Diaz is primarily a natural gas producer with 81% of its production for the three month period ended March 31, 2008, coming from natural gas wells. Diaz owns interests in producing properties in Alberta and Saskatchewan in Canada, and in Texas in the United States.
The Company’s overall production for the three months ended March 31, 2008, increased 6% over Q4 2007, however, the current quarter production decreased by 20% to average 816 BOEd compared to the first quarter 2007 average rate of 1,017 BOEd.
United States Exploration
In the first three months of 2008, Diaz participated in the drilling of a new gas well and two unsuccessful completions.
N.W. Speaks Robertson #1 Well, Lavaca County, Texas – Working Interest 21.6%
During Q1 2008, the Robertson #1 well was drilled to a total depth of 13,575 feet and production casing has been installed.
Based on the Company’s log analysis, the well has encountered several Wilcox gas zones, two of which were the primary objectives for the well and these two sands have been proven productive within the same structure.
The well was fracture stimulated in the lowest Wilcox gas zone in early May 2008 and is currently producing 2.45 Mmcfd of natural gas and 32 barrels of oil, at 2,700 psi flowing pressure. Based on the Company’s interpretation of the seismic and geology there are two more development locations which could be drilled on this structure.
Black Owl, Wharton County, Texas – Working Interest 24.4%
The Black Owl #1 well continues to be a steady producer averaging 1.5 Mcfd and 23 Bopd since production began in November 2007. Diaz is actively pursuing additional prospects in the area.
Cheney, Colorado County, Texas – Working Interest 20%
During Q1 2008, the Cheney #1 well was fracture stimulated in the Wilcox 18 sand. The well was flow tested for sufficient time to recover the frac fluid but ultimately did not yield an economic production rate. The well will be abandoned during the third quarter.
Wharco-Schilling, Wharton County, Texas – Working Interest 10.0%
During Q4 2007, the Duson #1 well on the West Wharco-Schilling prospect was drilled to a total depth of 11,500 feet but did not encounter economic quantities of natural gas in the primary target zone. During Q1 2008, completion attempts in two secondary zones were also non-economic. The well is being abandoned during the second quarter.
Canadian Exploration and Development
During the first three months of 2008, Diaz participated in one significant workover, one new gas well and completed and brought on production one of its discovery wells from Q4 2007.
SOUTHEAST SASKATCHEWAN
Parkman Area – Diaz Working Interest 75%
During Q1 2008, Diaz conducted workover activities on the 9-9-8-33 W1 horizontal well with the objective of isolating oil production from a different section of the horizontal leg. Prior to the operation the well was averaging approximately 6-8 Bopd of light oil. After the successful workover the well has been producing 70 Bopd since early March 2008.
Diaz’s 75% working interest resulted from certain partners not participating in the latest completion operation. Diaz expects the penalty provisions of the joint venture will be satisfied by mid summer and at that time it’s working interest will revert to 37.5%.
Retlaw, Alberta
In Retlaw, Alberta, a new gas well was drilled and completed during the quarter. The well came on production in March 2008 and is currently producing at a flow rate of 1,000 Mcfd. Diaz has a 17% working interest in the well.
Diaz currently plans to drill three to five wells in the fall of 2008 as part of an infill program on the property. Diaz’s working interests in the infill wells range from 25% to 50%.
Winter 2007 Natural Gas Discovery’s
In October and December 2007, two of Diaz’s exploration wells encountered economic quantities of natural gas. The first well was completed in March 2008 and is currently producing 500 Mcfd. The second well will be completed and tied-in to a sales line during Q2 2008. Both of the wells have follow-up opportunities requiring additional land rights which Diaz is attempting to secure. Diaz has an 80% working interest in both projects.
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