Empyrean Energy Plc (AIM:EME) Q&A with MD of Sacgasco

Empyrean Energy (EME: AIM), the oil and gas development company with interests in China, Indonesia and the United States, advises that Sacgasco Limited (ASX: SGC) (“Sacgasco”), the operator of the Dempsey 1-15 well in the Sacramento Basin, onshore California, has today released a Question and Answer session report on the Dempsey well and the Sacramento Basin, to which Empyrean has a 25-30% Working Interest.

Q&A with Gary Jeffery, Managing Director of Sacgasco Limited (ASX: SGC)

1. Gary, Sacgasco’s announcement Friday that you are putting the Dempsey 1 well into production concludes a drilling program that commenced in August. What’s your take on the outcomes delivered from Dempsey so far?

  • Firstly this is just an interlude in the evaluation of The Dempsey well. We are able to adjust our evaluation of the Dempsey well because of the proximity of the well to pipelines connecting to a very large and attractive natural gas market. The pipeline company has already sampled the gas, and connection work is underway for an extended production and sales test.
  • I am aware that the testing and understanding of Dempsey results are taking somewhat longer than expected.  But to put this in context, so far we have successfully flowed clean dry gas from the only two high‐pressure intervals tested and these straddle only 700 feet (around 15%) of over 4000 feet of interest in the well below the field producing levels. By the way the age equivalent of these Dempsey and the older Alvares intervals of interest are up to 40,000 feet thick in the Basin, and similar‐age gas traps in the subsurface of the basin are amongst the least explored in the world. Hence our intense interest.
  • The production will provide us with extensive information on the potential of this zone and will allow us to design a better stimulation program, as well as refine testing programs for other intervals in the well. Once the well goes into production we will monitor flow rates to see if they improve as gas reservoirs further from the well bore are accessed.
  • The Operator Sacgasco recommended to its co‐ventureres that the prudent course of action wasto let thiszone flow to salesfor a short period of time while we looked into some reservoir stimulation work to test how we could improve gas flow rates.
  • The interval tested to date would not be able to be accessed in this well if we decided to add perforations to the second interval tested or alternatively decided to test shallower intervals of gas shows and potential sandstone reservoirs. In our view the potential of the lower zones
    was too great to walk away from.
  • Planning for the reservoir stimulation work is already underway with an aim to undertake the work within the first quarter of 2018. The intervals tested to date are interpreted from information gathered to be a combination of relatively thin permeable sandstones,shales, and possibly fractures filled with highly‐pressured, clean dry natural gas and no water. The permeable zones may be connected to thickerzones away from the well bore. Effective access to such gas  reservoirsis not possible with normal horizontal perforations at the rate of 6 shots per foot. Stimulation is designed to increase the permeability for natural gas to flow by creating interconnecting fractures up and down to connect a much greater volume of permeable and porous gas‐filled reservoirsin the proximity of the horizontal perforations.  We are doing this work expecting to see very significant improvement in flow. Otherwise, why would we bother?   Depending on the results, we may test other zones to add to production
    after we do this reservoir stimulation work. As expected before drilling, we have confirmed that there is a tremendous amount of optionality in our efforts to fully assess the Dempsey gas discovery.  As various aspects of the discovery are confirmed and sustained higher rates of production are established, the information gained will in turn help calibrate and map out future appraisal and development plans along with other exploration appraisal drilling.

2. So have your observations / conclusions to date about Dempsey changed?

  • It is our view that Dempsey is a large, clean dry natural gas charged structure without any observed water with the potential for significant production below the Rancho Capay field reservoirs.
  • In my view, Dempsey is already a very significant natural gas discovery. There already is and will be increased competition for other prospective areas in the Basin and consequently we must, in the interests of investing shareholders, protect some of the detail that does not have direct monetary impact on shareholders, but which provides us with competitive advantage. The evaluation and learning process for us all is continuous and exponentially material due to the under‐explored nature of the Basin.
  • To summarise:
    o We already have a significant natural gas resource at Dempsey in the lower interval of interest;
    o We expect to be soon producing quality gas and seeking to improve flow rates;
    o The testing of Dempsey has only just begun and my views of its potential are perhaps changed in technical detail, but not diminished otherwise.
  • Moreover, the more important message is that we are the first company in almost 100 years of exploration to prove up the older structures in the Sacramento Basin, and the associated potentially huge petroleum system; and, furthermore we are poised to lead the appraisal and development of it.
  • For a small company, Sacgasco has an impressive lease and infrastructure base in the Basin which we have built up over the last few years so we are in the box seat here.

3. So what’s next for Sacgaso Gary, and what should investors be looking forward to in the near‐term? 

  • Firstly, we are actively working to have Dempsey 1‐15 well in production selling natural gas in the next couple of weeks adding to our existing revenue base.
  • We are concurrently designing and permitting the next reservoir stimulation phase of work at Dempsey and based on recent examples expect to be ready for that work early in 2018. This stimulation work is expected to be consistent with Sacgasco’s efficient and effective operating philosophy, and to be an affordable process for Sacgasco and its co‐venturers. As such, we are funded to carry out this work.
  • We continue to lease oil and gas mineral rights based on what we have learnt at Dempsey. Through the advantageous JV funding agreements arranged through farmouts with our co‐venturers, we will look to commence work testing the current well bore for use to evaluate the existing gas shows at Alvares early in 2018.
  • We also are continually reviewing our opportunitiesto increase gas production from wells and equipment acquired earlier in 2017.
  • All these activities are a clear indication that we see huge upside in the Sacramento Basin.
  • We continue to run a dual strategy of developing our larger targets and building steady gas supply from the field production levels using our existing 27 well bores and associated equipment and pipeline conections.
  • So the takeaway isthat we are more confident than ever in the portfolio, we know much more about what is shaping up to be a new, large conventional (albeit tite in places) reservoir petroleum system in the Basin, and we are systematically going about unlocking the related value for our shareholders.

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