The Kentucky Reserves project includes a 62.5 percent working interest in the shallow rights and an additional 37.5 percent working interest in the deep rights, in oil and gas leases totaling approximately 35,000 acres in the Edmonson, Warren and Butler counties of Kentucky.
To date, MegaWest drilled eight exploration wells. This drilling program was designed to validate the Company’s geological model and confirm the presence of commercial quantities of heavy oil resources. Core was recovered from each of the wells in this program, confirming the existence of the Tar Springs, the Hardinsburg and the Big Clifty sandstones. The core samples have been analyzed and show that the primary target (the Big Clifty sandstones) in the area of our proposed demonstration site has an average reservoir porosity of 15 percent, average net pay of 53 feet, with an average oil saturation of 45 percent, resulting in roughly 28,000 barrels of oil in place per acre. Based on these results, the Company has completed permitting and has initiated a second exploratory drilling program with the goal of finalizing the location for the first enhanced oil recovery demonstration project which will be called the Green River Phase I Project. The construction and commencement of thermal pilot project is planned to occur mid 2008. The Company has purchased a 50 million BTU/hr steam generator for this project.Historic Information:
MegaWest USA has completed the acquisition of all of the issued and outstanding membership units of Kentucky Reserves, LLC, whose assets include oil, gas and mineral leases located in the Edmonson, Warren and Butler counties in Kentucky, for the purchase price of US$3,000,000 and 5,000,000 restricted common shares. Ongoing leasing activities have increased the total acreage included under the Kentucky Reserves Prospect to just over 27,000 net mineral acres. MegaWest USA acquired a 62.5% working interest in the shallow rights (being all tar sands formations to the base of the Beech Creek limestone formation, including the Caseyville, Tar Springs, Hardinsburg and Big Clifty sandstones) plus an additional 37.5% working interest in the deep rights, which may be prospective for conventional oil or natural gas.
There are several sandstone bodies of Mississippian age in western Kentucky that contain significant volumes of heavy oil and bitumen. The main body is in the Big Clifty sandstone, which is estimated by the Kentucky Geological Survey to contain 2.1 Billion barrels of measured and speculative oil in place. Overburden depths vary from 0 to 600 feet.
Heavy oil is also found in the Mississippian Hardinsburg and Tar Springs sandstones as well as the Early Pennsylvanian Bee Springs sandstone that overlie the Big Clifty. These sandstones are estimated by the Kentucky Geological Survey to contain an additional 1.3 Billion barrels of measured and speculative oil in place.
A large number of wells have penetrated these sandstones, allowing the Kentucky Geological Survey to classify 1.7 Billion barrels of the total resource as “measured”. According to the report, “measured resource is defined as that part of the resource that can be deduced to exist from well control, primarily using core analysis.” 70 core analyses, 50 outcrop samples and 15 driller’s logs were used to define the measured resource. An additional three core analyses and 50 driller’s logs combined with additional outcrop information was used to define the speculative resource. These definitions and the methodology used are not in conformance with NI 51-101 definitions and are quoted for reference only.
The Big Clifty sandstone has an average porosity of 15%, permeability of 100 millidarcies and oil saturation of 40% to 75%. The oil saturations reported may indicate a degree of oil flushing during the coring operation, as the fluid saturations total less than 100%. Oil gravity has been reported to be in the range of 10 to 30 degrees API. Total sand thickness ranges up to 100 feet, though 40 feet is more typical in many areas.
The Hardinsburg sandstone occurs at a depth of 125 to 440 feet. The reservoir has an average porosity of 14% with permeability of 10 to 400 millidarcies and oil saturation of 40 to 70% with sand thickness up to 40 feet. Core analysis on the Tar Springs Sandstone shows average reservoir properties of: porosity 20%, permeability 100 millidarcies, oil saturation 25 to 58%, and oil gravity of 14 to 17 degrees API. In central Edmonson County, the Caseyville Sandstone is deposited in two bodies with a total thickness of up to 200 feet.
The first known plant designed to recover bitumen from sandstone was built in Grayson County in 1891. In the early 1900’s several companies mined the Caseyville and Big Clifty for paving material. Forward in situ combustion was tested in Edmonson County by Gulf in 1959 to 1960, demonstrating recovery of 54% of the bitumen in place. Sunset Petroleum tested the Big Clifty with an in situ process in 1969 which was reported to be successful, but technical results were not published. Other mining and separation projects were tested from 1974 to 1981. Westken Petroleum tested steam pre-heat followed by wet forward in situ combustion in 1981, in which they projected recovery of 50% of the oil in place. Current oil prices coupled with today’s production technologies may now allow for commercial production.
MegaWest Energy will fund a work program over the next 30 months covering the first US$15,000,000 of exploration, testing and development expenditures on the Kentucky Reserves Project to prove commercial recovery of the heavy oil contained in the leases. Technical evaluation is underway to create a development plan that will include delineation and core hole drilling, evaluation and selection of a process or processes to test on the resource, and the design and implementation of a demonstration project followed by commercial development of the acreage.
