Iteration Energy Ltd (fka ITXFF)

[Amaunet]

ZORIN EXPLORATION LTD.


http://www.zorinex.com/


Interview Date: 03/22/02
CEO: Could you begin with an overview of the Company, and then we'll get into the opportunities for some of your prospects, including the one at Marion County?
ZEL: The company is about four years old. We started off as a junior capital pool company on the Canadian Venture Exchange with a very small amount of capital. We acquired some minor gas properties in southern Alberta in 1998, which we then expanded, dramatically increasing production and revenues. Late last year we expanded our operations into Saskatchewan. We have a heavy oil play there which has turned out extremely well for us. We don't have a lot of land in Saskatchewan, but we¹re still producing about 350 barrels per day of heavy oil. With the recovery of heavy oil prices in the last little while, Saskatchewan is certainly becoming extremely economic. The good part of that property is that the heavy oil production from the wells is about 80 to 100 barrels per day per well, which makes our production economic even with low oil prices. We also have a fairly large and exciting play, in Marion County, Ohio. That prospect is just getting off the ground. We have three wells in Marion right now, with more activity planned for 2002. It's a 100 percent Zorin property but we're three for three. We're very excited about what we've found. We have one fairly large gas well, one producing oil well and another well which we haven't had the opportunity to complete and test yet.
CEO: Let's start, if we could, with the Marion play. Who else is in this particular area and what has the exploration work to date yielded?
ZEL: There are no larger oil companies currently exploring in Marion County. There are some small private companies that have some significant land, but they don't appear to have the technical expertise to determine the best land or how to develop a play. They have drilled several well recently but all were dry holes. They are wildcatters and, unfortunately, the activity that they have had in the area has not borne fruit for them. As I have said, ZORIN is three for three, but it's a function of the technology that we're using which is very specific seismic and very specific processing and interpretation of that seismic. We have tried to use different processors including those in the local area, but with no success. We use our Trenton experts here in Calgary utilizing their technology, interpretation and software. The technology is certainly available to everyone, but it's getting the right individual to massage the data in the right way to make the play come alive.
CEO: What about infrastructure here? What have you developed and what have you discovered in the nine mile long fault trend?
ZEL: We're finding some very, very interesting features, particularly as a result of drilling our gas well. The first well we drilled had 44 feet of caves, fractures, and caverns at the top of the Trenton zone. The drill bit fell through the void which was full of natural gas. Obviously, the well started to blow while we were drilling, and we had to be careful that we didn't drop the drill string into the hole and lose the whole thing. The well was very difficult to control. The question is now, how many more similar wells are there in that nine mile trend and, more particularly, how many more trends are there? We believe that statistically, given the geology of the area that there should be a lot more of them. So far, we have this play more or less to ourselves. We have about 20,000 acres under lease to this point, and we've tried to keep our activity fairly quiet, picking up a substantial amount of land on this and other trends.
CEO: What about your wholly owned subsidiary, MAR Oil. What role does it play here?
ZEL: MAR Oil Ltd. is our U.S. company. It holds all of our U.S. assets. It is wholly owned, by Zorin, and is our vehicle to operate in the United States.
CEO: The company has drilled a 1,400 foot discovery well. How would you characterize this well and what did it show relative to some of the earlier activities.
ZEL: All of the other wells that were drilled in Marion County, and the information that we acquired from them, showed that the zone of interest that we are looking for was just solid limestone, no oil or gas. The zone we're looking for is in total 600 feet thick. It's not a minor play at all. The wells that we¹ve been drilling, particularly the discovery well are porous dolomite not solid limestone. Both types of rocks are carbonates, but with a subtle difference, the limestone doesn't have any porosity. As a result, it will not hold or produce any hydrocarbons. However in the fault area the limestone has been changed chemically to a dolomite rock, and that rock has significant porosity. The first well we drilled -- the Hensel #1 well, encountered caverns, which of course are simply open caves or fractures full of gas and oil. The discovery Well, Roszman #1, encountered oil production from dolomite with porosities as high as 22 percent. That means 22 percent of the rock is not rock at all. The dolomite rock is more like a sponge full of oil and gas.
CEO: The company has also done some seismic work. What has the seismic work indicated and how do you now capitalize on those results?
ZEL: We haven't shot a great deal of seismic in Marion County, we have about a dozen 2D seismic lines and, luckily for us every seismic line has at least one fault feature on it. We've been very successful in predicting where these faults might be. We need to follow up that seismic with drilling and additional 3D seismic. 3D seismic will give us a 3-D picture of what this fault trend looks like, particularly around the Roszman oil well that we're producing now. We're trying to find the sweet spots where the caverns exist since those will be the most productive wells. Imagine what kind of oil production rates and oil reserves we might discover in a cavernous well.
CEO: As you look at some of the other plays now, what about the opportunities in Canada? What are you doing in Alberta and Saskatchewan?
ZEL: In Alberta, we're continuing to follow up on our natural gas plays that we have, as a result of the property acquisition that we completed when we started up. We've expanded our land position there dramatically, now holding interests in over 85 square miles of mineral rights in and around our production pipelines and processing facilities. We are small but focused, operating in only one area of Alberta with a gas plant and the associated gas gathering system. The gathering system collects gas over several hundred square miles from a variety of other natural gas producers. While we certainly don't control all that land, we do control the gas gathering, processing and transportation of the natural gas out of the area to market. So, we get a share of other producers' natural gas discoveries in the area through our fees for gathering and processing their natural gas. In Saskatchewan, we're looking for additional heavy oil prospects similar to what we have already discovered there. We've been very fortunate in Saskatchewan with prolific production and a very porous reservoir. The wells have been performing extremely well when compared to the average or typical heavy oil well in Western Canada.
CEO: Given the acquisition strategy that you have, how that might that be impacted by the current pricing environment?
ZEL: I think right now there are a lot of acquisition possibilities, a lot of properties are available, particularly in Canada. I believe that there is going to be a lot of good opportunities for companies that have the funds and expertise to acquire and effectively exploit their acquisition. We are looking at assets that companies are trying to sell that have significant upside given our unique expertise. We just closed the acquisition of some land in Ohio from a small private company. By staying focused, we plan to refine our abilities and bring added value to this acquisition, and future ones as well.
CEO: You mentioned, of course, expertise. What are some of the backgrounds of the principals in ZORIN and how will this experience enable you to pursue both shallow plays such as in Ohio as well as, more exploratory projects?
ZEL: Certainly, the work we're doing in Ohio is pure exploration. No one has been exploring there for a very long time and I think most companies believe there's nothing left in Ohio. Well, there is still oil and gas in Western Ohio, and we've proved that. But so far, we¹re the only one that is active. We're a bit of a loner of this play, but with our 60 years of experience in Trenton operations, engineering, seismic and geology, we hope to continue our success, and write a new chapter for Ohio oil and gas production. The experience that our team has is from southern Ontario, where we worked with Canadian oil companies finding these same faulted reservoirs and prolific wells. The same characteristic events would happen; we would drill into the zone and sometimes hit a cavern or fracture. Those wells were capable of over 600 barrels a day of clean oil. These are very prolific reservoirs for the depth we¹re drilling, and the amount of money it takes to drill them. In the 1860's through to 1930, the John D. Rockefeller empire and the seven sisters began the development of the Lima - Indiana oil field in north-western Ohio. We're 22 miles away from that field and it's exactly the same play, exactly the same reservoir and we're finding the same kind of oil that they did then. There's more of it there, but it obviously takes a little more science and technology to find it and we certainly have that technology and the experience in our team of people to explore for it.
CEO: What should investors now look for in the coming quarters and how might pricing impact your activities?
ZEL: Oil and gas pricing is certainly helping right now, rising the way it has. ZORIN needs to raise more funds, to continue to pursue its activities in Ohio. Ohio is our main focus, quite frankly. The play is very large compared to the opportunities available to us in western Canada. In the next quarter, we're planning to do some fundraising, and complete the shooting of our 3D seismic in Marion County. Before year end we plan to get on to drilling several more wells as well. Additional drilling success is going to demand more funding and more 3D seismic. Of the nine-mile trend, we¹re currently shooting 3D seismic over only two and a half square miles of it. We can produce and drain oil effectively over 40 acres with one well. Simplistically, that means we could have as many as 45 locations to drill on this fault trend. We need, however, to identify the best locations to drill on that nine mile trend, hence the 3-D seismic. We also need to conserve the solution gas produced along with the oil and put in processing facilities to market the sales gas. I think by the end of the year we'll have substantially higher oil production in Ohio and be embarking on putting in a gas conservation program that will extract liquids from the gas and pipeline the gas to markets in the U.S. We¹re just flaring the gas right now. It seems that the energy demands that we have in North America just can't be satisfied by our current domestic production. This is where I personally feel public and private oil companies we need to spend more effort; developing our own North American oil and gas reserves and reducing our reliance on foreign imports.