The 35.2-square-mile survey (approximately 22,500 gross acres) will cover an Area of Mutual Interest (AMI) established by Beacon and its partners and Chevron U.S.A. Inc.
Under the terms of a Seismic Option Farm-Out Agreement, Chevron will fund 100% of the cost of a 3-D Seismic Survey to earn a 50% interest in the approximately 19,000 acres of leases contributed to the AMI by the Partners. The Partners will then have the option to earn a 50% interest in the more than 3,000 acres of leases Chevron contributed to the AMI by drilling four wells on mutually agreed prospects at which time the Partners and Chevron would each own a 50% interest in the leased AMI Lands.
The 3-D High Definition Survey will be the first modern data acquisition over the survey area. Drilling targets are highly porous and permeable sandstone reservoirs containing 15 degrees API to 25 degrees API crude oils at depths of 1,200 feet to 3,000 feet, and are therefore relatively inexpensive to drill. It is expected that the Seismic Survey data acquisition phase will be completed before November 30, 2007. Processing and interpretation will follow, with the first drilling expected in the first quarter of 2008.
Beacon has no cost associated with the seismic program. Beacon will pay about 5% of the cost of the initial four test wells and will have no cost for the next five wells. Beacon will then retain approximately a 2.5% working interest in the Chevron AMI leases through its approximate 20% interest in Nomad Hydrocarbons LLC. After drilling, the wells drilled on the AMI lands will be operated by Chevron and produced crude oil will be sold to Chevron at posted market prices.
Beacon also still retains its 9.65% interests in the remainder of the San Joaquin East Side Project
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