The Missouri lease holdings include a majority interest in 38,119 unproved net mineral acres of leases. These leases are grouped into three areas:
Deerfield Area
In the Deerfield Area, MegaWest has built two 500 barrel of oil per day steam drive production facilities (Marmaton River and Grassy Creek), drilled 51 exploration/delineation wells with an 86% success rate and completed 148 development wells.
It is anticipated that each of the existing projects could develop 250 to 300 acres of leases over their 25 to 30 year project life. Additional drilling phases on each of these projects will be necessary to maintain target production rates. It is further anticipated that a number of additional projects of similar design and size may be drilled and constructed across MegaWest’s Missouri lease holdings.
Marmaton River Project
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March 19, 2008
(39 Slides)
Marmaton River
The Marmaton River project area spans 215 gross acres and comprises 13 steam injection wells, 40 producing wells, one water source well and one water disposal well on approximately 10 acres. A steam generation and oil treating plant with a throughput capacity of 500 barrels of oil per day has been constructed on site. Commissioning and start up of the facility was completed on March 16, 2008 when steam injection commenced. First oil sales from the project occurred on August 4, 2008. During fiscal 2009 the Company sold 8,812 barrels of oil for $426,567, net of royalties. Prior to operations being suspended in December 2008 due to then-prevailing economic conditions, the Marmaton River project was producing up to 100 barrels of oil per day, which exceeds the numerical simulation prediction for that point in time. The simulation predicts that the field will achieve over 300 barrels of oil per day from the initial 40 producing wells and rates can be increased by bringing the additional drilled acreage into production. The wells for the second production phase, consisting of 10 injection wells and 24 production wells on approximately 10 adjacent acres, are drilled and awaiting tie-in. The remaining project acreage will be drilled in approximately 10 acre increments in future years to extend the project life and maintain the target production plateau over its expected 25 year project life.
Based on the funding and operating agreements with ICO Fund, Investors and MP1 (August 28, 2009), MegaWest has recommenced operations at Marmaton River and initiated tie-in of the Phase II wells effective September 4, 2009. Steam injection recommenced on 9/12/09.
Grassy Creek Project
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Ocober 21, 2008
(30 Slides)
Grassy Creek
The Grassy Creek steam drive project was completed on budget and on schedule on October 15, 2008. This project has a steam injection and production treating plant similar to Marmaton River with a design capacity of 500 barrels of oil per day. Phase I of the project consists of 46 production wells, 15 injection wells , 2 observation wells and 2 service wells on approximately 19 acres. Since Grassy Creek had commenced steam injection in late October, it was not yet producing significant quantities of oil when steaming operations were suspended in December, 2008 due to then-prevailing economic conditions. Early steam injection results indicate that this portion of the reservoir may respond more effectively to steam drive than Marmaton. The remaining project acreage will be drilled in approximately 10 acre increments in future years to extend the project life and maintain the target production plateau over its expected 25 year project life.
Based on the funding and operating agreements with ICO Fund, Investors and MP1 (August 28, 2009), MegaWest has recommenced operations at Grassy Creek effective September 4, 2009.
Clear Creek Area
MegaWest has reached an agreement with Electro-Petroleum, Inc. (“EPI”) to evaluate the testing and potential commercial application of its proprietary Electrically Enhanced Oil Recovery (“EEOR”) technology for recovery of oil from the Clear Creek Area of the Company’s Missouri leases. Successful application of this technology will add significant resources and reserves to the Company on these leases which are currently not accessible using steam drive technology.
EEOR involves passing direct current electricity between electrodes in producing wells and electrodes either located at surface or in the oil zone in adjacent wells. Previous laboratory and field tests appear to demonstrate that the resulting electrical field has three operating mechanisms: i) Resistance or joule heating (formations have been heated to several hundred degrees Fahrenheit); ii) Electro-kinetic effect (enhanced pressure gradient toward the producing well); and, iii) Electro-chemical effect (large molecules are degraded to smaller molecules by way of oxidation and reduction reactions resulting in a crude oil having higher gravity and lower viscosity).
MegaWest and EPI have jointly undertaken the review and design of a demonstration project for the EEOR process. Favorable results from the feasibility study could lead to the commencement of demonstration project construction during the fourth quarter of 2009 with operations to follow immediately. The cost of the demonstration project will be borne by EPI, with support in kind from MegaWest. Successful results from the demonstration project would lead to the design and implementation of a commercial scale project on leases held by MegaWest. EPI would earn a working interest on all acreage developed using the EEOR technology. MegaWest’s Clear Creek leases cover nearly 19,000 acres in an area potentially suitable for the application of this process. This agreement marks a significant milestone in the Company’s efforts to identify, test and apply new technologies to the economic exploitation of untapped heavy oil resources.
Osage Area
MegaWest has acquired over 4,000 acres in this area and has conducted an initial geological review that is encouraging regarding the potential for the discovery of lighter gravity oil.
(Information updated to September 12, 2009)
Historic Information:
The presence of heavy oil deposits within various sandstone layers of Pennsylvanian age that occur from the surface to depths of up to 600 feet in Vernon County, Missouri has been known since the early 900’s. Surface outcrops provided material used as grease for wagon wheels by the early settlers.
This oil ranges in appearance from a brown, viscous liquid to a nearly solid, black, tar-like material with API gravity ranging from 10° - 24°. Viscosity at reservoir temperature and depth is estimated to be 750 cp. An assay of a sample of the produced oil indicates that the oil is very similar to Maya crude, but with significantly lower sulphur content.
There are two Pennsylvanian sandstone formations of interest, being the Bluejacket and the Warner. The Bluejacket tends to be more discontinuous, but is known to be productive by primary recovery in the area. It will be tested where encountered. The Warner sand is the primary target reservoir to be developed by MegaWest.
All existing well logs within its area of interest along the western side of Vernon County have recently been digitized. This review of the historical log data shows Upper Warner sand thicknesses exceeding 40 feet are present over approximately 40,000 acres. There are indications that up to 50 feet of heavy oil sand are present on portions of MegaWest leases. The depth to the top of the Warner Sandstone in this area varies between 100 - 300 feet with the bulk of the fairway at an overburden depth of 170 - 220 feet.
Earlier reports prepared by the Missouri and Kansas Geological Surveys for the U.S. Department of Energy based on the results of core drilling in Barton and Vernon Counties in Missouri and Bourbon, Crawford, and Cherokee Counties in Kansas indicate a total measured plus speculative resource estimate of 512 million barrels in the Bluejacket plus nearly 1.4 billion barrels in the Upper and Lower Warner sandstones in Missouri. An additional 225 million barrels were identified in the combined units in Kansas. These numbers are indicative only and are not compliant with the guidelines of NI 51-101.