The majority of the gas production is currently coming from the Shiloh project, the Company's most advanced project. Since late in 2006, the Company has focused on optimizing existing wells at the project and connecting wells to the pipeline that were drilled in the 2006 Development Program. There have been a number of new wells recently connected to the pipeline that have begun the dewatering process. With the dewatering of these new wells, water production at the project has increased significantly due to more gas production coming on line. For any unconventional gas reservoir, especially in the Cherokee Basin, increased water production generally precedes increased gas flow. Production at these new wells is increasing, since they were connected to the pipeline.
The Shiloh project currently has 106 producing wells, with 32 new wells awaiting connection to the pipeline. New wells completed as part of the 2006 Development Program have been completed utilizing different completion methods than those drilled previous to the program. These new wells have been found to have higher initial production rates with overall production rates exceeding the projections used by the reserve engineers in the Company's year-end reserve report.
In preparation for more new wells coming online at the project, the Company has secured an additional compressor that is capable of moving up to 3 MMCFGPD. This unit, plus the present compressors, will allow the company to move up to 5.9 MMCFGPD, removing any limitations on increasing production in the near future, as additional wells are added to the pipeline. Delivery of this new compressor is expected by the end of the month.
In addition to the Shiloh project, the Company's gas production is generated from the Mound Valley and Devon projects and the Company's share of gas production from the Bourbon County Pipeline LLC (BCPL).
At the Mound Valley project, additional equipment is in the process of being installed at the compressor/tap facility. Without this equipment, gas production has been limited to 200 Mcf/day. There are currently 28 wells tied to the pipeline with 22 additional wells in various stages of completion and awaiting connection to the pipeline.
The Devon project is beginning to show encouraging results from the well optimization program that began in January 2007. Based on the initial results from the program, Management is confident that the Devon project will become a meaningful component of the Company's gas production in 2007.
The Company's 50% owned Bourbon County Pipeline is currently transporting over 750 Mcf/day from other independent operators in the area. These operators are continuing to drill new wells at their projects and increase gas production. BCPL receives 30% of the production as a fee for the transportation and processing of this gas.
Steve Tedesco, the Company's President and CEO, commented "This winter has created operational challenges for all operators in the Cherokee Basin because of long periods of cold weather, followed by extremely difficult field conditions. While this has created some delays in new production coming online, the overall production from new wells is in line with projections from our 2006 Development Program. As we bring on the remainder of our new wells drilled and awaiting connection, we expect this trend to continue."
Admiral Bay Resources Inc. is an emerging unconventional gas production company focused on the development of projects in the Cherokee Basin in southeast Kansas and the Appalachian Basin in Pennsylvania.
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