Saxon Oil Company Ltd. successfully drilled its first low BTU shallow gas well to 1220 feet in Harvey County, Kansas, near its Mid Kansas Gas Gathering joint venture ("MKGG") gas gathering system. The American Energies Talbot 1-23 exploratory well drill stem tested the Red Cave sandstone at rates exceeding 900 thousand cubic feet (Mcf) per day with no water and bottom hole pressures of more than 500 psi. Electrical logs confirmed gas-saturated sands with excellent porosity. Construction of flow lines to the MKGG gas gathering system is in process. Saxon has a 50% working interest in the well and in the offset locations.
Richard G. Green, president and CEO of Saxon said, "We are pleased with the successful test of this well. The Talbot 1-23 well was efficiently drilled, tested and cased in less than 48 hours, and the test gas rates were better than expected. We have a significant leasehold position around this well. Saxon plans to maximize development drilling in this area for delivery of gas to our own gathering system."
MKGG, in which Saxon's wholly owned subsidiary Central Kansas Gas Gathering (CKGG) is a 50% partner, is now gathering low BTU gas through the joint venture's 400 miles of gas gathering systems. In the first two months of joint venture operations, MKGG booked revenue of more than US$1.25 million, with a net income of ($30,443). The loss was expected due to the high start up costs of returning certain shut-in segments of the gathering system to service. Saxon expects revenue numbers to increase significantly and to reach profitability as new wells are added and other line segments are returned to service. The recently acquired cryogenic gas processing plant with 10 MMcf per day capacity has been successfully dismantled in Texas and is in transit to Kansas. This plant, when operational, will allow for the extraction of high value Helium and Nitrogen from the gas, which will also improve the quality of methane to meet transcontinental pipeline specifications, thereby increasing the gas value and marketability.
Saxon's strategy is to combine its exploration & production operations with the acquisition and operation of selective gas gathering and processing systems to maximize the profitability in both market segments. The company will receive revenue for its own production, as well as fees from third parties for transporting and processing their gas production.
Also in western Kansas, Saxon has acquired an additional 320 acres of leasehold in Stanton County, Kansas, on a new prospect surrounded by production within the Arroyo Field. Arroyo Field produces from multiple reservoirs but principally from prolific Morrow sandstones. Arroyo Field was discovered in 1989 and has produced from thirty-nine wells, which have average production to date of 71,000 barrels of oil and 1 BCF of gas. Saxon owns a 75% working interest in this acreage. Saxon plans to initiate drilling activity on this prospect in first Quarter 2009.
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