Correction From Source: Underground Energy provides update on drilling at its Zaca Project and announces year-end 2011 third party reserve estimates
SANTA BARBARA, CA, April 10, 2012 /PRNewswire/ - Underground Energy Corporation ("Underground", "UGE" or the "Company") (TSX VENTURE: UGE) reports a correction from source with respect to the news release of Underground published at 7:00 am ET, on April 10, 2012. As a result of a clerical error, the total light oil proved producing reserves of Underground, on a gross basis, was incorrectly reported in the first table appearing in the release as 3 Mbbls (3,000 barrels), which has been corrected to 39 Mbbls (39,000 barrels). The complete and corrected release follows, which replaces the prior press release of Underground:
Underground today released information on its Chamberlin 4-2 well, the initial well drilled by the Company at its recently acquired 7,750 acre Chamberlin lease in the Zaca Field Extension Project ("Zaca") in Santa Barbara County, California. The Company holds an 80% working interest in the Chamberlin lease, which surrounds the existing Zaca Field on three sides.
The Company spudded the Chamberlin 4-2 well on February 28, 2012 and the well reached a total depth of 6,679 feet on March 23, 2012. The Company is very encouraged by the results from this well which encountered oil shows in a number of sections and, in particular, penetrated more than 900 feet of continuous, strong oil shows in a section of Monterey consistent with the most productive sections at the existing Zaca field and elsewhere in the Santa Maria Basin. The intervals in this section of Monterey typically contain a high density of natural fractures which is key to completing productive wells. Initial results from the Chamberlin 4-2 well, including 32 feet of oil bearing, highly fractured core that was recovered from the top of this section of Monterey, indicate that this well encountered a similar density of natural fractures.
In addition, the 900 foot oil column penetrated by the Chamberlin 4-2 well is in a new fault block, the Chamberlin East Fault Block, not previously penetrated by any wells at the existing Zaca field and it, therefore, has the potential for virgin pressure and to yield production rates similar to wells drilled early in the life of the existing field by Getty Oil. The Company's recently acquired 2D swath seismic survey had indicated the possible presence of the Chamberlin East Fault Block and it became one of the key targets for the Chamberlin 4-2 well, which has now confirmed the discovery of this new fault block.
The Chamberlin East Fault Block is 1,500 to 2,000 feet deeper than the main productive fault block at the existing Zaca field, which is only one-half mile west of the Chamberlin 4-2 well, and which has produced more than 32 million barrels of oil from 61 wells to date. The Company had designed the Chamberlin 4-2 well with the expectation that it would produce from this shallower fault block, however, the shallower fault block was not encountered during drilling, at which point the Company elected to continue drilling to test the new Chamberlin East Fault Block.
Following the discovery of the Chamberlin East Fault Block, the Chamberlin 4-2 well encountered mechanical issues and delays. These delays lead to well bore instability and, as a result of the well not being designed to produce from this deeper fault block, the Company decided it was prudent to plug-back the well to the intermediate casing and to drill a new well specifically designed to produce from the Chamberlin East Fault Block. At a later date, the Company intends to re-drill the Chamberlin 4-2 well from the intermediate casing back towards the existing Zaca Field targeting the shallower fault block. The plug-back work has been completed and the Chamberlin 4-2 well is now suspended awaiting re-design and then re-entry.
The Company is now moving the rig to an adjacent surface location and is about to commence drilling a "twin" well, the Chamberlin 3-2, offsetting the Chamberlin 4-2 well by approximately 300 feet. This well will directly target the newly discovered Chamberlin East Fault Block and information gained in drilling the Chamberlin 4-2 well will be used in designing, drilling, completing and ultimately producing the Chamberlin 3-2 well. The Company expects the Chamberlin 3-2 well to be drilled, completed and production tested by mid-May.
As originally planned, once the Chamberlin 3-2 well has been drilled, the Company plans to move the rig to its other permitted drilling pad within the Zaca Eastern Extension Project area and to drill up to three additional wells from that site.
"We are excited about the strong oil shows encountered in the newly discovered Chamberlin East Fault Block, which has the right rock properties and potential reservoir pressure to be as prolific a producing block as the main fault block at the existing Zaca Field," said Mike Kobler, President and CEO of Underground Energy. "While geologic conditions meant that we were not able to complete and produce the Chamberlin 4-2 well, we are confident that the Chamberlin 3-2 well will confirm the initial results from the 4-2 well and we believe that it will provide the production results and validation required to proceed with a multiple well development program."
GLJ Reserves Evaluation as at December 31, 2011
The Company today also announced the results of the year-end reserve evaluation conducted by GLJ Petroleum Consultants Ltd. ("GLJ") of Calgary, the Company's independent reserve engineers. In a report dated April 9, 2012, GLJ evaluated the Company's proved, probable, and possible reserves as at December 31, 2011 in accordance with the Canadian standards and requirements of National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities, the results of which are summarized below. Prospective and contingent resources on each of the Company's prospects were not evaluated by GLJ, although the Company intends to have such an evaluation completed in the next two to three months.
| Gross(1) | Net(2) | |||
| Reserves Category | Mbbl(3) | Mbbl(3) | ||
| Proved | ||||
| Proved Producing | ||||
| Light Oil | 39 | 32 | ||
| Heavy Oil | - | - | ||
| Proved Undeveloped | ||||
| Light Oil | 47 | 38 | ||
| Heavy Oil | 480 | 376 | ||
| Total Proved | ||||
| Light Oil | 86 | 69 | ||
| Heavy Oil | 480 | 376 | ||
| Total Proved (1P) | 566 | 445 | ||
| Probable | ||||
| Light Oil | 179 | 144 | ||
| Heavy Oil | 1,300 | 1,017 | ||
| Total Probable | 1,479 | 1,161 | ||
| Total Proved plus Probable (2P) | 2,045 | 1,606 | ||
| Possible(4) | ||||
| Light Oil | 296 | 238 | ||
| Heavy Oil | 1,820 | 1,424 | ||
| Total Possible | 2,116 | 1,662 | ||
| (3P) | ||||
| Light Oil | 561 | 451 | ||
| Heavy Oil | 3,600 | 2,817 | ||
| Total Proved plus Probable plus Possible (3P) | 4,161 | 3,268 | ||
Notes:
- "Gross" reserves means Underground's working interest (operating and non-operating) share before deduction of royalties and without including any royalty interest of Underground.
- "Net" reserves means Underground's working interest (operating and non-operating) share after deduction of royalty obligations, plus Underground's royalty interest in reserves.
- Totals for each category are reported on an "oil equivalent" basis which represents total light oil and heavy oil, in thousands of barrels of oil.
- Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.
The estimated pre-tax value of the future net revenues associated with Underground's reserves at various discount rates as at December 31, 2011 are set forth as follows:
| Before Tax Net Present Value Summary | (thousands of US dollars) | |||||
| Discount Rate | Undiscounted | 5% | 10% | 15% | 20% | |
| Proved | ||||||
| Proved Producing | 2,065 | 1,916 | 1,788 | 1,678 | 1,583 | |
| Proved Developed Non-Producing | 0 | 0 | 0 | 0 | 0 | |
| Proved Undeveloped | 23,652 | 12,268 | 7,219 | 4,535 | 2,910 | |
| Total Proved | 25,717 | 14,183 | 9,007 | 6,214 | 4,493 | |
| Total Probable | 75,963 | 46,258 | 31,658 | 23,265 | 17,903 | |
| Total Proved Plus Probable | 101,680 | 60,441 | 40,665 | 29,479 | 22,395 | |
| Total Possible | 114,836 | 64,201 | 40,938 | 28,290 | 20,591 | |
| Total Proved Plus Probable Plus Possible | 216,516 | 124,642 | 81,603 | 57,769 | 42,986 | |
Notes:
- The estimated future net revenues are stated before deducting future estimated site restoration costs and are reduced for estimated future abandonment costs and estimated capital for future development associated with the reserves.
- All future net revenue values calculated utilizing GLJ January 1, 2012 oil price forecast for WTI delivered into Cushing, OK corrected for oil gravity and local price differentials.
- It should not be assumed that the discounted future net revenues estimated by GLJ represent the fair market value of the reserves.
- Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.
"GLJ's estimates validate the purchase price of our November 2011 asset acquisition and show the accretive nature of that transaction. In addition, considering recent seismic and drilling work, including the discovery of the East Chamberlin Fault Block at Zaca, which all occurred subsequent to December 31, 2011, we believe these GLJ numbers provide a great reserve base from which we will grow in the coming months," said Mike Kobler. "Given recent and ongoing progress at Zaca, we plan to update our third party reserve estimates and obtain a prospective resource report by an independent reserve evaluator over the next two to three months."
About Underground Energy Corporation
Underground Energy is focused on identifying, acquiring rights to, exploring for, developing and producing oil reserves from shale formations in North America using the latest exploration and recovery techniques and technologies. Underground focuses on identifying and acquiring sizable land positions and prospects in historically prolific but under-explored shale formations as well as in emerging shale plays that, in both instances, hold large volumes of prospective resources. Underground currently holds hydrocarbon rights on approximately 69,291 net acres of highly prospective lands in California and Nevada with an initial focus on the Monterey shale in California. Underground is listed on the TSX Venture Exchange under the ticker symbol "UGE". For more information on Underground, including a copy of the Company's latest corporate presentation, please visit www.ugenergy.com. Underground's regulatory filings are available under the Company's profile at www.sedar.com.
Cautionary Statements
Statements in this press release contain forward-looking information and forward-looking statements within the meaning of applicable securities laws (collectively, "forward-looking information"). Forward-looking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur. In particular, forward-looking information in this press release includes, without limitation, statements with respect to: (i) the nature of the formation encountered by the Chamberlin 4-2 well; (ii) the Company's plan to re-drill the Chamberlin 4-2 well from the intermediate casing back towards the existing Zaca Field targeting the shallower fault block; (iii) the Company's plans and expectations for the Chamberlin 3-2 well; (iv) the Company's drilling plans following the completion of the Chamberlin 3-2 well; and (v) the Company's plans for updated reserve and resource evaluations.
Although we believe that the expectations and assumptions reflected in the forward-looking information are reasonable, there can be no assurance that such expectations or assumptions will prove to be correct. In particular, assumptions have been made that: (i) the formations encountered by the Chamberlin 4-2 well will demonstrate characteristics similar to formations encountered by other industry participants that have drilled wells on the Zaca Field; (ii) Underground will be able to obtain equipment, qualified staff and regulatory approvals in a timely manner to carry out its planned exploration and development activities; (iii) Underground will have sufficient financial resources with which to conduct its planned capital expenditures; and (iv) the current regulatory and tax regime will remain substantially unchanged. Certain or all of the forgoing assumptions may prove to be untrue.
Forward-looking information is based on the opinions and estimates of management at the date the statements are made, and is subject to a variety of risks and uncertainties and other factors (many of which are beyond the control of Underground) that could cause actual events or results to differ materially from those anticipated in the forward-looking information. Some of the risks and other factors could cause results to differ materially from those expressed in the forward-looking information include, but are not limited to: operational risks in exploration, development and production; delays or changes in plans; competition for and/or inability to retain drilling rigs and other services; competition for, among other things, capital, acquisitions of reserves, undeveloped lands, skilled personnel and supplies; risks associated to the uncertainty of reserve and resource estimates; governmental regulation of the oil and gas industry, including environmental regulation; geological, technical, drilling and processing problems and other difficulties in producing reserves; the uncertainty of estimates and projections of production, costs and expenses; unanticipated operating events or performance which can reduce production or cause production to be shut in or delayed; incorrect assessments of the value of acquisitions; the need to obtain required approvals from regulatory authorities; stock market volatility; volatility in market prices for oil and natural gas; liabilities inherent in oil and natural gas operations; access to capital; and other factors. Readers are cautioned that this list of risk factors should not be construed as exhaustive.
The forward-looking information contained in this news release is expressly qualified by this cautionary statement. Underground does not undertake any obligation to update or revise any forward-looking statements to conform such information to actual results or to changes in our expectations except as otherwise required by applicable securities legislation. Readers are cautioned not to place undue reliance on forward-looking information.
Certain information contained herein is considered "analogous information" as defined National Instrument 51-101. Underground is unable to verify whether such information has been prepared in accordance with NI 51-101 and the Canadian Oil and Gas Evaluation Handbook and Underground is unable to confirm whether such estimates have been prepared by a qualified reserves evaluator. The information on the historic production of wells drilled by other industry participants on the Zaca Field was obtained from California Division of Oil, Gas and Geothermal Resources on August 24, 2011. The information has been provided to demonstrate the potential for similar aggregate production for certain wells to be drilled by Underground at the Zaca Field.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
SOURCE Underground Energy Corporation
WANT YOUR COMPANY'S NEWS FEATURED ON PRNEWSWIRE.COM?
Newsrooms &
Influencers
Digital Media
Outlets
Journalists
Opted In
Share this article