The 2016 work programme for Shoats Creek, in which Northcote Energy Ltd (LON:NCT) and Red Rock Resources PLC (LON:RRR) have interests, has been finalised.
The agreed work programme on the field, which is located in Louisiana, USA, is focused on growing production and adding high-grade potential locations.
The 2016 work programme is as follows:
Drilling and completion of three new producing wells will be drilled to a targeted depth of 5,500 feet to test multiple Frio sands at around 5,000 feet
Re-entry of and installation of equipment to support production from one existing Cockfield well
Re-entry and conversion of an existing well bore to a second salt water disposal well (in addition to the Lutcher Moore 15 well) to provide for expanded capacity and redundancy to the existing salt water disposal well
Negotiation of a natural gas contract and installation of necessary equipment to permit sales of natural gas
Leasing of an additional 500 to 700 gross acres to expand the project area and provide additional prospective drilling locations
Additional geophysical and engineering work to high-grade existing and new Cockfield locations in anticipation of including Cockfield drilling in the 2017 work programme
Drilling of the Lutcher Moore 21 well (LM 21) has been set for on or around May 16, 2016.
Meanwhile, Shoats Creek Development Inc (SCDI), the operator of the field, has submitted authorisations for expenditure (AFEs) for the following works:
Pad site preparation, drilling and completion of the LM 21 and Lutcher Moore 22 (LM 22) wells, which are to be drilled consecutively
Lease, environmental and permitting costs associated with preparation to drill the Lutcher Moore 23 well in the autumn of 2016
Re-entry and conversion of the LL&E 1 well to salt water disposal, as well as miscellaneous costs associated with development and production of the Shoats Creek Field
Red Rock's net share of costs associated with these activities is around $495,132, which will be funded from the proceeds of disposals, cash flows, and cash resources.
Red Rock expects that at current oil prices and with a conservative production profile the net programme exposure will peak at around $393,000 in the second quarter of 2016 as project revenues come on stream.
Northcote's net share of costs associated with these activities has been estimated at $500,000, but including the impact of carried interests brings the net cash requirement down to around $300,000, all of which will be funded from existing cash resources.
“The projects on which we are focusing will drive production growth while achieving diversification from potentially five producing wells at Shoats Creek by year-end,” said Nortchote's managing director, Randy Connally.
“At the same time, additional geophysical and engineering work will be initiated to high-grade the Cockfield formation as we look to prepare to drill this formation. While we are excited about the results we have seen to date in the Frio formation, it is important to remember that the Cockfield is the backbone of most oil and gas development activity in this area and I believe in the long-run this will be the case for Shoats Creek Field as well," Connally declared.
Andrew Bell, chairman of Red Rock, said the company had been pleased with the results thus far from the Frio formation.
“We are excited that the opportunity is now being presented to participate equally in the deeper Cockfield formation, which has been the most significant oil and gas producer in this area and which we expect will be a key pay zone for Shoats Creek as well.
“The 2016 exploration programme at Shoats Creek constitutes bottom-of-the-cycle investment in inexpensive onshore US oil production taking advantage of the significant decline in development costs during the industry downturn. With a strong group of investors now in place, including our partners at Northcote Energy Ltd and Gulf Coast Western, Shoats Creek will be developed aggressively across multiple oil horizons and this will be a key component of the company's growth during the year, " Bell said.
Shares in Northcote Energy rose 26% to 0.06p in the first hour of trading while Red Resources' shares declined 2.6% to 0.389p.