Caza Oil & Gas, Inc. provide an operational update.
Hite Offset Property, Caza McMillan #1, Wharton County, Texas. As previously announced, re-entry operations on the Caza McMillan #1 well to test the Yegua 9,650 sand have been successful. The well has been placed online, all frac fluids have been recovered and production rates are being maintained at 1.13 million cubic feet of natural gas, 45 barrels of oil and 14 barrels of water per day on a 12/64th choke. After performing a detailed reservoir study, the well is producing as modeled, and management believes the current rates represent the most efficient and effective production rates for the Yegua 9,650 reservoir.
Caza currently has a 42.53% working interest and a 31.05% net revenue interest in the Caza McMillan #1 well.
San Jacinto Property, Midland County, Texas. As previously announced, the Caza Elkins 3401 and 3402 wells have been successfully completed and placed into production. The wells have combined to produce approximately 15,000 barrels of oil and 23 million cubic feet of natural gas since August 2011.
Caza did not include the Spraberry Formation in the original completion of the 3401 well and has scheduled to perforate and stimulate the Spraberry interval on February 3rd, 2012. Management is very pleased with the performance of the wells and expects the additional Spraberry interval to contribute reserves and increase production on the property. The Spraberry stimulation is the last phase of Caza's engineering evaluation and completion/commingling of each pay zone in these wells. Although the operations took some time, management believes they have added value to the cash flow, reserves and future development/exploitation of the property. Caza has five additional proven undeveloped locations on the San Jacinto property.
Caza currently has an 85% working interest in the Caza Elkins 3401 well with a 63.75% net revenue interest. In all subsequent wells on the San Jacinto property, including the Caza Elkins 3402 well, Caza will have a 75% working interest and a 56.25% net revenue interest.
Lynch Property, Mud Slide Slim 15 Federal #1 Well, Lea County, New Mexico. The Mud Slide Slim 15 Federal #1 well on Caza's Lynch Property was completed in July 2008, as a 13,513 foot vertical Morrow gas well and has remained on production since then. Potential pay zones behind pipe in the well included: Delaware, Avalon Shale, and 1st and 3rd Bone Spring Sands.
Horizontal drilling activity in the general vicinity of the well in the emerging Bone Spring horizontal oil play has been increasing steadily over the last eighteen months. The Bone Spring Formation contains several pay zones from approximately 8,000-11,000 feet including the Avalon Shale and 1st, 2nd and 3rd Bone Spring Sands, which are oil and liquids-rich. Successful results in this play have caused an increase in leasing at the State and Federal lease sales in New Mexico. The majority of activity in the Bone Spring horizontal play has been driven by large independent producers such as Concho Resources, Cimarex Energy, Devon Energy, Yates Petroleum Corporation and Chesapeake Energy Corporation. As of October 2011, the top fifty producing horizontal wells in the Bone Spring Formation in Lea and Eddy Counties, New Mexico, averaged a maximum, one month rate of 758 barrels of oil equivalent per day. The average, six month cumulative production rate, using the same fifty wells through October 2011, was 79,230 barrels of oil equivalent.
As a result of this successful horizontal activity in the Bone Spring, Caza recently conducted extensive stimulation and production tests on each of the Bone Spring zones in the Mud Slide Slim well. The tests have shown each zone of interest, the Avalon Shale and 1st and 3rd Bone Spring Sands, to be commercially productive and therefore viable horizontal targets. Caza has now comingled the zones mentioned above and is pleased to announce that the well has produced at a peak daily rate of 159 barrels of oil per day and is currently producing 73 barrels of oil per day using a pumping unit. Caza's Lynch Property leases comprise approximately 320 gross acres.
Caza currently has a 40% working interest and a 32% net revenue interest in the property and the well.
Caza's Fourth Quarter 2011 Average Net Daily Production. Based on Company gauge reports, Caza's unaudited Fourth Quarter 2011, average, net, daily production increased from Third Quarter 2011 figures to 277 barrels of oil equivalent per day. Based on actual Third Quarter sales, Caza's Third Quarter 2011, average, net, daily production was 233 barrels of oil equivalent per day. This represents a quarter-to-quarter increase of approximately 19 percent.
W. Michael Ford, Chief Executive Officer commented, "I am very pleased with the progress the Company continues to make. Caza's net production continues to climb as our wells clean up following the completions executed late last year. The recent re-completion of the Mud Slide Slim well in the Bone Spring Formation has further improved our production profile at a relatively low cost to the Company. More importantly, we are very excited about the Bone Spring Formation and the potential for further horizontal drilling within our lease blocks. We are currently evaluating the production potential of the Bone Spring horizontal play and how it might impact our current New Mexico acreage position. This may also impact our 2012 drill plan when evaluated against the rest of our prospect/property inventory. Caza intends to target these oil and liquids-rich opportunities within our inventory, while continuing to assess the most effective way to increase reserves, production and long term value for shareholders."
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