At the Mills Ranch field in Wheeler County, Texas, Brigham Exploration has begun sales on the Mills Ranch 96-1 well. The Hunton formation and the Viola formation are commingled and are currently producing at 3.6 MMCFD. The well has recently undergone extensive reworking to replace collapsed casing. According to the operator "The Mills Ranch 96-1 should be a very long life producer for the Company (Brigham Exploration), potentially producing for twenty to thirty years at a very shallow decline rate." Panhandle Oil and Gas has a 9.5% working interest and a 12.6% net revenue interest.
In the Woodford shale play in SE Oklahoma, Coal, Hughes, Pittsburg and Atoka counties, Panhandle has 20 wells approved and scheduled to drill with 15 additional wells currently drilling or testing. In addition, the Company has a working interest in 13 Woodford wells on production and a royalty interest in 9 other Woodford producers. Production from this area, net to Panhandle, is expected to substantially increase in the coming twelve months.
The Fayetteville shale is an active resource play in northern Arkansas. In 2005, Panhandle leased its 9,000 net mineral acres in Arkansas but retained the right to participate, and expects to participate, with a working interest in 67 sections of this acreage. On those acres in which Panhandle cannot participate with a working interest, the Company will have 3/16th royalty interest. On average, for both working and royalty interest wells the Company will have a net revenue interest of approximately 2% in approximately 7,800 net acres in the current Fayetteville shale core area.
Current reserve estimates, net to Panhandle, on these 7,800 acres are approximately .2 BCF of proved reserves, 15 BCF of probable reserves and 28 BCF of possible reserves. These reserve estimates were recently prepared by DeGolyer and MacNaughton based on average risked reserves per well of .8 BCF, over the approximately 7,800 acres, and an assumed density of nine wells per section. Based on this density, the Company could ultimately have an interest in over 2,000 wells in the total 284 sections in which it has an interest.
To date, in the Fayetteville shale, the Company has an interest in 5 producing working interest wells, 12 producing royalty interest wells, 1 working interest well testing and 4 scheduled working interest wells.
Panhandle has a total 100 BCF of probable and 73 BCF of possible reserves in the two unconventional plays when combining the Woodford shale probable and possible reserves announced in the April Operations Summary with the Fayetteville shale probable and possible reserves. Proved reserves in these areas are changing monthly as wells are completed and go on production and reserves will be updated as of fiscal year-end September 30.
Since Panhandle is not an operator, it is dependent on the operators to drill the wells. Panhandle cannot predict if, when or how many of the above wells will be drilled. The ultimate number of wells drilled per 640 acre section will depend on future drilling and production results. The shale plays are still in the early stages of development, with expectations of: (1) costs decreasing; (2) improving initial production rates; and (3) the potential of increased ultimate recoveries with further engineering and operational experience.
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