In Kansas, the Company drilled three wells on its Auntie Em lease in Gray County and one well on its Syracuse lease in Hamilton County. In addition, the Company re-stimulated six existing wells on its Fuhrman-Mascho lease and two wells on its North Benson Queen lease in Eddy County, New Mexico. The results of this drilling activity are described on a property-by property basis below.
Sales for the quarter ended December 31, 2006 were approximately 325,000 BOE (Barrel of Oil Equivalents), as compared to sales of 172,386 BOE for the same quarter in 2005, an 89% increase, and a 7% increase over the 302,513 BOE sold in the third quarter of 2006. Total production for the fourth quarter was approximately 330,000 BOE. Total sales production for 2006 was approximately 1,060,000 BOE, as compared to 508,430 BOE in 2005, a 108% increase. In 2006, 123 new wells were drilled, as compared to 42 in 2005. Average net daily sales increased to approximately 3,533 BOEPD in the fourth quarter 2006, as compared to 1,844 BOE in the fourth quarter of 2005, and 3,288 BOEPD in the third quarter of 2006.
Overall production in the fourth quarter of 2006 was significantly impacted by a number of factors. In October and again in December the principal buyer of the Company’s natural gas production from its Fuhrman-Mascho lease in Andrews County, Texas, and its East Hobbs and Seven Rivers Units in Lea County, New Mexico shut its plants down due to ongoing OSHA audits. This had a direct effect on oil and gas sales as the Company was limited in its ability to sell or “flare” gas production during this period resulting in the cutting back of overall production. Weather and electrical problems in Kansas, New Mexico and Oklahoma were also contributing factors in limiting production. Arena management estimates that the combination of these factors contributed to a production loss of over 25,000 BOE in the fourth quarter. These factors should have no effect on year-end 2006 proved reserve bookings.
In December 2006, the Company announced it had acquired three properties (“Leases”) in Andrews County, Texas for $6.1 million. The Leases consist of approximately 5,000 acres and are contiguous to the Company’s Fuhrman-Mascho lease. The current net production to the Company from the Leases is approximately 100 BOE per day. The Company’s internal reserve estimates indicate the Leases have approximately 4.7 million BOE of proved reserves net to Arena based on 20 acre spacing. This represents an estimated cost of $1.30 per BOE.
Mr. Tim Rochford, President & CEO, stated, “The fourth quarter represented another record quarter of production for us. We set a goal to double our 2005 production and accomplished that with over one million BOE produced in 2006. The acquisitions we made in December compliment our existing Fuhrman-Mascho lease, adding 5,000 acres for a total of 17,000 acres on which we plan to drill an estimated 100 new development wells in 2007. Our net daily production on the Fuhrman-Mascho has increased in the two years since we acquired it from approximately 200 BOE to over 3,000 BOE today.”
Fourth Quarter Operations Update
Fuhrman-Mascho, Andrews County, Texas -- The Company drilled 23 new development wells in the fourth quarter. Eighteen wells have been completed and placed in production and the remaining five are in various stages of completion. Additionally, four development wells which were drilled in the third quarter were successfully completed and placed in production. The Company drilled 86 new development wells in 2006 and a total of 122 new development wells on this lease with a 100% success rate since initiating its developmental drilling program in mid-April, 2005. The Company performed a re-frac on six wells during the fourth quarter. The Company re-fraced 45 wells in 2006 and a total of 67 wells on this lease since initiating its development program. The Company has two drilling rigs operating full-time and has estimated it will drill 100 new development wells and re-frac 36 existing wells in 2007.
Seven Rivers Queen, Lea County, New Mexico -- The Company drilled five new development wells in the fourth quarter. All five wells were completed and placed in production. In 2006, the Company drilled and completed fourteen new development wells. In 2007, the company plans to drill two new development wells in addition to general infrastructure improvements.
North Benson Queen, Eddy County, New Mexico -- The Company re-fraced two existing wells in the fourth quarter. In 2007, the Company plans to recondition and reactivate twelve water injection wells, upgrade and install injection lines and equipment and re-frac five existing wells.
East Hobbs Unit, Lea County, New Mexico -- In 2006, the Company drilled and completed five new development wells. In 2007, the Company plans to convert eight wells to water injectors and three idle wells to water supply wells. The Company has started to see increased reservoir pressure due to its early stage secondary recovery program.
Auntie Em, Gray County, Kansas -- The Company drilled three exploratory wells in the fourth quarter. Two of the wells were deemed to be non-commercial and the third is being completed. Upon completion, there will be ten producing wells. In 2006, the Company continued to add acreage to this lease which now totals approximately 14,000 acres. In 2007, the Company plans on drilling four development wells.
Syracuse Prospect, Hamilton County, Kansas -- One deep test well was drilled in the fourth quarter and is currently undergoing testing through multiple intervals. In 2006, three exploratory wells were drilled as part of a joint venture with another Tulsa-based energy company. The partnership is currently evaluating the results in preparation for future development drilling.
Rocky Prospect, Greeley County, Kansas -- Two exploratory wells were drilled in 2006. One was completed and the other was deemed to be non-commercial.
Ona Morrow, Texas County, Oklahoma -- One development well was drilled in the fourth quarter. In 2006, the Company drilled two development wells, both are currently being readied to be put in production in early 2007. In 2007, the Company plans to drill three additional development wells, install a water supply line and upgrade water injection equipment.
Midwell, Cimarron County, Oklahoma -- Two development wells were drilled in the fourth quarter and are awaiting completion. In 2007, the Company plans to drill two additional development wells, convert eight existing wells to water injectors and complete general infrastructure upgrades.
Hanes, Cimarron County, Oklahoma -- The Company drilled one new development well in the fourth quarter which is currently awaiting completion. In 2007, the Company plans to drill one additional development well, convert four existing wells to water injectors and upgrade infrastructure.
Eva South, Texas County, Oklahoma -- The Company drilled and completed one development well in 2006. In 2007, the Company plans to drill two additional development wells.
Arena Resources, Inc. is an oil and gas exploration, development and production company with current operations in Texas, Oklahoma, Kansas and New Mexico.
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