Emerald Oil & Gas

USA Projects

Appalachian Basin - Geology and Exploration History

The Appalachian Basin in Eastern USA has had a long history of hydrocarbon production, and contains many of the oldest oil & gas fields in the world. This Basin extends from New York State (Northeast) to Alabama (Southwest) a distance in excess of 1,000 kilometres, and contains over 1,000 named fields within the Basin.

Map of the Appalachian Basin showing the extent of Devonian Shales
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The Appalachian Basin still remains an important part of the USA domestic petroleum industry today, with thousands of producing oil & gas wells. The main focus for many years in the Appalachian Basin has been natural gas with the majority of wells targeting shallow, low risk, blanket-type pay zones at depths above 5,000 feet depths. Some factors contributing to the continued interest & success in this Basin are:

Low geological risk due to multiple, geographically extensive, gas bearing formations
Premium gas prices due to proximity to largest eastern USA population centres (low transportation charges) and high heating value (8-10% premium over Henry Hub prices)
Shallow depths to reservoirs resulting in short drilling times and lower costs.

P&J Resources’ acreage is located in Magoffin County, Kentucky and Wayne County, West Virginia.
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Emerald's areas of interest in the Appalachian Basin are in Eastern Kentucky (Magoffin County) and Southwestern West Virginia (Wayne County). Wells in Emeralds Appalachian areas of interest in typically intersect combinations of several areally extensive gas bearing zones, including the Mississippian Berea Sandstone, the Devonian Shales including the “Marcellus” Shale, Devonian/Silurian Corniferous limestones, the Silurian Big 6 sandstone, and the Ordovician Trenton/Black River. This provides a very low geological risk environment for drilling and an opportunity for multiple zone completions in individual well bores.
However, individual well production rates in Emerald's area of interest are characteristically low. Most of the productive gas formations (with the exception of the Devonian shales in some areas) are depleted to some extent and reservoirs generally exhibit moderate to low permeability, with a "good" producer typically being capable of several hundred Mcfd. Gas production is dry, with no liquid hydrocarbons or formation water produced. Well spacing typically varies between 20 acres and 40 acres, depending on reservoir characteristics

Oil & Gas Leases

Mineral rights in the USA are generally freehold rights, held by the land owner. In the Appalachians these are usually individual local farm owners.
Typical oil and gas lease agreements in the USA provide for the payment of royalties to the mineral owner for all natural gas and oil produced from any well(s) drilled on the leased properties. In the Appalachians this amount is typically 12.5%, resulting in a 87.5% Net Revenue Interest (NRI) available to the gas producing parties.
Because the acquiring oil and gas leases is competitive and involves certain geological and business, leases are often held by operators who aggregate a number of leases into larger holdings. For Companies like Emerald to gain access to these leases, farm-in agreements are entered into, where the farmee pays an additional overriding royalty interest (ORRI) to the farmor, which further reduces the NRI.
In the case of Emerald's Appalachian dealings, an additional 1/16 ORRI is reserved to the Operator (P&J Resources) or other parties, leaving an 81.25% NRI. Emerald's NRI with an 80% WI would therefore be 65%.
Field Operations
The Appalachian area consists of very rugged topography and field access depends on the condition of dirt roads, which become impassable in very wet weather. Consequently, field operations are seasonal, with heavy rain restricting site access for extended periods during late autumn, winter and early spring and limiting well site access.

Flash Flooding in Kentucky
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Kentucky Gas Development Activities
During 2009 Emerald commenced an 8 well re-completion program and secured access to 100+ existing gas wells on P&J’s 45,000 acre lease holdings in Magoffin County for future re-completion under agreements recently concluded with P&J Resources. Re-completing existing wells gives Emerald the ability to build production and cashflow more quickly and at much lower cost than by drilling new wells.
Key terms of these agreements is as follows:

Emerald selects wells from over 100 shut in gas wells on P&J acreage, with multiple gas zones and open hole completions.
Emerald pays 100% of the well re-completion cost to earn an 80% Working Interest (WI) in a well unit consisting of 500 ft radius around the well (the WI applies to an 81.25% Revenue interest resulting in a 65% NRI)
Emerald retains a 100% WI in the gas production until well costs are recovered, resulting in a 75% NRI to well payback
P&J conducts specified well operations, e.g. case, perforate and well stimulation treatments, such as hydraulic fracturing, under lump sum turnkey arrangements,.
Emerald carries no technical risk, as P&J has agreed to replace any unsuccessfully re-completed well.
Emerald is granted free access to the BTU Pipeline Inc. gas gathering system, which connects to the Jefferson Gas LLC sales gas pipeline.
BTU Pipeline Inc. then sells Emerald’s gas under a gas sales agreement between BTU and Jefferson and pays Emerald for the gas sold, three months in arrears.

Emerald's intention is to rapidly increase gas production and cash flow under the well re-completion agreements, by selecting and re-completing the best re-completion candidates based on detailed sub-surface studies underway in its Perth offices. Reserves per well are modest under the Well Re-completion Program, due to the 500 foot radius well unit around each well - approximately 20 acres. Initial proved reserves estimates per well for the initial 8 wells range between 120 and 165 MMscf. However, Emerald plans to secure a substantial reserves base in Kentucky through the Drilling and Operating Agreement Emerald with P&J Resources Inc.

Well Head Pressure
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Reserves Drilling
In May, 2008, Emerald signed a Drilling and Operating Agreement with P&J Resources Inc to allow drilling access to two lease areas of approximately 45,000 acres each in Wayne County, West Virginia and Magoffin County, Kentucky. The P&J acreage covered by the Re-work Program in Kentucky is the same 45,000 acres which applies to this agreement.
Under the agreement, Emerald has the right to earn an 80% WI in each well drilled for paying 100% of the costs to drill and complete the wells. Emerald earns its interest in each well plus a 4,000 foot radius area around the well. This is equivalent to approximately 1150 acres or approximately 30 well locations on 40 acre spacing. This provides Emerald the potential for over a 1000 well program in both Kentucky and West Virginia over the 10 year term of the agreement.
Under the agreement, P&J drills and completes wells on a turnkey basis and agrees to re-drill any non-commercial wells, solely at their cost. This effectively ensures a commercial gas well for every well drilled and eliminates any technical well risk for Emerald.
Initial reserves estimates from the first two Emerald wells drilled in West Virginia under these agreements during the past year indicate proved plus probable reserves of 2.3 BCF per well, based on the well drilled and four contiguous offset well locations. Possible reserves between 400 and 500 MMcf per well are estimated to be recoverable from the additional 24 well locations earned under the agreement with each well drilled. Each well drilled under the agreement therefore provides the opportunity to secure gas reserves ranging between approximately 10 Bcf to 15 Bcf.
Kentucky Production Infrastructure
During 2009, Emerald acquired a 50% interest in an amine plant from P&J Resources Inc. This gas treatment plant is designed to dehydrate gas and remove sulphur compounds from 5 MMscfd. This additional gas processing capacity is expected to be required to handle increased gas dehydration requirements from the current 8 well re-completion program and from future additional Emerald wells to be re-completed and drilled under agreements with P&J. The Amine plant is also expected to provide Emerald with a revenue stream from gas processing tariffs from third parties needing to treat their gas to sales pipeline specification.
Activities are ongoing to commission an 8 inch gathering line connecting Emerald's interest areas to a Columbia Gas Trunkline tap. This will provide access to a premium gas market for Emerald's gas in Kentucky and is expected to be operational by early 2010.
Gas production
Appalachian gas production in Emerald's areas of interest has to date been characterised by low cost wells with rudimentary open hole completions and simple producing infrastructure. No company to date has applied significant geological insight or petroleum engineering capability to gas field development, well completions or production operations in this area.
Emerald sees the ability to identify and exploit areas with high productivity and high remaining reserves as a differentiating competitive advantage in this area. Detailed regional sub-surface studies are underway to identify areas of P&J’s acreage in Magoffin County with demonstrated high production potential and large remaining gas volumes. Guided by these studies, Emerald intends to work with P&J under the agreements to identify:

Existing wells with relatively highest production potential for re-completion to rapidly build gas production and generate cash flow
Drilling locations with relatively high remaining gas in place and high likely production potential to secure reserves and development drilling locations
Additional acreage for potential acquisition by P&J and inclusion under the agreements.

West Virginia Gas Development Opportunity
Emerald drilled two wells in Wayne County, West Virginia during July and August 2008 - Crum #4 and Chiarenzelli #1. These wells were drilled under the Drilling and Operating Agreement with P&J Resources Inc. to total depths of 5230 feet and 5235 feet respectively, both terminating in the Trenton formation. The wells were drilled as gas producers, but were drilled considerably deeper than locally produced formations to assess gas prospectivity in deeper zones. Gas bearing completion intervals were identified in the Onondaga limestone, Devonian Shales (Marcellus, Rhinestreet and Ohio members) and Berea sandstone. Both wells are cased and awaiting completion.

Drilling rig on location at Chiarenzelli 1 well site, Wayne County West Virginia.
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North West Alice - Jim Wells County,Texas
The Northwest Alice discovery is located in central Jim Wells County and covers approximately five square miles in a NE-SW trend from three miles west to five miles north of the town of Alice, Texas.

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Regional Geology:
This discovery is the northern extension of a NE-SW Yegua gas trend, with several significant Yegua Gas Fields such as Ben Bolt, Braman, Starr Brite, Los Rubios and Four Sevens. These fields, in Jim Wells and Duval counties, have produced gas and condensate from all of the Yegua sands, but the two primary producing reservoirs are known locally as the Y-15 (Middle Yegua) and the Y-21 (Lower Yegua) sands. These sands are low-energy shelf deposits that have an average thickness of fifteen feet. These are blanket sands that exhibit lateral porosity and permeability variations.

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Potential Reserves:
The reserve estimate for the Northwest Alice Prospect is 100 BCF gas and 2.5 million barrels of condensate. This was derived by using a structure size of 3,200 acres with an average of 41 net feet of pay per well with a recovery factor of 750 mcf/Ac.Ft. with a liquids yield of.
Project Status:
The NW Alice discovery is an undeveloped gas field in Jim Wells County, Texas, consisting of a large anticlinal structure containing 95 Bcf P3 gas reserves and 2.4 MMbbl P3 condensate reserves (25 bbls/MMcf).
The discovery well, RJ Hunter #1 (Emerald 10% WI), was drilled in March 2007 to a total depth of 8500 feet. The well intersected 50 feet of net pay containing gas/condensate in two main gas bearing zones and smaller intervals in the Upper and Lower Yegua sands. Unfortunately, the wellbore casing collapsed on perforating the Lower Yegua, so no flow test was possible and the flow test from the upper Yegua was not definitive. After drilling, the well was suspended, pending a 3D seismic survey to better define the structure for follow-up appraisal wells.
During 2008, Noble Energy, the Operator, acquired, processed and interpreted a large 3D seismic survey, which included the NW Alice Joint Venture's Area of Mutual Interest (AMI), consisting of more than 2500 acres under lease in the 11.9 square AMI. Three potential appraisal locations were identified in the AMI area on the basis of the 3D seismic interpretation. At the end of the reporting period, Noble had acquired a number of additional leases within the AMI area and was in discussions with land owners for land access for the preferred appraisal well location. The Joint Venture parties are currently considering the appraisal strategy for the field.
Notional forward plans are to appraise the NW Alice field with up to three wells, which would be drilled as potential gas producers wells, and then to commence an initial 10 well development based on the information acquired from the wells. Separately, plans are also being considered to re-enter, sidetrack and complete the RJ Hunter #1 Discovery well as a gas/condensate producer. Analog wells from offsetting fields have average characteristics as follows:

2 MMcfd average initial production rate
2.5 Bcf gas & 60,000 Bbl condensate recovered per well
Approximately 15 year production life

USA Exploration

Emerald continues to review and assess new oil and gas exploration project opportunities in the USA, particularly targeting high quality, low risk oil opportunities.