We finished 2006 having achieved an extensive list of strategic and operational objectives, and now look forward to continuing our successful Pacific Northwest exploration and drilling programs through 2007.
Since its inception in 2004, Torrent has pursued a specific strategy to acquire controlling working interests in coalbed methane ("CBM") resource plays of significant potential in the Pacific Northwest. We are now working aggressively to convert these assets into CBM development projects by taking advantage of our talented management team and the extensive technical resources available to the Company.
We have identified and pursued two specific projects: the Coos Bay Basin in the State of Oregon and the Chehalis Basin in the State of Washington. We have an active drilling and testing program underway in the Coos Bay Basin with the goal of developing commercial production in 2007. Drilling operations in the Chehalis basin are scheduled to commence in the next few months following approval of the necessary drilling permits. Following are updates on both of these projects.
Coos Bay Basin Project Area
Methane Energy Corp., a wholly owned subsidiary of Torrent, continues to develop a significant asset base in Coos County. Potential CBM resources associated with our land exceed 1.2 TCF (trillion cubic feet) as estimated by the independent engineering firm Sproule Associates. We met our goal of leasing over 118,000 acres in the Coos Bay Basin area and, to date, a total of 12 wells have been drilled in three pilot project areas identified as Beaver Hill (5 wells), Radio Hill (1 well and 1 plug-backed well) and Westport (5 wells). All 11 wells drilled to depth have encountered multiple gassy coal seams with combined thicknesses of between 50 and 70 feet in each well.
Initial completion work on the Beaver Hill and Radio Hill pilot wells included nitrogen (N2) stimulation on selected zones in four of the wells followed by short-term production testing on all the Beaver Hill and Radio Hill wells, and permeability testing programs on selective zones in four of these wells. Results of initial post-stimulation testing in 2006 have confirmed that we can flow gas from the reservoir, and have provided us with significant reservoir data necessary in designing more effective stimulation programs to be used in the new Westport wells.
The initial testing program has also given us good indications of the expected water production rates and water quality data. As in most CBM projects, managing the disposal of produced water is a key ingredient for economic success and we have developed local water disposal capability to deal with our produced water during the testing phase. To move to the production phase, a water disposal system having significant daily capacity will be required. A key element of the Westport drilling program was to target specific disposal zones below the coal seams in three of the wells. Testing is now underway on four of the Westport wells to determine permeability of selected coal seams and the water injectivity capability of potential disposal zones.
The Westport pilot project area is located in close proximity to the Coos County transmission line. Well permits have been applied for and received in 15 locations in the Westport area. Locations have been constructed for 10 wells, and five were drilled prior to January 1, 2007. The drilling of our next five wells is scheduled to commence following completion of the stimulation and testing program now underway.
We have already begun the planning process for the requisite production facilities and gathering system that will deliver gas into the Coos County natural gas transmission line. It is expected that initial gas production will be sold into the local Coos County market, which delivers a premium price relative to local intrastate pipeline prices in Oregon. Our goal is to have commercial production available to deliver into the Coos County transmission line in the second quarter of 2007.
Chehalis Basin Project Area
Cascadia Energy Corporation, a wholly owned subsidiary of Torrent, has leased and optioned more than 155,000 acres of private and state lands in Lewis, Cowiltz and Skamania counties in the State of Washington. The holdings lie south of the Centralia-Chehalis bituminous coal field -- site of the State's largest open-pit mine and thermal power plant. Cascadia has completed a detailed geophysical and geological interpretation of existing seismic, gravity, well log and test data applicable to the Chehalis Basin, which has been utilized to identify our initial drilling prospects. The Company has filed the appropriate drilling permits for an initial three-well program and will file additional drilling permits in the near future. The initial wells will target the regional coal seams, but will also investigate potential conventional natural gas prospects similar to those known to exist in the Mist gas field and the Jackson Prairie gas storage field. The initial well in the program will offset a well drilled in 2001 by Duncan Oil Inc. of Denver, which encountered a number of thick coal seams but also tested 715 MCFD of conventional gas from a high porosity gas sand. Approvals and commencement of drilling operations are expected to occur in the first quarter of 2007.
In recognition of the Company's successful transition from an initial start-up to an active exploration operation, 2006 saw the strategic restructuring of both the Torrent management team and its Board of Directors. In January, I, John D. Carlson, assumed the position of President and CEO of Torrent, a role previously held by Mark Gustafson. This appointment has added to Carlson's existing responsibilities as Director of Torrent and Chief Operating Officer of our wholly owned subsidiary, Methane Energy Corp. Mr. Carlson also assumed the CEO position and directorships on the boards of our wholly owned subsidiaries Methane Energy and Cascadia Energy Corp.
Early in the year, Mr. Michael D. Fowler was named Chief Financial Officer and Corporate Secretary of Torrent and assumed similar responsibilities for both Torrent subsidiaries. Additionally, Roger N. Canady was appointed Vice-President of Land for both Methane and Cascadia, taking over the land responsibilities from recently retired Tom J. Deacon.
The remaining management team is composed of highly experienced and qualified individuals who bring a wealth of expertise to the Company. Individual bios for each member of the management team can be found on the Company's websites:
Torrent Energy Corp. - www.torrentenergy.com Methane Energy Corp. - www.methaneenergy.com Cascadia Energy Corp. - www.cascadiaenergy.com
The management team is complemented by a core group of consultants with extensive CBM geological, geophysical, engineering and field operating experience with a key focus on defining the optimum solutions for drilling, completing and producing the CBM resources under the Company's leases.
Administratively, Torrent relocated its head office to Portland, Oregon, which also serves as the field office for Cascadia. A move to a new field office in Coquille, Oregon now has Methane Energy's land, exploration and operations activities under one roof.
Board of Directors
Mr. Bill Lansing, the recently retired President and CEO of Menasha Forest Products Corporation, an Oregon-based timber company, was added to the Company's Board as an independent Director in May 2006 and has recently assumed the role as Chairman of the Board of Torrent. Mr. Lansing is a long-term resident of Coos County and was a well respected business executive during a long career with Menasha. More recently, Mr. Michael Raleigh P. Eng., from Houston, Texas and Mr. Curtis Hartzler P. Eng., from Calgary, Alberta, also joined the Torrent's board as independent Directors, thereby giving the Torrent Board a majority of independent Directors with an independent audit committee. Both Mr. Raleigh and Mr. Hartzler bring a wealth of petroleum engineering experience to the project.
Torrent also established an Advisory Board with the appointments of Mark G. Gustafson and Tom J. Deacon, whose previous experience with the project has been and will continue to be invaluable in moving Torrent forward and ultimately building value for its shareholders.
Individual bios for the members of the Board of Directors and the Advisory Board can be found in the Company's website at www.torrentenergy.com.
In June 2006 Torrent completed a $25 million preferred share offering to fund additional drilling and testing of the Company's Coos Bay Basin project and the initial drilling program of its Chehalis Basin project. We have received $17,500,000 of the proceeds of this financing and will receive the remainder when a registration statement registering the financing shares goes effective. This brings Torrent's total financing to date to $42 million.
Corporate Responsibility and Environmental Stewardship
Torrent Energy has worked diligently to build strong local support for its exploration efforts in both project areas. Cognizant of the environmental concerns generated by other CBM projects worldwide, Torrent has continued to stay true to its commitment of being proactive in environmental considerations and water management. From its inception, MEC has worked with the Oregon Department of Geology and Mineral Industries to conduct surface and groundwater quality studies and to help establish much needed regulations in the area of oil and gas exploration. A similar relationship with Washington State departments is also being nurtured. Ms. Peggy Halferty has joined the management team as Manager Environmental for both subsidiary operations to ensure environmental compliance.
Recognizing the importance of being a good neighbor and corporate citizen, Torrent continues to support the communities in which it operates through a variety of programs and events.
2007 Near-Term Goals
The Company enters 2007 with an active plan to bring our Coos Bay project to commercial CBM development by initiating gas sales revenues from the Westport wells and converting the Coos Bay resource potential into proven and probable reserves.
We also plan to commence drilling operations on our Chehalis Basin project with completion of the initial program scheduled by the third quarter of 2007. Traditional gas content and permeability testing of the potential coal seams will be undertaken as part of this program and any conventional gas horizons discovered will be drill-stem tested immediately after drilling.
The management team is dedicated to establishing the commercial viability of both the Coos Bay and Chehalis projects in the shortest time frame possible. Additionally, we will continue to actively search for and review opportunities that will complement these two project areas. Priority is given to seeking out new partners to join in our exploration effort in each project area that will reduce our exploration risk and capital exposure. Future capital spending in each project area will focus primarily on the drill bit and only key lands surrounding proposed drilling locations will be added to our land portfolio.
We have succeeded in translating two frontier resource plays into more traditional exploration and development projects, and the management team believes that any future projects should include more traditional oil and gas exploration opportunities which can develop short-term cash flow and asset value.
Torrent Energy Corporation is a growing exploration company focusing on developing non-conventional natural gas reserves in the Northwestern United States. The Company's primary objective is to create value for stakeholders by applying strong technical expertise to projects. The current focus of the Company's Oregon subsidiary, Methane Energy Corp., is on the exploration of the Coos Bay Basin project in southwestern Oregon where the Company currently has a land portfolio that includes over 118,000 acres of prospective land. The Company's Washington subsidiary, Cascadia Energy, is focused on two projects in southwestern Washington State where it holds substantial lease and lease option commitments on a total of 155,000 acres.
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