120621_Solimar_Paloma Update_ASX Release

ABN 42 112 256 649
www.solimarenergy.com.au
June 21, 2012
RELEASE to the ASX
Paloma Project Update
NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED STATES
Solimar Energy Limited (ASX: SGY; TSXV: SXS) is pleased to provide the attached release from
the Paloma Project Operator, Neon Energy limited (ASX: NEN).
Solimar is participating in three concurrent activities at Paloma where it holds interests ranging
from 15% to 25% in 2,847 gross acres.
These activities include:
•
The ongoing production testing of the Paloma Deep-1 discovery well;
•
The drilling of the follow up appraisal well Paloma Deep-2 which is drilling ahead at
approximately 11,600 feet towards a proposed total depth of 13,300 feet; and
•
The shallow (Total Depth 6,000 feet) Paloma-3 well which has been cased pending
production testing of two potential hydrocarbon pay zones.
Based on revised ownership arrangements announced on 29 May, 2012 Solimar has joint
venture credit providing funding for its participation in the Paloma Deep-2 and Paloma-3.
In addition to the activity being carried out by the Solimar / Neon joint venture, oil major
Occidental Petroleum holds most of the surrounding acreage and has permitted up to 8 new well
locations located along the borders of the Paloma project.
Sincerely
John Begg
Chief Executive Officer
Solimar Energy Limited
Neither 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.
For further information please contact: SOLIMAR ENERGY LIMITED
Registered Office: 566 Elizabeth Street, Melbourne, Victoria 3000
Telephone: +61 3 9347 2409; Facsimile: +61 3 9349 1186; www.solimarenergy.com.au
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This press release contains certain forward-looking statements within the meaning of applicable securities
law. Forward-looking statements are 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, including without limitation statements relating to intended testing, work
programs, financing and associated timelines. Forward-looking statements are based on the opinions and
estimates of management at the date the statements are made and are subject to a variety of risks and
uncertainties and other factors that could cause actual events or results to differ materially from those
projected in the forward-looking statements. Solimar Energy Limited cannot assure that actual results will be
consistent with these forward-looking statements. They are made as of the date hereof and are subject to
change and Solimar Energy Limited assumes no obligation to revise or update them to reflect new
circumstances, except as required by law. Prospective investors should not place undue reliance on
forward-looking statements. These factors include the inherent risks involved in the exploration for and
development of crude oil and natural gas properties, the uncertainties involved in interpreting drilling results
and other geological and geophysical data, fluctuating energy prices, the possibility of cost overruns or
unanticipated costs or delays and other uncertainties associated with the oil and gas industry. There is no
assurance that the Offering will be completed.
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ANNOUNCEMENT TO THE AUSTRALIAN SECURITIES EXCHANGE: 21 June, 2012
Neon Confirms Contingent Resource at Paloma
Highlights
• Testing at Paloma Deep-1 confirms producible light oil and gas from Lower Antelope Shale, Lower
Stevens Sand and Fruitvale Shale
• Contingent Resource estimated at 26 MMbbls oil and 22 Bcf gas (recoverable, best case)*
• Three additional zones of interest remain to be tested
• Paloma Deep-2 appraisal well drilling on schedule, at 11,600 feet
• Paloma-3 well at Total Depth (TD) 6,000 feet, preparing to test potential shallow gas pay
Neon Energy Limited (ASX: NEN) is pleased to announce that production testing at its Paloma
Deep-1 well, onshore California, has proven the presence of producible oil, gas and condensate
within the Lower Antelope Shale, Lower Stevens Sand and Fruitvale Shale. Whilst testing of
the Lower Antelope Shale continues, the results achieved to date have allowed the Company to
determine the Recoverable Contingent Resource for the zones tested so far, as follows:
Oil
Gas
Estimated Recoverable Contingent Resource (100%)*
Formation
Low (1C) MMbbls
Best (2C) MMbbls High (3C) MMbbls
Lower Antelope Shale
5
12
22
Lower Stevens “B”/Fruitvale
5
14
25
Total
10
26
47
Formation
Low Bcf
Best Bcf
High Bcf
Lower Stevens “B”
8
22
44
These Contingent Resource figures do not take into account shallower potential pay zones that
are yet to be tested. Testing of these zones may result in additional Contingent Resources.
A detailed summary of the Paloma project and results achieved to date is attached to this
announcement.
Following the encouraging results from Paloma Deep-1 (PD-1), Neon commenced drilling
Paloma Deep-2 (PD-2), an appraisal well designed to confirm the reservoir characteristics and
areal extent of productive zones encountered in PD-1. Additionally a shallow exploration well
was spudded on the western portion of the leased acreage, targeting shallow zones that could
not be tested in the PD-1 or PD-2 wells. All three wells are targeting reservoirs that have
produced hydrocarbons either on the Paloma structure itself, or nearby within the prolific San
Joaquin Basin.
The status of the three wells is as follows:
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Paloma Deep-1: Testing of the Fruitvale and Lower Stevens “B” confirmed the presence of
producible gas and light oil/condensate. Maximum unassisted flow rates of 1.9 MMcfd gas and
226 bpd of oil/condensate were achieved before flow abruptly ceased as a consequence of
plugging of the testing tools by packer debris, brought on by formation damage caused by
testing.
The Lower Antelope unconventional shale is currently testing with pump-assisted rates ranging
from 20 to 200 barrels of fluid per day, and oil cut ranging from 10% to 20%. It is intended
that testing will continue until sufficient data is gathered to fully understand the commercial
potential of the zone. Additional shallower zones of interest still remain to be tested in the well,
including the Paloma Sandstones and the Upper Antelope Formation.
Paloma Deep-2: Intermediate casing has been set at 10,128 feet, and at time of writing the
well is drilling on schedule.
Paloma-3: This low cost well has reached TD of 6,000 feet and has been completed for
production testing of thin gas sands within the Etchegoin Sandstone Formation. A “workover”
rig is to be installed at the wellsite prior to testing, with results expected within the next two
weeks.
Paloma area schematic cross-section showing relative location of wells
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In the event that the appraisal programme is successful in proving commerciality, resource
certification will quickly follow and development of the field is expected to commence shortly
thereafter. Neon anticipates that both the Lower Stevens “B” sandstone reservoir and the
unconventional Lower Antelope and Fruitvale Shales would be developed using high angle
wellbores designed to optimise connectivity to the relatively low permeability reservoirs,
thereby maximising rates of production and hydrocarbon recovery per well. The extensive
infrastructure in the area will facilitate efficient monetisation of the asset.
*Contingent Resource estimates for Paloma Deep have been generated internally by Neon in compliance with the SPE 2007
Petroleum Resource Management System (PRMS), under the supervision of David Cliff, Exploration Manager, a qualified
Petroleum Geologist with 31 years experience in the oil exploration industry. Mr Cliff is a member of the Petroleum Exploration
Society of Australia and of the American Association of Petroleum Geologists, and has consented to the inclusion of the technical
assessment in this announcment.
_________________________________________________________________________
Enquiries:
Managing Director:
Ken Charsinsky
Chief Financial Officer:
Ben Newton
Telephone:
08 94811176
Website:
www.neonenergy.com
Neon Energy Ltd, ABN: 49 002 796 974, Ground Floor, 88 Colin Street, West Perth,6005 Ph:
+61 (08) 9481 1176 Fax: +61 (08) 9481 7720 PO Box 1789, West Perth, 6872 Website:
www.neonenergy.com E-mail: [email protected]
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Paloma Project Overview
Paloma Deep Play Concept
The Paloma Deep play concept was to test the Stevens Sands, Antelope Shale and Fruitvale
Shale within the Monterey Formation, at the northwestern end of the field where these zones
had not been previously produced; despite having been proven productive in the southeastern
portion of the field and elsewhere in the San Joaquin Basin.
Analysis of the 3D seismic amplitude response in the Stevens Sands highlighted the potential
for development of a permeable reservoir at the north-western end of the field. While drilling,
the Paloma Deep well would also test for bypassed pay zones in the previously produced
shallow zones of the Etchegoin and San Joaquin Formations, and the Paloma Sands. Deep gas
in the Round Mountain siltstones, indicated by a strong seismic anomaly, was also originally
an objective and remains a target for future drilling.
Schematic cross-section showing Paloma Deep play concept
Paloma Deep-1 Results
In late 2011, the PD-1 well reached TD at 13,320 feet, some 310 feet into the Fruitvale Shale.
Analysis of wireline logging data confirmed the presence of oil and/or gas/condensate in eight
zones including three unconventional oil shale zones (with two additional zones, in the Paloma
Sand section, interpreted to be depleted). In aggregate these zones represent approximately
1,000 net feet of potential hydrocarbon pay.
The Fruitvale Shale exhibits characteristics of a producing oil shale and is interpreted to be
approximately 1,300 feet thick at the well location. PD-1 penetrated 310 feet of the formation
at TD. Two production tests of the Fruitvale Formation recovered oil and gas although it is
thought that some of this production was coming from the Lower Stevens B sand, bypassing
leaking completion packers.
The most notable zone of interest was encountered in the Lower Stevens “B” sand, within
which a gross column of 230 feet of continuous potential hydrocarbon pay is interpreted with a
reservoir net to gross ratio of 81%. This pay zone flowed oil and gas on test and because it
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extends over at least 730 acres of Neon’s 2,847 gross acre lease holdings, it represents a
potentially significant resource to the Company.
The Lower Antelope Shale is characterised by a favourable combination of being a naturally
fractured siliceous shale (chert) and a mature source rock that is presently generating oil within
the Paloma area. The 508 foot section encountered in the PD-1 well has proven to be a prime
candidate for unconventional oil production. A 34 foot sand within this interval, above the
current test zone, produced one of the most positive oil shows encountered in the well, and it
will be tested after the current test of the Lower Antelope is completed. As a resource play
extending across the entire 2,847 gross acres of Neon’s current lease, the Lower Antelope
Shale is potentially a very significant resource.
Schematic cross-section showing Paloma Deep-1 results
Neon also plans to test the uppermost Paloma Sand in PD-1, which is interpreted to be oil
bearing. The sand sits within the Upper Antelope Shale, which is also interpreted to be a good
candidate for unconventional oil production as it already produces elsewhere in the field. This
155 foot (gross) shale oil zone will also be tested in due course.
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The upper part of the Lower Stevens ”A”, the Western Flank Sand and the Middle Stevens are
interpreted to contain sub-economic pay due to the poor quality of the reservoir and high
residual water saturations. The poor potential of the Lower Stevens “A” sand was confirmed by
testing; producing water and only a small quantity of gas. These zones will however be
reassessed in Paloma Deep-2, possibly with better results due to the updip location relative to
PD-1.
Production Testing Summary
Four of the zones of interest have been tested thus far, via seven production tests. In order to
obtain commercial production rates from an unconventional (low permeability) reservoir
effective connection via a natural or man-made fracture system is necessary. Determination of
reservoir characteristics and the potential efficacy of various well stimulation techniques in
these oil reservoirs requires the integration of wireline log data with pressure transient data
obtained during long-term production tests, which are currently ongoing.
Testing of the Fruitvale and Lower Stevens formations has confirmed the presence of
producible gas and light oil/condensate. Test 1, of the Fruitvale Formation, flowed to the
surface unassisted at a maximum rate of 1.9 MMcfd and 226 bpd of oil/condensate (oil gravity
measured at 40°
°API). It is believed that the flow is partially attributable to the Lower Stevens
sandstone, bypassing a defective “swellable packer”. After flowing for 23 hours the flow
ceased abruptly and the testing tools were found to be plugged with packer debris.
The second test, of the Lower Stevens Formation, was stimulated with nitrogen and produced a
maximum flow at surface of 343 Mcfd (thousand cubic feet per day) gas. The tool was
subsequently found to be plugged with sand, and sand fill was found below the test tool. It is
believed that sand and silt collapsed around the outside of the casing and formed a permeability
barrier in the annulus of the borehole (as in the test tool) thereby inhibiting flow. This was
confirmed by similar results in Test-3, in which more perforations were added in the Lower
Stevens interval; and Test-4 in the Fruitvale and Lower Stevens intervals combined, which
resulted in the similar gas flow rates and oil recoveries. Neon believes that the test performance
was severely inhibited due to a compromised “swellable packer” completion, and to sanding
issues resulting from geomechanical stresses that exceeded the formation strength of the local
sandstone facies.
These issues can be overcome in future well completions now that the operational challenges
are better understood, and the PD-2 well and completion has been designed to mitigate the
problems.
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Flaring gas on test at Paloma Deep-1
Test-5, in the Lower Stevens “A” sand, produced water into the well bore with only a small
amount of gas. This zone is therefore deemed to be non-commercial.
Test-6 was conducted in the lower two thirds of the Lower Antelope Shale opposite naturally
fractured shale and chert beds. It was a highly successful test in that it established that oil can
be swabbed (pumped) out of the Antelope Shale prior to stimulation, and improvements in
flow rate were recorded after an acid wash; which was performed in order to remove plugging
solids from reservoir pores in the wellbore.
Test-7 added more perforations to the previous test zone and a larger acid stimulation job was
conducted. A jet pump was installed to produce back the acid load volumes and to conduct a
long-term production test. Although the well has not yet fully “cleaned up” oil production from
the zone has been proven, with pump-assisted rates ranging from 20 to 200 barrels of fluid per
day and oil percentages ranging from 10% to 20%. Oil gravity is measured at 28°
°API to
30°
°API, and it is anticipated that with continued pumping the test may clean up further, with
an associated increase in oil cut. Neon intends to use the test data from this zone to establish
the magnitude of the potential resource and the optimal completion strategy at this time. High
angle or horizontal wells, intersecting more reservoir fractures, are expected to be the basis of
any future development.
Future testing will include the sandy upper zone of the Lower Antelope Shale, the Paloma
Sands and the Upper Antelope shale.
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Paloma Deep-2
PD-2 was spudded on 9th May 2012 as an appraisal well to prove the flow potential of the
Lower Stevens and Fruitvale formations, using a standard cemented liner completion as
opposed to the “swellable packer” completion adopted in PD-1. Reservoir coring of the Lower
Antelope Shale, the Lower Stevens and the Fruitvale Shale will help determine the reservoir
and sourcing parameters of each formation, so that wireline log responses can be calibrated and
resource estimates updated. The well is targeting a zone of high seismic amplitude at the
Lower Stevens “B” level, which is expected to correlate to favourable reservoir parameters.
The well should be completed for testing in 3 to 4 weeks time.
Paloma-3 (B&N Minerals 81B-36)
Neon drilled the Paloma-3 well during May 2012, to a TD of 6,000 feet. The objective of this
well was to test zones that were impractical to test in, or not penetrated by, the PD-1 and PD-2
wells. After reaching TD several thin gas sands were identified by wireline log interpretation of
the San Joaquin and Etchegoin formations, typical of sands that have produced in the area.
Downhole pressure data indicates that some of these sands remain charged with gas, and Neon
is currently preparing to production test during June 2012.
Background Information
The Paloma field was originally discovered in 1934 and commenced production shortly
thereafter, principally from the Paloma Sandstone Formation. Initial development consisted of
150 oil wells and 45 gas wells, with a secondary phase in 1973 consisting of 23 additional
wells targeting the Lower Stevens Formation in the southeastern portion of the field. Having
produced in excess of 60 million barrels of oil and 432 billion cubic feet of gas the field ceased
producing at significant rates some 25 years ago and today lies essentially abandoned, with
only 80 bopd being produced from the Lower Stevens Formation in the southeast of the field.
More recently the Upper Antelope Shale is being produced by a single well in the eastern part
of the field.
The opportunity at Paloma is provided by a combination of 3D seismic analysis, modern
drilling/completion technologies and the recent recognition of the Monterey formation as a
significant unconventional reservoir.
Neon (Operator) and partner Solimar Energy (ASX: SGY) increased the Paloma Joint
Venture’s acreage holding prior to drilling the PD-1 well by securing additional oil and gas
leases to the east, bringing the total holding to 2,847 gross acres. Neon holds an 85% working
interest in the original (western) leases, and a 75% working interest in the new (eastern) leases,
with Solimar holding the balance of interest.
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Paloma area schematic map showing location of wells and leases
Aspects of Petroleum Geology
The prospective intervals of the Paloma Field range in age from 15 million years to 1 million
years (Middle Miocene to Pleistocene). During the Middle Miocene period the Paloma area
was situated within a deep sea embayment of the Pacific Ocean, receiving pulses of sediment
sourced from the uplifting Sierra Nevada mountains to the southeast. These periods were
interspersed with quiet periods in which nutrient rich waters supported the formation of
diatomites (micro-organisms with siliceous tests) that now form the prolific source and
reservoir of the Monterey Formation. The Monterey Formation is a prolific source rock within
the San Joaquin Basin, having generated the vast majority of oil found within the basin. Mature
Monterey source rocks are currently gaining widespread industry recognition as a significant
unconventional resource play, and Neon’s Paloma leases are optimally situated within the
Monterey play fairway.
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Paloma area stratigraphic column
The petroleum potential at Paloma is not restricted to only the Monterey Formation however,
as historically there are four hydrocarbon reservoirs that have been developed in the area:
Etchegoin Formation sands (gas), Symons Formation (oil and gas), Paloma Sands (oil and gas),
and Lower Stevens Formation (Oil and Gas).
1939
7.5Ma “Paloma Sands”
Paloma Field
Outline
1942
6.3Ma “Symons
Sands”
1934
2-5Ma Shallow Gas sands –
Etchegoin / San Joaquin Fm & a
few 7.5Ma Paloma Sand oil
wells
1973
8.2Ma “Lower
Stevens Sands”
1959
2-5Ma Shallow Gas
sands – Etchegoin /
San Joaquin Fm
Paloma Oil Field: Historic production by reservoir
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Reservoir and production parameters of the four main reservoirs are summarised in the table
below:
Reservoir
Ethchegoin Sand
Symons Fm
Paloma Sand
Lower Stevens
Approx. Depth ft.Oil Gravity
degrees API
4,650
N/A
11,400
37-60
10,150
35-55
11,500
36-47
Water
Saturation
30-48%
40-45%
48%
50%
Gas Oil Ratio
N/A
8,200 – 11,200
1,200 – 7,000
4,700
Gas Produced
Bcf
23.0
8.5
415.0
7.5
Oil Produced
MMBBLS
0.0
0.5
58.5
2.0
The hydrocarbon trapping mechanism at Paloma is a combination of structural and
stratigraphic elements, with individual sand units constrained by permeability barriers that
limit the areal extent of the hydrocarbon pools over the four-way-dip, NW-SE trending
anticline that defines the Paloma field structure. The unconventional reservoirs such as the
Lower Antelope are not constrained in this manner and potential therefore exists over the
entirety of Neon’s acreage position.
Summary
Drilling and testing of the Paloma Deep prospect has confirmed the existence of producible oil,
condensate and gas in the Lower Stevens, Fruitvale Shale and Lower Antelope Shale within
Neon’s Paloma acreage. Additional potential exists for hydrocarbons to flow from the
Etchegoin/San Joaquin gas sands, the upper Antelope oil shale, and the Paloma oil sands; all of
which have yet to be tested.
Neon is greatly encouraged by the project’s upgraded potential for commerciality, as evidenced
by the decision to proceed immediately with the drilling of the Paloma Deep-2 and Paloma-3
wells. The new information acquired during ongoing testing of the Paloma Deep-1 well will
serve to refine the resource assessment model for the Lower Antelope Shale, while Paloma
Deep-2 will test the areal extent of the resource and acquire reservoir cores in order to better
understand reservoir character and thus the potential for commerciality.
Results achieved to date are consistent with Neon’s pre-drill estimate of the resource potential
of the project, and in the event of appraisal success Neon will commission a third party expert
to certify “P1” reserves for the conventional zones and to provide an independent Contingent
Resource estimate for the unconventional zones as a precursor to development.
The Company looks forward to providing further updates as key milestones are reached.
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