Sherritt Conf Call, page-3

Also while I was checking Sherritt conf. call transcripts, I came across one on
what went wrong with their Block 10 drill earlier this year.
It's in their April conf. call.

It's refreshing to see a company share so much detailed information on their
drills with shareholders, unlike most companies.

It's a long read, so unless you are into reading about drilling problems etc... scroll onto the next post.

https://finance.yahoo.com/news/edited-transcript-earnings-conference-call-124847084.html


"Just to finish up from me, I do want to spend the next couple of slides and couple of minutes here on Block 10, to give you a bit better -- and a bit more insight and context around the press release that we put out a few weeks ago.
On Slide 10, you see an attempt at kind of a 3-D picture of the geology we see beneath Block 10. You can see that green oval circle on the surface there is our Varadero West block. We reproduce and really, we're just a little bit east of that on the other -- just east of Varadero, rather than west of Varadero, now in our new Block 10. You can see underneath there, that's that thrust-and-fold geology that we find all the way along that north coast of Cuba where we've been producing oil for the last 20 years or so.
Flip over to the next slide, because it actually just zeros in a bit on that cross-section where I can talk you through briefly what we found and what's -- the couple of things that surprised us in the course of drilling that first hole into Block 10. And how that is affecting our plans going forward here.
So if you look at Slide 11, you can now see the 2 sets of zones for reservoirs that we're targeting. So in rough terms here, the gray areas are what we refer to as the Vega Alta, the cap over the reservoirs. The green areas are the more -- the Veloz sections, which are more limestone-type formations where we typically find the oil. And you can see there's 2 layers of this fold-and-thrust geology where these layers get kind of pushed up over top of one another, which is what creates the geological formations to create potential oil zones.
The vertical or relatively vertical blue line you can see towards the right-hand side is the wellbore for the CUPEY-1X well that we drilled 20-plus years ago on this block that ultimately tapped into those lower reservoirs and, at least, for a short period of time, had a strong oil production showing. And that was where our target was for the original drill plan, as you can see with the line coming in from the top left and tracking down to the bottom right. So you can see the blue line from the top-left area was our initial -- where we drilled to in our first hole, and you can see what the original well trajectory was down towards intersecting with the CUPEY-1X line. And you can see how far we got before we had to abandon the well. And as you will recall from the press release, we then did drill an off-shoot from that to try and get a bit better sense of the upper zones since we were there anyway.
The original wellbore direction obviously, failed to reach its target. And that was what we announced a few weeks ago. There were 2 real reasons for that: The first as you can see, we drilled down through the Vega Alta, which is the overburden, if you were to go back to a mining term, over the reservoirs. And that is relatively unstable shale-type formation. And when you're drilling horizontally through it, you have a limited amount of time before the wellbore starts to fall in on itself because of -- from gravity, as much as anything else. And we guard against that by drilling so far and then inserting steel casing and guarding, then protecting the hole with our steel casing. When we got to the very first tip of that first green reservoir and got into the first fold of the Upper Veloz on that first green strand on the left-hand side there, we got a few meters into that and we stopped and we set our casing. So we inserted steel casing to protect the hole down to that Veloz, but then we thought we were then into the more stable limestone formation.
What happened then -- what wasn't apparent from seismic but it is now apparent from the drilling results is that, that was actually just a relatively small sliver of Veloz. And you can it in that gray finger the -- that inserts down between the first and second green zones there, actually put us back into an upper Vega -- the Vega Alta again.
So we drilled through that but that did start the time fuse on us in terms of how much time we had to get further down the hole. Because we had just set our casing, we do have -- as we start with quite a wide wellbore, about 13 inches when we're drilling at the top. And each time we set casing, you obviously lose diameter on your wellbore hole and you then drill smaller and smaller, progressively diameter holes as you get down to the [length], towards our total depth target of 5,800 meters. And our ability to get to 5,800 meters requires keeping the wellbore reasonably wide open, [first] far enough you can't close it down too far to be able to make sure you can get there.
So once we've hit that upper Vega Alta, it was necessary for us to get a certain distance down the hole again before we reset our casing, otherwise we wouldn't have enough wellbore diameter left to get to our total depth target of 5,800 meters. So at that point, we were kind of racing against time, if you will, to get far enough down the hole to be able to set casing again, maintain sufficient hole diameter but protect against that little sliver of Vega Alta there beginning to collapse in on us. So as we were drilling through the second and third and fourth zones of the Upper Veloz there, we were trying to make progress in time to be able to get our casing set and protect the integrity of the wellbore hole.
The second surprise that we had is what caused us difficulty and ultimately led us to having to abandon the hole before the -- when the Vega Alta started collapsing in on us. And that was a greater loss of circulation in our drilling mud. So that as we drilled through these upper zones, there are fractures in them, which we expect and hope to see because it's ultimately those fractures that the oil within the formations flows through. But those fractures can sometimes be significant enough that the drilling mud, as they get circulated with the bit for -- to manage friction and to ultimately bring the drilling fragments back up, we were losing that drilling mud down into crevasses. That's a phenomenon we've encountered often in our drilling in the past, up and down the coast of Cuba. And we've typically been able to deal with it by pumping sea water down the hole until you can get enough resistance against those crevasses and, again, get resumed circulation on your drilling mud.
Here, we tried that same technique but the crevasses or fractures that we were finding were greater in their size, and we weren't able to restore drilling mud circulation in time to be able to drill deep enough before we lost the integrity of the wellbore up in that Vega Alta section. So -- and that ultimately, led to the well being abandoned, as we press released a few weeks ago.
So we learned a couple of things from this exercise that changed our plans and affect what we're going to do forward. The first one is, obviously, is that we're now going to branch off because we want to get back down to that same target. The good news in this is that we -- our failure to get to the target doesn't in any way change our views on the value of the target. And we -- Block 10 and the original drill well there and our understanding of the geology of that lower section and the oil that was there in the past are unaffected by this.
It's not an adverse drilling result from negative findings. It was an adverse drilling result with some geotechnical issues that we now think we have a plan to overcome. The first is now obviously, having a better understanding of those upper zone formations from what we could discern from the seismic interpretation. We will obviously drill further into those upper zones in the second go-round before we set our casing so that we won't have that same time fuse running against us from that sliver of the upper Vega Alta.
Secondly, as we come and encounter those areas where we were losing circulation, we now know within a few meters of drilling where we will encounter those. And there are number of different tools and compounds and methods of into getting through those non -- those loss of circulation zones that are well-known and well applied in the industry. There's different compounds that can be inserted down the holes to effectively bridge across these crevasses. And there's 4 or 5 (inaudible) different options that we've identified. The problem the first go round is we didn't have any of those to hand at the time when we encountered the drilling the first time because we never encountered this before. And none of those compounds are readily available in Cuba. And so we're now in the process of actually getting those in place, and we'll have all of those different options at the ready at the top of the drill bore hole when we go back in again.
So our current thinking is to actually -- because the track towards that upper zone is where -- down through those zones to the lower zone. And our target destination is still the same place. We can actually save some money on the second drill hole by using about the 3,300 meters of the drill bore hole that we already have. And what our intention will be -- to back uphill from where we last set our casing, we will branch out of the hole and resume a trajectory very similar alongside on where we were now and go further into that Upper Veloz, with a good plan in place to how we'll get across those lost circulation zones and then proceed on down to the -- to our target zones in the Veloz formations and the -- down below the lower Vega Alta, which was our original target destination for the first well.
Our hope is to have all the material in place that we need in the coming weeks and look to be drilling sometime in late May or June. And there's probably 2 or 3 months' worth of drilling work there, depending on the rate of progress through the lower Vega Alta. But that, I wanted to just talk you through briefly, and that's a big longer than maybe would've been ideal. But I did want to give you a real sense of what it is that we're encountering, what it was that caused us the geological problems in the -- with the first drill hole, and what did we learn from that, and how we're going to address it. And just to stress once again, that it doesn't in any way change our views on the viability of the block and the presence of oil there. And now our job is to get on with getting down and actually demonstrating that.

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Presentations slides below:  Scroll down to Block 10 slides
http://s2.q4cdn.com/343762060/files/doc_presentations/2017/09/2017-10-Investor-Presentation.pdf