Evolution Petroleum announced that the operator of its Delhi Field in Louisiana, Denbury Resources, reported that first oil production in the Delhi enhanced oil recovery project (EOR) began in March 2010. Originally, the partners had expected first oil production to begin by mid-year 2010 following the initiation of CO2 injection last November.
Gross oil production in the field for the last two weeks of March averaged more than 200 barrels of oil per day from just the first three producer wells in the initial injection pattern. Denbury is continuing its multi-year roll out of the project by adding additional producer and injector wells and associated facilities in the field. Evolution owns 7.4% in mineral and overriding royalty interests and a 25% reversionary working interest (carrying an additional 20% net revenue interest) that reverts when Denbury receives approximately $200 million in net revenues less direct field operating expenses.
From an engineering perspective, an oil production response following CO2 injection is a critical element in certifying proved EOR reserves in our next reserves report for the year ended June 30, 2010.
Robert Herlin, President and Chief Executive Officer of Evolution, commented, "The early oil response from our crown jewel asset is a major milestone achievement for Evolution and its shareholders, marking the beginning of cash flows that are expected to be very substantial to Evolution going forward. Our six year Delhi journey began with the purchase of a field with about 18 barrels of oil per day of production, followed by our 2006 partnership with an outstanding operator in Denbury and three years of their substantial investments. First production signifies the beginning of the project's rewards to EPM that now moves us into a new phase of share value growth. Since our initial net production from the field is from mineral and overriding royalty interests that have a very low cost basis, the associated revenues will fall almost completely to our pretax bottom line. We expect the resulting cash flows will allow us to begin accelerating development in our other projects, including the Neptune oil project in South Texas, our Giddings Field properties, our artificial lift technology joint ventures and our shallow gas shale projects in Eastern Oklahoma."
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