broker review expects great things, page-2

re: broker review expects great things-part 2 Jefferson-McLeod Oil and Gas Project (30%) – Initial results encouraging
Proven hydrocarbon
province and high gas
price driving renewed
push
Huntington-2H,
encounters gas using
advanced drilling
techniques
Expect more
horizontal well
completions
Second well, Harris-1,
successfully fractured
and flows at enhanced
rates
Next wells are
Childers-1 and
Childers-2H
Additional 20,000
acres secured by 3Q05
Cash of A$11m means
sufficient funds for
drilling program
Carpenter Pacific Resources’ (CPC) first horizontal well at the Jefferson-McLeod Project was
a successful 987ft sidetrack targeting the Upper Pettit reservoir. The well encountered a
significant volume of gas and final evaluation and completion is likely by the end of March
2005.
Pre drill flow rate expectations were c.2mmcf/d. Pending further testing and evaluation,
indications suggest flow rates could be substantially higher than this. The Huntington-2H
result validates CPC’s strategy of using modern horizontal drilling techniques in low-pressure
reservoirs. More importantly the flow rates and potential cash flow generation from the
Huntington well is likely to be a multiple of a single vertical well
This has implications for optimising the future drilling program, with a potential shift away
from drilling numerous vertical wells, towards more highly productive horizontal wells.
Huntington-2H cost approximately US$1.1m to drill and based on flow rates of 2.5mmcf’d
would generate net cash flow of around US$0.02m per day. Future wells are likely to cost
US$0.8-0.9m to drill
CPC’s second well, Harris-1, was a re-completion of an existing well. The primary objective,
the Pettit reservoir, was successfully fracture-stimulated and is now producing at enhanced
rates of c.600mmcf/d, (i.e. 10-fold increase on previous rate). The well has been connected
into the local pipeline grid. Results for Harris-1 are encouraging for the upcoming Childers-1
and Davis-1 wells and validates the strategy of utilising new fracture stimulation methods to
enhance flow rates in low-pressure reservoirs. Harris-1 cost approximately US$0.07m to drill
and complete and has paid back within a month.
The next two wells at the Jefferson-McLeod Project are Childers-1, which is a recompletion of
an existing vertical well, and the Childers-2H horizontal well. Childers-1 is likely to commence
in the next week or so. To some extent the design the Childers-2H well will be contingent on
the final outcome of Huntington-2H and the results Childers-2H well will further optimise the
forward drilling program.
Gaining access to land and assembling a lease package at reasonable prices is crucial for
CPC’s strategy. At present the CPC has about 6,000-7,000 acres leased, and intend to have
a further 20,000 acres by 3Q05 and 40,000 by early 2006. At present the typical cost for
acquiring land in east Texas is relatively low at around US$100-150/acre. This in contrast
with CPC’s other asset, The Helper CBM Project in Utah, where prices have now increased
to typically US$200-500/acre.
Following the sale of its non-core asset, the Maari Oil Field, CPC will receive approximately
A$3.1m. At present CPC has about A$7.0m in cash and the proceeds will provide both extra
funding for the drilling program, and be applied to securing additional acreage at Jefferson-
McLeod in east Texas and the Helper Project in Utah.
The economics of the Jefferson-McLeod are such that an average well costs around
US$0.9-1.0m to drill adds approximately 1.2-2.5bcf in reserves and flow between 400mcf/d
and 2.5mmcf/d. This would equate to revenue of around US$0.02m/day or US$5.48m pa.