Both initial wells are targeting gas zones already recognized but not produced in adjacent wells, and are considered to have low geological risk. The wells will be drilled with synthetic oil based mud and utilize a superior casing design to further minimize risk by reducing the potential for reservoir damage. Extra care to protect the reservoirs could yield a much higher flow rate than conventional practices.
The wells should each take approximately 30-40 days to reach their total depths of 3600 meters (11800 ft). In addition to the primary Morrow B sand objective expected from 3282 meters, there are several other underlying formations that will constitute additional targets.
A rig has been contracted and is currently mobilizing to the Ellis-1 well site and is expected to spud within the next few days.
A strong domestic demand for gas at high prices and highly developed infrastructure will ensure that, given success, the wells are promptly tied in for production (i.e. a matter of months from rig release to production). There is a choice of four pipelines within a 5 kilometer radius. An additional multi-well program (four to eight wells) to optimize production levels will follow if success is achieved at either Ellis-1 or Ellis-2.
The prospects in Ellis County are a proven trap style developed within the lower Pennsylvanian Morrow sands which has resulted from porosity and permeability variation within individual sands.
Ellis-1 and Ellis-2 are both re-drills of old, adjacent Morrow gas discoveries that were drilled in the 1970s. The old wells were not produced at the Morrow level due to a poor prevailing gas prices at the time (US$0.15/Mcf) and were commonly drilled down to deeper oil bearing targets. This is in strong contrast to today's gas price of approximately US$5.50 - 6.50 Mcf.
The objective of Ellis-1 will be to re-test the lower Morrow B sand which flowed gas in the offset well (200 meters away) at a rate of approximately 2.4 MMscf/d. The well will also evaluate additional underlying Morrow C, D and E sands that are potentially gas bearing and productive based on the log analysis, but may have been damaged by water based drilling fluids. These additional Morrow zones all produce locally and look attractive in the Ellis offset wells. Other nearby wells have Morrow gas pay interpreted from the wireline logs, but were either not tested or failed to flow, interpreted to be a consequence of the poor drilling practices employed at the time.
The use of synthetic oil based drilling mud and a superior well design will eliminate the risk of formation damage and should maximize well productivity.
It was considered prudent to drill new wells employing modern under balanced drilling technologies and well design rather than re-entering the old discovery wells.
Ellis-1will target un-risked reserves of between 2.0 Bcf and 10 Bcf in the P90 to P10 range per well in the Morrow B only. The most likely estimate of the un-risked gas reserves are between 3 and 5 Bcf per well. Should additional pay be confirmed in the other Morrow targets then additional gas volumes would be attributable to this well. Our working interest on this project is 99.5% and net revenue interest, after royalties of approximately 77%. Due to robust gas prices, a high equity position and potential high flow rates, these wells, if successful could have a very high cash flow impact.
Amity's strategy in entering the U.S.A. is intentionally low risk in the early stages in order to build reserves and establish cash flow from producing wells. A number of additional high potential gas exploration plays are currently being pursued and captured in other areas of Oklahoma and Texas to allow additional drilling opportunities before the end of the year.
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