Empyrean Boosts Production in U.S.

Empyrean announced its unaudited interim results for the period ended September 30, 2010.

Operational highlights for the period

  • Sugarloaf Project
    • Optimization of completion techniques resulting in favorable increase in estimated recoverable reserves in Block B by the Hilcorp Energy Company; and
    • Commencement of an accelerated development phase.
  • Riverbend Project
    • Cartwright 1 spudded May 29, 2010 subsequently opened to the pipeline on 8 November 2010.
  • Hercules Project
    • BP America A-740#1 well completed and commenced production to sales on the September 4, 2010;
    • Production rates have increased to 1,069mscf/d and 48bbl/d of condensate by December 2010; and
    • At least three offset wells have been identified by the operator as probable future drilling locations

Tom Kelly, commercial director commented, "We now have three of our four current projects in production. All three of these projects offer significant upside for Empyrean either through cash flow, development, optimization initiatives, operational improvements or reserve assessment and upgrade. We have significant further exploration upside at our Eagle Oil Pool Development Project in California and look forward to 2011 where we aim to add further value."

Operations Report May 2010 - December 2010

Empyrean continues to be an active participant in five separate projects, all located onshore USA.

Activities during the past six months have focused on three separate projects onshore Texas. These are the Sugarloaf Project, the Riverbend Project and the Hercules Project, all of which are today producing gas and condensate to market.

The Sugarloaf Project, in particular, has been the scene of a re-invigorated program of re-entry, fraccing and development drilling. This increase in tempo has come as a direct result of the farm-in of Hilcorp Energy Company ("Hilcorp") which replaced Texas Crude Energy Inc. ("TCEI") as operator of Block B. Following the farmin, Empyrean now participates with a 3% working interest in all wells drilled by Hilcorp in Block B, save Kowalik- 1R in which it has a 10.2% interest.

In Block A Empyrean has maintained its 7.5% in the four producing wells operated by Conoco-Philips and is currently involved in no further development drilling there.

Empyrean also farmed into the Riverbend and Hercules projects in 2009. Both projects are operated by Krescent Energy Partners II, LP of Houston Texas ("Krescent") and each has resulted in discoveries of a gas-condensate and gas field.

In California, at the Eagle Oil Pool Development Project, drilling in an adjacent area is planned to begin in late December /early January 2011 which may attract 3rd party interest.

Sugarloaf Project - Block B

Hilcorp has followed the drilling of its three obligatory farmin development wells, Easley-1, Morgan-1H and Rancho Grande- 1, with six additional wells to date. Although the objective formation has remained the same, an adjustment of the geological nomenclature has recently occurred. Where once the original objective reservoir, the Austin Chalk, had been divided (by some authors) into "Upper", "Middle" and "Lower" , the lower 2 divisions are now incorporated into the Eagle Ford Shale. The Eagle Ford Shale is a Lower Cretaceous, organic-rich, shaley limestone which directly underlies the traditional Upper Cretaceous Austin Chalk and overlies the Buda Limestone. It is now considered that all wells so far drilled in Block B, with the exception of Kowalik-1H and Weston -1H, are producing from the fractured Eagle Ford Shale.

The 6 post-farmin wells, and their results, are as follows:

  • Kowalik - 1R (10.2% WI) spudded on the 9 July 2010, drilled to a TD of 18,132ft, and fracced along 14 intervals of a planned 23. An obstruction in the casing required remedial treatment before installation of production tubing. Commercial gas condensate production with a restricted choke commenced on the December 11, 2010 and the following early production data is based on the last 24 hours and provides an indication of recent flowrates from the well of an average daily equivalent gas rate of 8,810 mscfe/d and average daily equivalent oil rate of 735 boe/d.
  • Luna -1H (3%WI) spudded on the August 7, 2010, drilled to a TD of 17,550ft providing approximately 5,000ft of horizontal section which was fracced in 14 stages. On a restricted choke the well was reported on 20 December 2010, to have produced flowrates of an average daily equivalent gas rate of 11.17 mscfe/d and average daily equivalent oil rate of 931 boe/d.
  • May -1H (3%WI) spudded on the September 7, 2010 and drilled to a TD of 17,550ft providing approximately 5,000ft of horizontal section within the reservoir. A 16 stage fracc over a 4,800ft section was successfully completed and commenced flowback on 5 November 2010. On December 10, 2010 it was reported to have produced flowrates of an average daily equivalent gas rate of 9,214 mscfe/d and average daily equivalent oil rate of 954 boe/d.
  • Urrutia - 1H (3%) spudded on the September 10, 2010 and drilled to a TD of 17,411ft. It underwent a 19 stage fracture stimulation over an approximate 4,400ft interval and was cleaned up for sales on the 12 December 2010. On a restricted choke setting the well was producing recently at 1,940 mscf/d and 752 bbls/d of condensate.
  • Direct Assets - 1H spudded on September 30, 2010 and drilled to a TD of 17,600ft providing 5,000ft of horizontal section. Fracc operations are at present being concluded.
  • Gilley -1H spudded on the November 20, 2010 and recently reached a TD of 16,969ft with approximately 4,200ft of horizontal reservoir section.

Riverbend Project (10%WI)

The original attempt to re-enter the highly pressured Austin Chalk reservoir of Quinn 3-H was unsuccessful, as was the production test of the secondary objective, the Saratoga Formation, higher up the well.

A second well, Cartwright No1, having the same objectives as at Quinn 3-H and located 3.3 miles to the northeast, was spudded on the 29 May 2010. It reached a TD of 14,844ft (measured depth). On the November 5, 2010 it was announced that during a six day flow test rates of production varied between 1.4 and 6 mmscf/d. The flows currently fluctuate and are not yet stable due to the suspected presence of drilling mud and solids lost to the reservoir during drilling.

The well has been opened to the pipeline since the 8 November 2010 producing at variable rates of up to 1.5 mmscf/d. The plan is to carry out a coiled tubing operation to clear the 3.5inch slotted liner of any remnant obstructions.

Hercules Project (10%WI)

BP America A-740#1 well, completed as a producer in the Upper Wilcox Formation, commenced production to sales on the 4 September 2010. A compressor was installed which enabled the rate to be increased initially to an average of 634mscf/d and 26.24bbl/d. These rates have steadily increased and at the beginning of December 2010 the well was producing at rates of 1,069mscf/d and 48bbl/d. At least three offset wells have been identified by the operator as probable future drilling locations.

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