The Chetopa project is a pre-commercial heavy oil demonstration project located two miles south of Chetopa, Kansas. The project is currently suspended, and includes certain oil and gas equipment and a 100 percent interest in two oil and gas leases covering 385 net mineral acres. On 15 of these acres are 20 steam injection wells, 33 production wells and a water disposal well, all of which had been drilled, completed, equipped and tied in for production at the time the Company acquired the project. A tank battery, steam generator and two transfer stations are also in place on the property.
While the Chetopa project was in operation, 11,561 barrels of oil were sold to the Coffeyville refinery located twenty miles west of Chetopa which resulted in $804,997 of oil sales, net of royalties. The price received for the oil produced from the project was 80 percent of the NYMEX benchmark price of oil.
The Chetopa project was originally purchased to acquire the surface equipment and steam generator at a discount for use in Missouri. However, the Company elected to refurbish the facilities and on June 13, 2007, the first truckload of oil was shipped from the facility. Substantial downtime was experienced with the equipment and the Company has suspended operations indefinitely. The Company has drilled five exploration wells around the Chetopa project, and will continue to further evaluate the application of alternate recovery technologies to the reservoir.
The Company is obligated to pay a net revenue interest up to a maximum of US$750,000 on net revenues generated from the Chetopa project. The net revenue interest becomes payable after MegaWest recovers 100 percent of its capital and operating costs, and will be paid quarterly from 25 percent of the project's net revenues. To date, no net revenue interest has been paid as the Company has not yet recovered its capital and operating costs.
(Information updated to September 12, 2009)