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SUGARLOAF PROSPECT (20%-10% AFTER FARM-OUT)

 

Background

The Sugarloaf Area of Mutual Interest (AMI) comprises a lease area of over 23,500 acres (93 square kilometres) in west Texas. This area falls entirely within a broad 200,000 acre area known as the Sugarkane Field which is prospective from the combined Austin Chalk and the Eagle Ford Shale.

The Sugarkane area is defined by regional analysis of drilling results, hydrocarbon shows and wireline log interpretation from adjacent wells. The Sugarkane discovery well located 6.6km west of Sugarloaf-1 has been producing gas and condensate steadily from a vertical well since 2006 and several nearby horizontal wells have since been successfully tested following strong hydrocarbon indications while drilling.

The Sugarkane Field in turn is part of an extensive broad linear fairway - the Eagle Ford Shale trend. Over the last 6-12 months, the leasing of land, exploration and production activity on this trend has increased dramatically which is now emerging as one of the most active shale plays in the USA.

  • The rocks comprising the Eagle Ford shale, and where present, the Austin Chalk, are gas and condensate saturated across a wide area. The resource size is therefore very large.
  • Multi-stage fracs (10 – 20 individual fracs) applied over >3,000' of horizontal hole yield the best initial rates and overall recoveries.
  • Hydrocarbon recovery per well is typically in the range of 5 – 6 BCFe but can be significantly more in geological sweet spots or when liquid yields are high. Recent wells drilled in the Sugarloaf area tested at initial rates of up to 2,046 bcpd and over 5 mmscf/d - representing excellent initial rates which confirms productivity and the high liquids yields in the area.
  • There is intense competition for land with both major and mid-cap companies seeking liquids rich resources plays such as the Eagle Ford, with long-term stable cash-flow.

 

Sugarloaf AMI

Since 2007/08 the Sugarloaf AMI joint venture had drilled three horizontal wells (Kennedy, Kowalik and Weston) and had produced from two of them, albeit at reasonably low rates given that these wells had not been fracture stimulated as successfully proven in other wells along this trend.

During late 2009 Adelphi and its Sugarloaf AMI partners announced that they had farmed out half of their respective interests in the Sugarloaf AMI to Hilcorp Energy Company (Hilcorp) via TCEI in return for a significant farmin work program.

Hilcorp is the 4th largest private exploration and production company in the USA and has considerable operating experience. In early 2010 Hilcorp took over the operatorship of the Sugarloaf AMI from Texas Crude Energy, Inc.

The farmin work program, which commenced in December 2009, involved the recompletion and multi-stage fracing of the three existing Sugarloaf AMI wells; Kowalik - 1H, Kennedy - 1H and Weston - 1H. In addition, three new horizontal wells have also been drilled since (Easley, Morgan and Rancho Grande). Interest is being earned by Hilcorp progressively across parts of the Sugarloaf AMI only as each element of the farmin work program is undertaken and completed.

In addition to the Sugarloaf AMI farmin program, Hilcorp has committed to farmin to adjacent or nearby lease acreage located within the broad confines of the Sugarkane Field for a total of 10 new wells. As a result, there is currently a significant ongoing program of drilling and testing activity in the immediate region of Adelphi's Sugarkane Field leases.

Following completion of the farm-in work program by Hilcorp which involves an agreed cost recovery mechanism, Adelphi will hold a 10% interest across the whole 23,700 acre Sugarloaf AMI.

As at early June 2010, the farm-in program is nearing completion, with the full scale development program across the Sugarloaf AMI expected to commence during 2010/11.

Please refer to Adelphi's ASX releases for latest details on operations and production results.