MegaWest Energy Corp., an independent oil and gas company, specializing in non-conventional oil and gas projects with a focus on North American heavy oil, is pleased to announce the start of steam injection and production operations at its Deerfield, Missouri Project by its wholly-owned subsidiary, MegaWest Energy Missouri Corp. MegaWest is embarking on the first phase of commercial production of heavy oil from the Warner sandstone in Vernon County, southwest Missouri. The Company's existing land position includes a 100% working interest in over 10,000 acres of leases in Missouri and will support multiple projects, so this project will be referred to as the Marmaton River Project - Phase I.
MegaWest's experienced team of enhanced oil recovery specialists have completed the design, licensing, construction and drilling of the steam-flood with thirteen inverted 7-spot patterns (six oil production wells surrounding each steam injection well) on a total area of 10 acres. This steam-flood process has proven very successful on numerous projects with similar types of deposits throughout Canada and the USA.
A 50 million BTU/hr steam generator has been installed along with production treating vessels and tanks capable of processing up to 500 barrels of oil per day. As part of the project implementation, MegaWest has drilled and completed 40 production wells, 13 injection wells, 1 source water well, and 1 water disposal well. This project has been completed in less than five months and on budget, with the total estimated capital expenditure to construct and commission the facility and wells at US$ 3.6 million.
As previously announced, GLJ Petroleum Consultants Ltd., an independent reserves evaluator, completed a review of MegaWest's leases effective December 31, 2007. The table below sets forth the reserves and resource estimates for the Warner sandstone in Missouri as presented in that report. Probable Reserves on the project area are based on 19.8 acres, representing 2 phases of drilling. The Probable plus Possible estimate on the project area is based on 39.8 acres representing 4 phases of drilling and includes the Probable Reserves estimate. The estimated reserves in the table are based on a 25% recovery factor of the Total Petroleum Initially-in-Place. The Best Estimate and High Estimate Contingent Resources in the table are based upon a 25% to 30% recovery factor of the Total Petroleum Initially-in-Place, respectively. These estimates are based on 8,373 acres of mineral leases and the Company now holds over 10,000 acres of leases and is continuing to lease in the area.
The Marmaton River Phase I project will demonstrate the peak productivity of the process and the ultimate recovery factor from the developed area, which the Company expects to be higher than the 25 - 30% used in the independent reserves evaluator resource estimates. Based on the anticipated success of this first phase, the Company is planning the drilling of the Marmaton River Phase II wells to commence in the next 2 months. Each new phase of wells is intended to extend the project life at projected production rates.
The Company is nearing completion on the design of a second similar project at another location on its Missouri leases. The Company expects to develop 5 or 6 similar projects across its lease position in the next 2 to 3 years. If the Company is able to achieve 3000 barrels per day of production from this combination of projects, it would take about 30 years to recover the amount of oil included in the best estimate Contingent Resource plus best estimate Prospective Resource. All of the heavy oil produced is expected to be sold at the plant gate to a local refinery and is expected to receive over 80% of the WTI posted price.
The Company's President and COO, R. William Thornton, stated, "The success of the Company in completing the entire cycle of design, licensing, construction and drilling in such a short time frame demonstrates our capacity for execution of the planned projects. Marmaton River will be the cornerstone of our production platform from which to fund and build additional projects."
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