Both wells are potential Dunvegan oil wells and pipeline tie-in is underway. Stabilized production rates were not attained during production testing of these wells, however Drilcorp expects a combined average rate in excess of 300 barrels of oil equivalent per day ("boepd") for both wells during the first month of production. This will add an estimated 50 boepd of working interest production and 30 boepd of royalty production before payout net to Drilcorp. Both wells are expected to be on production in late September or early October. All production will be processed at Drilcorp's 85.5% owned Jayar oil and gas facility.
Under the terms of the farmout, the farmee can elect to drill three additional wells under a continuing option arrangement with the same terms as the first two wells. Drilcorp anticipates drilling two additional wells in the fourth quarter of 2004 and two or three wells in the first quarter of 2005 in the Jayar area. Additional wells may be drilled in the summer of 2005.
Bottom hole pressures at the 6-4 Well indicate that offsetting production has only partially drained the Dunvegan reservoir. The Company has embarked upon a feasibility study to drill up the reservoir using smaller spacing units than originally approved. This project will require EUB approval but could result in up to a dozen additional wells, most at working interests of 85.5%. The Company anticipates that drilling of this program could start in the third quarter of 2005 if reservoir studies that are currently underway support such program.
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