Hemi's proven oil reserves and tobe proven GAS reserves...
We all know Hemi has oil and a ton of it but very few actually ever understand or talk about the huge tobe proven gas reserves on Hemi's leases. xtrapink talks about it a bit and even mentioned the below in the post I linked to this one...
My opinion is that oil production is the "low hanging fruit" right now, even though the natural gas (NG) and coal based methane (CBM) gas may hold the keys to a dramatic increase in the estimated worth of Hemi's Kansas reserves. Think in terms of BIG numbers when you imagine the potential impact of proving up NG reserves in Woodson County.
I thought I'd go through some of Hemi's older PRs and interviews and see what I could come up with. When piecing it all together and adding it all up, it is incredible the amount of gas Hemi has yet it gets so little attention.
Here is what I have been able to piece together just from what Hemi has put in print. Keith has been known to hold back a bit on things he thinks are very big and if what I've come up with below is holding back we are going to be in for some very exciting times.
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Hemi has talked about some promising gas in Sabine County, TX as well as two oil and gas leases totaling 640 acres in North Dakota. Hemi has also talked about existing gas wells on their leases in Montgomery and Woodson Counties in KS
In Sabine County, TX, Hemi has 360 acres with 3 adjacent oil and gas leases. Wells in Shelby County that are about 4 miles to the north average over 2,000 mcf/day. The average well is producing over $400,000 per month when using $7/mcf. These gas wells and gas fields have a slow rate of decline and have an economical life of over ten years.
In North Dakota, there are three other leases adjoining Hemi's lease on three sides and have five producing gas wells, owned by other companies, which are within one mile and less of the Hemi lease. Each one of these five wells have an approximate revenue of $4,000,000 or more over an economically viable life of ten to fifteen years.
Now, in Kansas, Hemi has told us quite a bit about the gas under the leases but is also holding back quite a bit as well. That's the impression I get when reading the press releases, emails, and listening to the interviews. Many view Hemi as an oil company because, for right now, all they are selling is oil. But, if you look at just what we know about their gas it is pretty incredible. Hemi's gas could end up being very very big.
In Montgomery County, Hemi has a shut-in gas well at a depth of 1250 feet that is commercially producible. This lease also has two gas zones. The well and the gas zones make developing the gas formations "financially obvious". After mention of this well was made, Hemi talked of new research locating natural gas wells that were drilled from 1950 to 1980 on the Montgomery County leases. They were originally drilled as oil wells but instead of finding oil, the developer found natural gas. These wells open flow tested at 300 to 400 mcf/day. These wells are in the Mississippian formation. Hemi has talked of at least 3 of these uncompleted gas wells existing. Hemi then went on to tell us they have acquired additional leases that will be their most valuable leases with reserves of all their Kansas lease holdings. This is referring to gas value. Since the reserve report for the 5 contiguous leases has independently proven reserves in excess of $100,000,000 then this new gas find would be valued in excess of $100,000,000. Now, after listening to the 6/12/07 Wallst.net interview, one can learn a little more about just how valuable this find actually is. This gas find is not contiguous to their oil leases to the south. Existing wells on the lease were drilled from 1916 to 1930 with 5 pay zones 800' to 1200' deep. Newer wells were also drilled around 2002. Research data has shown the wells drilled in 2002 flowed similarly to the wells drilled from 1916 to 1930. Now get this… the pay zones in one well could flow at 7,000 mcf/day to 15,000 mcf/day! However, it wouldn't be possible to produce all pay zones at one time so one wouldn't expect to get that high of flow out of each well but these would still be very prolific gas wells. The field where all these wells are located has never been declared and Hemi intends to name it the "Hemi Field". So, similar to the Humboldt-Chanute oil field, Hemi could be in the history books with their "Hemi Field". Keith believes this oil find will "totally validate Hemi's existence" and is what they've been working for for years.
So, for Kansas, there are several wells in Montgomery which open flow tested at 300 to 400 mcf/day so if you say there are only 3 of these wells you could say 1000 mcf/day for these wells (be sure to check out xtrapink's further number crunching in post 10090!). Then, who knows how many wells there are on the new leases that have been defined as having prolific gas? The plural "wells" is talked about as being drilled from 1916 to 1930 and again wells is plural for the ones drilled around 2002 so one can assume at least four of these wells exist. Since just one zone flows at 3,000 mcf/day, if you just use the 3,000 mcf/day number for just 4 wells that would be 12,000 mcf/day (likely very conservative). Tack on the 1,000 mcf/day from Montgomery County and you've got a conservative number of 13,000 mcf/day for wells that already exist. Gas is going for around $7/mcf. Do the math. Even using conservative numbers, this is $2,730,000 worth of gas per MONTH. That's nearly $33,000,000 per year worth of gas coming from a debt free pink sheet company! If Wilshire comes into the picture and provides funding as talked about previously, all this would be done and the company would still be debt free. The current market cap of the company is under $15mil. Sound crazy and pie in the sky? Keith said in the interview that if all goes well, the infrastructure to get this built could happen in 6 to 12 months. With the amount of natural gas under Hemi's leases and the price of natural gas, it isn't a stretch to think the bigger money would go after this.
Keep in mind, all that is talked about above is what has been put in print or talked about in interviews. Keith has stated a number of times he is not going to show his entire hand until he is ready. If the above is what he is willing to talk about, one has to wonder what it is he is not yet willing to talk about :)
Even if Hemi has no intentions of immediately going after this gas it will add tremendously to Hemi's reserves and independent proven reserves are what primarily makes up the value of these type companies. Keith has been spending extra money when drilling and getting core samples and having these sent off and analyzed. Why? He has already drilled the hole but is trying to learn how better to drill the next well plus, IMO, using this information to prove up additional reserves. Don't forget too that our current independent reserves report doesn't include all the pay zones.
Anyway, I know we all talk about Hemi's oil but often, it seems, overlook this very valuable gas. I connected some of the dots from all these press releases and interviews and just wanted to share what I found and further show everyone just how undervalued Hemi actually is.
