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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. In recent months, the leasing of land, exploration and production activity on this trend has increased dramatically which is now emerging as one of the more 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 appear to 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. ConocoPhillips recently announced that its Bordovsky #1H well located ~30km northeast of the Sugarloaf #1 well tested at 4 MMCFGPD at 1,500 BOPD – an excellent initial rate which further 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

The Sugarloaf AMI joint venture is operated by Texas Crude Energy, Inc (TCEI), a private Houston based company with a strong focus on appraising and developing this new Austin Chalk/Eagle Ford trend.

Since 2007/08 the Sugarloaf AMI joint venture had drilled three horizontal wells (Kennedy, Kowalik and Weston) and has produced from two of them, albeit at reasonably low rates given that these wells have yet to be 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.

The farmin work program, which commenced in December 2009, involves the recompletion and multi-stage fracing of the three existing Sugarloaf AMI wells; Kowalik - 1H, Kennedy - 1H and the Weston - 1H. In addition, up to three new horizontal exploration wells will be drilled. Interest will be 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 will be 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 23,500 acre Sugarloaf AMI.