For the past 12 months, Strike Oil Limited together with its operating partner Cypress E&P Corporation has been engaged in a continuous drilling campaign on the large, previously undrilled Rayburn Structure in the Gulf Coast region, Texas, USA.
The pre]drill prospective gas resource potential at Rayburn was estimated to be in the order of 500 Bcf gas in the Upper, Middle and Lower Wilcox Formations.
With less than 20% of potential Wilcox pay zones evaluated results confirm total Rayburn reserves plus prospective resource potential to be in excess of 400 Bcf gas together with a substantial volume of oil]condensate.
A total of nine wells have been drilled so far and one is in progress. Initially the primary target has been the Middle Wilcox Formation. Five wells are now on production and a further two wells are currently undergoing
Gas and oil]condensate reserves based on five wells with two to nine months of production history from Rayburn (22.8% Working Interest) and four wells and 30 months production history from the Company's nearby (60 kilometers) producing project, Mesquite (26.25% Working Interest), have been assessed by Netherland Sewell and Associates Inc (independent petroleum consultants) and Strike Oil effective June 30, 2008.
80% of Proved Reserves are developed and require minimal further capital expenditure.
The Tumbleweed Prospect is now treated as part of the Mesquite Project by Strike Oil because of its close proximity, and potential operating synergies.
Prospective Gas Resources in formations overlying the Wilcox Formation (Cook Mountain Formation and others) at Rayburn have not been estimated.
Rayburn Shallow Pay Zones
It is proposed to introduce a second, smaller drilling rig, to evaluate the shallow pay zones intersected in the Cook Mountain Formation and other formations which were intersected whilst drilling the deeper Wilcox Formation. This development/appraisal program will commence in November 2008 and will involve completion of new wells and recompletion of some existing wells.
Tumbleweed (adjacent to Mesquite) – 30% Working Interest
Once the rig currently drilling the Duncan Ansley Gas Unit 1]1 well at Rayburn has completed drilling it is scheduled to drill the Tumbleweed Prospect (40 Bcf gas potential) which is adjacent to the Mesquite Project.
Flint – 35% Working Interest
Following drilling of Tumbleweed, a well is proposed at the Flint Project (50 Bcf gas potential) 50 kilometers north east of Rayburn. On completion of the Flint well the rig is scheduled to return to continue appraisal drilling of the Rayburn Project.
Other Gulf Coast Projects
Strike Oil holds interests in several projects with its operating partner at Rayburn, Cypress E&P Corporation. The projects have been identified and secured as part of an ongoing project generation program in which Strike Oil participates. Applying knowledge and new understandings gained in the discovery and development of the Mesquite and Rayburn Fields over the past two years, the project generation program is providing a pipeline of new projects of exceptional potential and quality.
In the past two years Strike Oil, as part of this program, has participated in three Wilcox Formation exploration wells and nine appraisal/development wells (excluding the two wells currently testing and the one appraisal well currently drilling) with a success rate of:
Based upon seismic and geological data it is the Company’s current technical view that the Gulf Coast Project portfolio has the potential and quality to sustain a similar high level of drilling success.
Rayburn – Mesquite Production Performance
The Mesquite and Rayburn Projects have both delivered strong production performance. Current total gross production from Rayburn (five wells) and Mesquite (four wells) is 46 mmcf and 1,160 barrels of oil]condensate per day (equivalent to 5,760 bbls of oil equivalent per day based upon current oil and gas prices). The daily production rate will increase as completed wells are brought on stream and further development drilling is undertaken.
Total cumulative production to 30 June 2008 from the two projects is 9.4 Bcf of gas and 187,000 bbl of oil]condensate. Both Mesquite and Rayburn are substantial new field discoveries amongst some of the largest in the onshore Gulf Coast over the past few years.
From a commercial perspective, the Mesquite and Rayburn Fields have been successful and provide ongoing high margin cash flows. Individual wells at Mesquite have delivered payback of costs within 12]18 months of
Individual well performance at Rayburn has been in excess of industry norms for the onshore Gulf Coast. No material decline in flow rates has been experienced in the first nine months of production. (Typically, a rate decline of between 30–40% can be expected over the first 12 months before a more gradual decline as production drops).
The Middle Wilcox reservoir at Rayburn is a high quality zone delivering high operating margins.
At current oil and gas prices and exchange rates, Strike Oil is receiving $4 million per month net of operating expenses from Rayburn and Mesquite production.
Strike Oil's Managing Director Simon Ashton commenting on the initial Rayburn reserves said, "The initial reserve position at Rayburn is an outstanding result from the small number of wells completed so far. The quality of the production and the margins it is delivering will enable Strike to continue strengthening its balance sheet and realizing the potential in its 240 Bcf prospective gas resource within the Gulf Coast acreage."
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