November 18, 2009
Calgary, Alberta; November 18, 2009 – MegaWest Energy Corp., (the “Company” or “MegaWest”), provides an update of operations on its Marmaton River (“Marmaton”) and Grassy Creek (Grassy”) steam injection – heavy oil production Projects in the Deerfield Area of western Missouri, USA.
The Company announced in August 2009 that it had raised funding in the amount of US $4.2 million when it completed the sale of a 10% working interest in the Deerfield Area for proceeds of US $2.0 million and, as well, it had sold Series A convertible preferred shares which yielded US $2.2 million before expenses of the offering. After the oil price recovery in late summer, a portion of these funds were used to re-start steam injection operations at Marmaton and Grassy.
Subsequent to the re-start of steaming operations in mid September 2009, MegaWest is very pleased to announce that it has shipped over 2,000 barrels of crude oil from its Marmaton Project. This makes for a total of more than 10,500 barrels of oil sold since the inception of the Project in March 2008, including 8 months of time shut in during low oil prices in 2009. A summary of activities in the Deerfield area of Missouri follows:
Marmaton Operations:
The Marmaton Project is approximately 100 miles south of Kansas City and 6 miles east of the Missouri/Kansas border. After recommencement of steaming operations, production from the 40 producing wells and 13 steam injection wells in Phase 1 of the Marmaton project has responded favorably as follows:
| Seven Days Ending | Seven Day Moving Average Production Barrels Oil per Day (BOPD) |
|
| September 10 | Initiation of steam injection | |
| October 10 | 22.2 BOPD | |
| November 10 | 108.0 BOPD | |
| November 17 | 125.9 BOPD |
Management is very pleased with the production results so far. The initial production rate profile appears to be closely following engineering projections.
Phase 1 of the Marmaton Project has been developed in approximately 0.75 acre hexagonal honeycomb patterns where each pattern consists of 6 production wells surrounding a single steam injection well. The oil bearing zone is approximately 30 – 35 feet thick at a depth of 200 – 230 feet below the surface. The Company has also drilled 24 additional production wells and 10 additional steam injection wells under a Phase 2 expansion program on the Marmaton Project. These wells are in the process of being equipped and tied in to steaming and production facilities. Under Phase 2, adjacent acreage is developed in the same way using one-acre hexagonal honeycomb patterns. The oil produced is 16-18 degree API gravity which is sold under a spot contract for approximately 80% of NYMEX West Texas Intermediate pricing. It is anticipated that peak production for Phases 1 and 2 of the Marmaton Project will reach approximately 500 BOPD in the June to September 2010 period. Management expects to recover approximately 300,000 barrels of oil from the wells currently drilled for both phases on this project. Drilled, completed, equipped and tied in cost of each production well is approximately US$25,000. The total cost for each steam injection well is approximately US $15,000.
The development area at Marmaton (64 production wells and 23 steam injection wells) covers approximately 20 acres of land adjacent to the Marmaton steam generation facility. Over the next 15 – 20 years, the Company plans to drill additional production and injection wells on lands surrounding the existing steam generation facility to maintain the target production rate of 500 BOPD. The Company has 190 acres of adjacent contiguous land prospective for oil production at Marmaton.
Grassy Operations:
In late 2008, MegaWest finished construction of the steam generation facility at Grassy Creek Phase 1 (approximately 3 miles southeast of the Marmaton Project) and drilled, equipped and tied in 46 production wells and 15 steam injection wells. The plant and facilities were tested and determined to be ready to commence steaming operations in December 2008 at the time that the Company decided to shut in all operations due to very low crude oil prices. In mid September 2009, with the recovery in world crude oil prices and the new financing discussed above, the Company started to generate and inject steam at Grassy Phase 1.
Phase 1 of the Grassy Project has been developed in approximately 1.25 acre patterns where each pattern consists of 6 production wells surrounding a single steam injection well. Grassy is developed with wider inter-well spacing than Marmaton because the oil bearing zone is thicker at Grassy and it is expected that steam will sweep and heat the formation more efficiently with wider spacing. Grassy Phase 1 has been developed using hexagonal honeycomb patterns similar to the Marmaton field. The oil bearing zone is approximately 40 - 60 feet thick at a depth of 200 – 260 feet below the surface. Drilling costs at Grassy are similar to those at Marmaton.
Initial results appear favourable with steam injection rates on target and the temperature observation well showing good underground steam distribution. MegaWest has seen good early indications of oil production on this new project. It is anticipated with existing steam injection equipment that peak production for the Grassy project will reach approximately 400 - 600 BOPD in the June to September 2010 period. Management expects to recover approximately 300,000 to 400,000 barrels of oil from the wells currently drilled on Phase 1 of this project.
The development area at Grassy (46 production wells and 15 steam injection wells) covers approximately 20 acres of land adjacent to the Grassy steam generation facility. MegaWest has an additional 370 acres of contiguous land prospective for oil production surrounding Grassy. As with the Marmaton project, the Company plans to drill additional oil production and steam injection wells at Grassy in the future to maintain the projected production rate of 400 – 600 BOPD for 15 to 20 years.
Deerfield Area Summary:
Including lands at Marmaton, Grassy and other parcels held by MegaWest in the Deerfield area, full development could result in 22 additional projects of similar size to the Marmaton and Grassy Projects. Management is currently planning additional delineation drilling to confirm the extent of the oil bearing sands in this area. MegaWest has an inventory of 6 steam generation facilities that will be used to accelerate the development of the Deerfield area.
The anticipated total capital cost over the expected life of the Deerfield development including well costs, steam generation facility costs and production facility costs is expected to be approximately US $10 - $12 per recoverable barrel.
Lands in the Deerfield area are owned 90% and operated by MegaWest. The lands are subject to freehold lessor plus gross overriding production royalty payments totaling from 12.5% to 15.5%. The Company’s partner has an option to increase its interest in the Deerfield area from 10% to a total of 20% at the time of future expansion by paying MegaWest a US $300,000 equalization fee per steam plant plus a 20% share of all future drilling and development costs in the option area.
MegaWest has a very large land base in its core areas as well as other land holdings that have potential for future growth for the Company. A summary of the Company’s land holdings follows:
MegaWest Land Holdings at October 31, 2009:
| State | Working Interest | Gross Acres Held | Activity and Prospects | |||
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| Missouri/Kansas | 96.03% | 38,500 | Heavy oil development & exploration | |||
| Kentucky | 37.50% | 29,100 | Heavy oil exploration | |||
| Montana | 50.81% | 26,700 | Heavy and light oil exploration | |||
| Other | 39.75% | 29,500 | Other exploration | |||
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| Total | 59.11% | 123,800 | ||||
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| Area | Working Interest | Gross Acres Held | Activity and Prospects | |||
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| Deerfield | 90.00% | 15,300 | Steam injected heavy oil development | |||
| Clear Creek | 100.00% | 18,800 | Heavy oil exploration | |||
| Osage | 100.00% | 4,400 | Heavy oil exploration | |||
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| Total | 96.03% | 38,500 | ||||
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At April 30, 2009, 10,100 acres out of the 15,300 acres of the lands in the Deerfield area were assigned 14.2 million barrels of P50 Contingent Resource plus 31.1 million barrels of P50 Prospective Resource by MegaWest’s independent reserves evaluators. (Refer to MegaWest July 15, 2009 news release for reserves data and definitions.)
MegaWest is a publicly traded independent oil and gas company (OTC BB: MGWSF), specializing in non-conventional oil and gas projects with a focus on North American heavy oil. The Company has a strong balance sheet with no net debt at October 31, 2009.
FOR FURTHER INFORMATION PLEASE CONTACT:
R. William (Bill) Thornton, President and COO Kelly D. Kerr, Vice President Finance and CFO |
Suite 800, 926 – 5th Avenue SW |
Forward-Looking Statements
This press release contains forward-looking information and statements including opinions, assumptions, estimates and expectations of future employee retention. Forward-looking statements include information that does not relate strictly to historical or current facts. When used in this document, the words “anticipate”, “believe”, estimate”, “expect”, “forecast”, “intent”, “may”, “project”, “plan”, “potential”, “should” and similar expressions are intended to be among the statements that identify forward-looking statements. Forward-looking statements are not guarantees of future performance and are subject to a wide range of known and unknown risks and uncertainties, and although the Company believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will be realized. We have attempted to identify important factors that could cause actual results, performance or achievements to vary from those current expectations or estimates expressed or implied by the forward-looking information. The risks and uncertainties that could affect future events or the Company's future financial performance are more fully described in the Company's quarterly reports (on Form 6-K filed in the US and the financial statements and Form 51-102F1 filed in Canada), the Company's annual reports (on Form 20-F filed in the US and the financial statements and Form 51-102F1 filed in Canada) and the other recent filings in the US and Canada. These filings are available at www.sec.gov in the US and www.sedar.com in Canada. For all such forward-looking statements, we claim the safe harbour for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.