the door to substantial upside, in terms of both production and reserves, from our Ukraine project."
KUB-Gas owns a 100% interest in the Olgovskoye, Makeevskoye and North Makeevskoye, Krutogorovskoye and Vergunskoye licenses in the Lugansk area of Ukraine. KOV owns an effective 70% interest in KUB-Gas with Gastek LLC owning the remaining 30%.
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