This new increase in production was gained through the Company's continuing effort to connect new wells to the pipeline, optimize existing wells, and the installation of an additional compressor at the Shiloh project.
Admiral Bay also provided an update on the ongoing operations at its Devon and Mound Valley projects.
The Devon Project
Admiral Bay has focused on redevelopment and well optimization at the Devon Project in 2007. The project is one of Admiral Bay's largest acreage blocks in the Cherokee Basin, consisting of 45,750 acres and 45+ wells in various stages of completion. Over the last year and a half, only essential work had been carried out on this project as the Company focused its development efforts at the Shiloh and Mound Valley projects. During this period, only a few of wells were produced in order to keep the leases in good standing. Production per well averaged 5 to 10 MCFGPD (thousand cubic feet gas per day) and has not meaningfully contributed to the Company's total gas production. Management has completed an extensive analysis to determine why the wells at this project haven't performed as well as other wells in the area and have implemented a number of changes to improve production at the project.
Since the beginning of the year, the Devon project has begun to show encouraging results with the field work that has taken place under the well optimization program. Further to the news release of January 24, 2007, the Company has now replaced all of the solar powered pumps at the project with standard pump jacks and/or progressive cavity pumps. This has resulted in increased gas production, along with a significant increase in water production. Admiral Bay has now drilled an additional water disposal well to handle this increased water production.
The Company announced that it had drilled the Oberst 10-27 well, the first new well at the Devon project in almost a year and a half. Due to wet weather conditions in the project area, connection to the pipeline had been delayed. This well is now hooked up to the pipeline and begun the dewatering process. During drilling, this well flowed at 60 MCFGPD.
The Smith 6-9 well, a single seam Riverton only well that had been previously drilled and not fraced, was recently fraced and put on test for ten days. The well made 835 MCFGPD during the 10 day period and flowed at rates of 75 to 85 MCFGPD. This well was completed using different a frac technique similar to the wells at the Company's Shiloh Project and used by other operators in the project area. The Smith well is located on the north side of the project and has now been shut-in while a pipeline connection is being built to it. This new extension to the pipeline will open up the northern area for development in the coming year. Included in wells to be connected to the pipeline in the near future is the Youngren 15-9 well, a Riverton only well. This well is presently being flow tested.
There are four wells that were drilled as offsets to existing wells at the project. The wells have been completed and hooked into the gathering system and are now dewatering. Early indications are that they are moving gas at rates in excess of 40 MCFGPD each, on a sustained basis. Several other wells are being placed on pump that have not been previously produced or produced intermittently.
Admiral Bay currently derives gas production from two sources at this project. The first is gas that the Company has produced itself and second, its share of the fee charged to other independent operators in the area for gas that they put into the joint venture pipeline. Total gas production from the project is currently at 850 to 900 MCFGPD. A new electric compressor has recently been installed at the project. Electric compressors, although more expensive to purchase than gas fueled, tend to have less maintenance and down time associated with them. The compressor change will also reduce the amount of gas used for Lease Operating Expense (LOE), which will translate into increased gas sales. With the Company now producing larger volumes of gas, it is looking to change from gas to electric compression at its other projects over the next year.
Mound Valley project
In order for the Mound Valley project to proceed forward, the pipeline company required additional equipment to be installed at the tap/compressor facility. The equipment to remove H2S from gas production at the project is now installed and operational. Until this equipment became operational, the pipeline company had limited the amount of gas Admiral Bay was allowed to put into the pipeline to 200 MCFGPD. This restriction has now been removed. Admiral Bay will now be able to connect new wells to the pipeline and work to optimize production at existing wells, as increased gas production can now be taken by the pipeline.
There are currently 50 wells at the project, with 28 connected to the pipeline and dewatering. Work to connect the remainder of the wells to the pipeline will be a priority in the coming months. Admiral Bay has come to agreement with Southern Star (the pipeline company) to allow a gathering line to cross their main pipeline in the project area. This new gathering line will connect nine additional wells into the pipeline system for gas sales.
Admiral Bay has also begun taking gas production into its pipeline from another independent operator in the project area. The agreement, which is renewed quarterly, currently allows up to 500 MCFGPD of third party gas production to be carried in the Company's pipeline. Initial production received is in the 100-150 MCFGPD range. The Company receives 30% of the production as a fee for the transportation and processing of this gas.
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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