Zodiac Updates Ops in California

Zodiac announced that based on further analysis of engineering and geological data from its 4-9 vertical test well, the Company has upgraded the Kreyenhagen formation to a primary target.

As previously reported, following a 24 ton fracture stimulation over a 30 foot siltstone interval in the Kreyenhagen formation, the 4-9 well flowed 29° API oil at an average rate of 24 bbls/day over a 9 day period prior to the well being shut in for a build up test. The pressure test analysis indicated significant skin (formation) damage of approximately +13, which the Company believes can be addressed by
optimizing stimulation procedures in future wells. The Inflow Performance Relationship (IPR) derived from the well test analysis demonstrated that a rate of 120 bbls per day could potentially be achieved with a pressure drawdown of 60% and the removal of formation damage from +13 to 0. The reservoir is overpressured with 12,800 psi reservoir pressure and a gradient of approximately 0.9 psi per foot. Porosity and permeability values derived from well log analysis indicate effective siltstone porosity ranging between 10 to 13%, with permeability ranging between 0.4 and 3.0 millidarcies.

Murray Rodgers, President & CEO, commented, "to put these results into perspective, this test rate was generated from the stimulation of a 30 foot siltstone interval, while we have identified a total of 150 feet of siltstone in this formation in the 4-9 wellbore. It is significant that our geoscience team has also identified up to 500 feet of siltstone on other portions of Company acreage. We have now demonstrated that we can successfully place a hydraulic fracture into the Kreyenhagen siltstone which greatly enhances our ability to access the existing natural fractures present in the reservoir. As we improve our completion techniques, an increase in production performance can be achieved. We believe we have identified a major light oil resource play however, additional testing and evaluation will be required to confirm the potential of the Kreyenhagen formation.”

The shales of the Kreyenhagen formation in the 4-9 well exhibit specific geological characteristics similar to, or in some cases, superior to, other successful source rock plays in North America. Extensive analysis of well logs, drill cuttings and core data indicate high oil prone total organic content of up to 5.75% and  sufficient maturity to assist in confirming the Company's view that the Kreyenhagen shales are presently generating oil on Company lands. The analysis indicates high shale porosity and permeability, averaging 5.7% and .06 millidarcies, respectively. A pervasive natural fracture system that may enhance these reservoir parameters has also been identified.

Substantial gross formation thickness including both siltstones and shales range from 800 to over 1,000 feet across Company lands. While not expected to be prospective on all Company lands, the Kreyenhagen formation is present on the entire 86,000 net acres controlled by the Company.

For comparison, net siltstone reservoir thicknesses in the Bakken formation in North Dakota and Saskatchewan ranges between 20-30 feet on average.

The Company also announced that in addition to the on-going completion and testing program for the 4-9 well in King's County, California, the Company's 1-10 appraisal well has reached a total drilling depth of 13,515 feet and the Company is now preparing to set the intermediate casing string. The 1-10 well reached this depth within 36 days from spud, versus 57 days to a similar depth in the 4-9 well. The 1-10 well is located approximately one mile east of the 4-9 well, and is planned as the Company's first horizontal well. The 4-9 well test results, combined with geological and geophysical data gathered to date, will determine the placement of the horizontal leg in the 1-10 well. A large independent oil and gas producer has elected to participate in the drilling of the 1-10 well with a 20% working interest. Results of the Lower Vaqueros completion in the 4-9 well are still being analyzed, and the Company expects to commence testing operations on the Whepley formation the first week in August.