The Kentucky lease holdings include a 37.5 percent working interest in the shallow rights (above the base of the Beech Creek limestone formation) and in the deep rights on over 29,000 unproved net mineral acres in Kentucky.
Eight exploration wells drilled at various strategic locations on the Kentucky land in fiscal 2008 provided confirmation of the commercial prospectivity of three Mississippian heavy oil pay zones found at depths of 200-600 feet from surface. A number of potential project locations have been identified, and the first location has been appraised with four delineation wells. A steam drive enhanced recovery project has been designed and permit applications have been submitted for this location. Certain equipment and long lead items have been purchased; however, the start-up of this project will be delayed until there is more certainty regarding the availability of project funding.
As part of the acquisition of the Kentucky area, MegaWest was obligated to spend U.S. $15,000,000 by October 2009. In the event MegaWest did not complete this work program or re-negotiate the obligation, the Company was obligated to pay 37.5 percent of the unspent balance to its joint venture partner. To April 30, 2009, MegaWest had spent $4.9 million of this commitment. Pursuant to an amending agreement, the work program obligations and the penalty payment provisions were terminated. In return, MegaWest reduced its working interest in the shallow rights from 62.5% to 37.5%, transferred operatorship of the leases and prepaid the next 24 months lease rentals.
(Information updated to September 12, 2009)
Historic Information:
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.
