The Chetopa project is a small, heavy oil project located two miles south of Chetopa, Kansas. The assets acquired include certain oil and gas equipment and a 100 percent interest in two oil and gas leases covering 392 acres. The land is undeveloped except for a 15 acre thermal project that includes 20 steam injector wells, 33 producer wells, a water well, a tank battery, steam generator and two transfer stations.
On June 13, 2007 the first truckload of oil was shipped from the facility to the Coffeyville refinery located 20 miles west of Chetopa and production is expected to reach approximately 300 barrels of daily production within the next 2-3 months. Produced oil has been sold for over 80 percent of West Texas Intermediate posted prices. During the next six months MegaWest will evaluate the drilling of additional steam injection patterns which may be funded from cash flow or available funds.
In subsequent months a new 15-acre parcel may be drilled and readied for steaming operations while the 15 acres steamed the previous year would be switched to a hot waterflood. Apart from the expense of drilling and completing ten new well patterns each year, all required surface equipment is already in place. Pumping equipment can be relocated each year, beginning in year 3. Following year 1, a decision will be made regarding whether to revise well pattern spacing by incorporating radially drilled laterals into the injector and producer well designs, thereby opening up more of the formation and improving steam injection and oil production characteristics.
The Chetopa Project provides a means for achieving early initial production at minimal expense while finalizing the demonstration project on the Deerfield acreage.
Historic Information:
The Chetopa project was originally assessed to acquire the surface equipment and steam generator at a discount for use in Missouri. However, the Company elected to refurbish the facilities and has commenced production. As part of the Chetopa acquisition, MegaWest is obligated to pay a net revenue interest up to a maximum of U.S. $750,000 on net revenues generated from the Chetopa project. The net revenue interest becomes payable only after the Company recovers 100 percent of its capital and operating costs, and will be paid quarterly from 25 percent of the project’s net revenues. As at October 31, 2007 no net revenue interest has been paid as the Company has not recovered its capital and operating costs.
The Chetopa Project was originally developed by Central Production Company (“CPC”). The Project developers ran out of funds in June 2005 prior to full start-up of the field. The Chetopa Project was originally assessed to acquire the surface equipment and steam generator at a significant discount for use in Missouri.
MegaWest USA entered into an asset purchase agreement with Deerfield Energy Kansas Corp. (“Deerfield Kansas”), a wholly owned subsidiary of Deerfield, in respect of the purchase of all of the assets of Deerfield Kansas in respect of the Chetopa Project. The purchased assets include certain items of equipment and fixed assets and interests in two oil and gas leases in respect of 392 acres. The purchase price for the assets was 250,000 restricted common shares in the Company's capital and the Company’s release of Deerfield from its obligations to the Company in respect of a promissory note in the amount of US$500,000.