Ann: Drilling Update Sugarloaf Shale Gas Project,, page-18

re: Ann: Drilling Update Sugarloaf Shale Gas ... Based on GMP Securities NPV10 valuations of wells in the various parts of AUT's acreage, valuations that are now out of date (based on Hilcorp technology and drilling programme not MROs), EKA has a theoretical price of 62c for Sugarloaf alone based on AUT's current share price. Because of its size and dual listing, AUT will always command a premium but not that much. There's nothing in EKA's price for PdA or for Brioche.

Another point is that the AUT:EKA price ratio seems to have been in the range of 8 - 10x for years and it is currently exactly 10x. So 45c at current AUT price would still keep EKA within that comparable trading range and, the higher that AUT goes, the higher that EKA must go to stay in that range.

Any good news on PdA or Brioche will force a re-adjustment of that comparable trading range - Brioche is 3x the size of Sugarloaf in net acres terms and PdA is 50% on the same basis. But the acceleration of the Sugarloaf drilling programme should tilt the relative valuations slightly towards EKA anyway.

I hold both as many here do.

The first flows from the first Sugarloaf lateral, Kennedy-1H, were in May 2008, nearly 4 years ago and the management of both companies have been resolute and focussed ever since. Well done they!
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For those interested in the rapid development of the drilling and completion technology, this is an account of the early attempts by Conoco Phillips in Live Oak on ONE well spudded in May 2007 and tortured for no less than 12 months (compare with MRO's mechanical efficiency now). It is taken from EME's annual report:

" TCEI JV Block A-1, a horizontal appraisal well, was spudded on 22 May 2007.

Two sidetrack operations were required to get the well to total depth. A total depth of 14,586 ft (measured depth) was finally reached on 29 August 2007.

Gas shows were encountered over the whole horizontal length of approximately 2,500 ft. Multiple gas flares measuring up to 65' were recorded over approximately a 1,000 ft horizontal length, including an interval of about 600 ft that produced a constant gas flare.

A 4 ½' liner was cemented to 14,586 ft on 3 September 2007 which again was an operation not without its problems. Fraccing and testing operations were put on hold until the adjacent the TCEI JV Block A-2 well could be made available for seismic monitoring purposes. This technique enables the operator to determine the efficacy of the fracc operation at the TCEI JV Block A-1 well. The first attempt to fracc on 13 December 2007 resulted in the fracc being unable to be injected into the reservoir, as did a second attempt on 20 December 2007. Sufficient injection rates required to fracc could not be achieved without exceeding the 7' casing limitations, and on 17 January 2008 Empyrean announced that 4 ½' casing was being tied to the top of the liner and being run to surface to enable higher injection pressures. Three further attempts to pump the fracc sand to the reservoir under high pressure were unsuccessful.

The operator made the decision to shut down the well on 9 Feb 2008 and initiate a detailed reservoir engineering post-mortem which includes a 3-D simulation study. This study was performed to re-evaluate the options on offer.

Operations recommenced on site on 14 April 2008. On 21 April 2008 Empyrean announced to shareholders that 'the well unexpectedly began to flow commercial quantities of gas and condensate during operations to prepare the well for a fracture stimulation and flow test programme'. Initial flows of 2.0 mmcfepd were measured which increased to 2.4mmcfepd before the well was shut in to obtain pressure build up measurements.

An acid fracc was successfully completed over a 900ft horizontal interval through five sets of perforations on 28 May 2008.


The operation resulted in a six fold increase in deliverability. On 28 May 2008 Empyrean was able to report an average gas flow of 2.5mmcfgpd accompanied by 950 bcpd and no water through a 14/64' choke. This equates to approximately 12 mmcfgepd based on present gas and condensate prices."