Oakhills is a full service drilling, operating and well completion company and owns a 10,000 foot operating depth Wilson Giant triple mechanical drilling rig with both triplex and duplex mud pumps capable of drilling acreage owned by the Company in both the Barnett Shale areas of Texas and the Arkoma Basin in Oklahoma. In addition to its Wilson drilling rig, Oakhills has a well workover rig, trucks, dozer, backhoe, trailers and well and pipeline completion equipment. Oakhills operates at least 75 wells for private clients in addition to Lexington on a contract basis. Oakhills employs approximately 30-35 people and its Wilson drilling rig operates on a 24-hour basis.
Company management believes that the planned acquisition of Oakhills would (i) further diversify the Company's income base from exploration and drilling to include drilling and operating service income and (ii) vertically integrate the Company's planned gas drilling and exploration program at a time when drilling rigs are difficult to obtain for many exploration and production companies.
Oakhills is currently Lexington's designated oil and gas operator for its well interests in the Arkoma Basin and the Company's planned drilling for its Barnett Shale leases. Oakhills was created to drill and operate for Lexington according to its exploration and development program when Lexington had difficulty obtaining drilling rigs during the latter half of 2004. Oakhills is the wholly owned subsidiary of Oakhills Drilling and Operating International, Inc., a Nevada corporation. Oakhills Drilling and Operating International, Inc. is owned by four share/stake holders in Lexington. Doug Humphries, a director of the Company, is also a director, officer and shareholder of Oakhills.
2005 is Oakhill's first year of substantial operation, having acquired its drilling rig in late 2004 and spent Q4 2004 and Q1 of 2005 rebuilding and updating its Wilson drilling rig. The drilling rig has been operating since April, 2005 on independent contract drilling horizontal Barnett Shale wells in the Dallas Fort Worth Basin and has reported gross revenues of approximately $1.7 million in the last six months of operation according to Oakhills' management prepared financial statements. Oakhills has completed the drilling of its fourth horizontal Barnett Shale well under third party day work contracts with the first two wells obtaining initial production ranging from 2.5-3.6 million cubic feet per day, and the last two wells awaiting fracs and well completion.
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