Sefton Releases Kansas Exploration, Operations Report

Sefton Resources, Inc., the independent oil and gas exploitation and production company with interests in California and Kansas, released an update on oil & gas exploration and production (E&P) operations for June 2013 and the results of a Mississippian Limestone Study in North East Kansas.

Highlights:

  • Oil production in Kansas in June 2013 increased to approximately 500 barrels a month, compared with approximately 450 barrels of oil produced in May 2013 in Leavenworth County, Kansas.
  • Permitting requirements have been completed for the process of joining the Vanguard pipeline to the LAGGS pipeline in Leavenworth County, Kansas
  • Results of an investigation of Mississippian Limestone potential in North East Kansas are favorable to Sefton's current area of exploration.

Jim Ellerton, chairman of the board, said:

"Our workover, recompletion and leasing program in and around Leavenworth County, Kansas continues to show improvements in oil production. The ability to transport local natural gas to national markets and dispose of excess water through our infrastructure improves the potential of our existing reserves and resources.

The "Mississippian Lime" play of Northern Oklahoma and Southern Kansas is emerging as one of the top new horizontal plays in the U.S. The confirmation of "Mississippian Lime" in NE Kansas is expected to have a significant impact on our Kansas operations."

Oil Production

In June 2013, oil production increased to approximately 500 barrels a month from 11 wells, up from approximately 450 barrels a month reported in May, all from the Company's wells in Leavenworth County, Kansas. Additional production is expected from a number of leases in the future as the ongoing program of workovers and recompletions continues on oil and gas wells (with the emphasis on oil wells) in proximity to the Company's 100 percent-owned and operated pipeline systems.

As part of the ongoing leasing program, the Company has now acquired leases with over 50 wells on them that will be reviewed as part of this initial development program.

Alongside the pipeline system for gathering natural gas, TEG MidContinent also has water disposal facilities in place along with a water tanker truck to provide ample water disposal capabilities. With infrastructure for oil, water and gas production in place, economics improve as more wells are brought back into production.

Transmission

Permitting of the new two mile section of pipeline which will join Vanguard to the LAGGS-Southern Star system has been completed. The contract for the work is being put out to tender and work is scheduled to begin in July and be completed by the end of August 2013. As previously reported, ahead of these two pipelines systems being joined the Company is in serious negotiations with third party entities to transport their gas to interstate markets, while determining which of TEG MidContinent's own wells can contribute to future gas sales.

Mississippian Lime Potential

Independent consultants Sure Engineering, LLC (Colorado) has just published a research report entitled "Investigation of Mississippian Limestone (Mississippian Lime) Potential in Northeastern Kansas; Jefferson, Leavenworth, Atchison Counties". This report presents data gathered from published material and wells that penetrated Mississippian formations in the Company's project area in northeast Kansas. Characteristics of the prolific Mississippian Lime play located in northern Oklahoma and southern Kansas were studied, compared and reported on. Below are some of the main points from this report:

Mississippian Lime

Mississippian Lime has been productive across the state of Kansas for oil and gas production, and stretches northwesterly from the central Oklahoma/Kansas border to western Nebraska panhandle, underlying approximately 17 million acres. Most of the production is located in the southern and western parts of Kansas.

In Kansas, the majority of Mississippian production occurs at the top or near the top of a regional unconformity. Although Mississippian Lime is a conventional reservoir and has been produced conventionally by vertical wells, its response to the latest unconventional techniques such as horizontal drilling and multistage hydraulic fracturing has been very encouraging. Mississippian Lime is emerging as one of the top new horizontal plays in the U.S.

Potential

Generally Mississippian Lime completions produce significant volumes of water, which require additional infrastructure and costs for water handling and disposal. Analysis of well performance and economic evaluation of Oklahoma Mississippian Lime wells (Green, 2010) show average horizontal wells, starting with an initial production of 300 barrels of oil equivalent per day (boepd) declining to 65 boepd at the end of 3 years. Rate of Return (ROR) varies from 10 percent to over 200 percent, depending on oil prices and estimated ultimate recoveries ranging from 290,000 to 435,000 barrels of oil equivalent (boe) per well.

Discovery in Northeast Kansas

Mississippian rocks in northeast Kansas, particularly in Leavenworth County, remain somewhat unexplored. There is a history of small operators and evidence that they established Mississippian production. Operators in this area typically drilled 10-15 feet into the top of the Mississippian erosional surface and stopped for three reasons. Firstly, the hard Mississippian limestone was slow to drill and required the drill bit to be changed. Secondly, it was common knowledge that Mississippian limestone completions resulted in significant volumes of water along with the oil and at that time (the 1980's) there was a lack of water disposal facilities in the area. Thirdly, most small operators were content to get oil production from the shallower water-free McLouth sand reservoir. Some of the wells which were drilled deep enough to test upper portion of Mississippian Lime have logs or core data available.

It appears that Mississippian Limestone formations in NE Kansas are compatible and correlate to the ones producing high quantities of oil in the southern counties of the state. The expansion of the play towards NE Kansas can clearly be seen from drilling permits submitted with the State of Kansas from 2009 to 2013.

Future Program

The Company has a well-planned program of developing oil and gas production in Leavenworth County and already has in place infrastructure that allows natural gas to be transported to national markets and the disposal of produced water. The Mississippian Lime play together with the Company's existing infrastructure has the ability to elevate the Company's Kansas operations to a level above the current expectations which will be reflected in future reserves and production.

In accordance with the guidelines of the AIM Market of the London Stock Exchange, Jim Ellerton, Chairman of Sefton Resources, Inc. a qualified geologist with over thirty years oil & gas industry experience, is the qualified person as defined in the London Stock Exchange's Guidance Note for Mining and Oil and Gas companies, who has reviewed and approved the technical information contained in this announcement. Jim Ellerton has also relied on primary information supplied by staff and third party consultants in carrying out his review.

Enhanced Oil Recovery (EOR) projects in California

Sefton owns 100 percent of two oil fields in the East Ventura Basin, California - Tapia (heavy gravity oil) and Eureka Canyon (medium gravity oil). The current operational focus is to develop Tapia with an active well drilling and work-over program in conjunction with the use of cyclic steam production enhancement. Sefton engaged Petrel Robertson Consulting to construct a geologic model to be utilized by Dr. Farouq Ali, a recognized expert, in a thermal simulation study to fully optimize production and reserve development of the Tapia field. Tapia generates the majority of Sefton's revenue at this time and has 2012 year-end estimated Proved Reserves (P1) of 3.5 million barrels.

Natural Gas Transmission in Kansas

Three gas pipelines have been acquired by Sefton in North East Kansas. The LAGGS pipeline in Leavenworth County has been fully refurbished and is now connected to the Southern Star Interstate Pipeline system which allows gathering, transportation and sales of natural gas outside local Kansas markets. Plans are to join the Vanguard pipeline to the LAGGS system (Leavenworth County) which will increase the scale of this gathering system. This means Sefton will be able to transport its own and third party natural gas to a national market and generate additional revenues. A third pipeline in Anderson County is planned to be connected to an interstate pipeline system in the future, which will provide additional opportunities for redevelopment of oil and natural gas.

Exploration and Production in Kansas

In North East Kansas (Forest City Basin), Sefton has a significant and growing acreage position (Leavenworth and Anderson Counties) where conventional oil, gas and coal bed methane (CBM) prospects have been identified. The current operational focus is in Leavenworth County where a workover, recompletion, surface equipment replacement and leasing program is under way that will see oil, gas and CBM wells brought back into production. Initial revenues are from oil whilst additional gas assets are being assembled for future development as pipelines become operational. Estimated 2012 year-end Proved Reserves (P1) for the Leavenworth portion of our Kansas assets are 82,653 barrels of oil and 2.06 billion cubic feet (Bcf) of gas; and total unrisked Proved Reserves and Unproved Resources of 832,485 barrels of oil and 14.4 Bcf of gas for the same area.



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