Yes, what can be produced, but at what cost to Hemi? If you lose $20-$30 per produced barrel, you can't make it up on volume! Here are some sobering comments from KAA in his latest report.
"Often, shareholders ask what the reason is that production numbers are not higher when considering the significant number of proved barrels. The answer is relatively simple and is not related to damage sustained by flooding. Instead, it is a matter of physics and geology.
When the Humboldt Chanute field was discovered in the early 20th century,"
The drilling of vertical holes has been neither as productive nor as predictable as we had hoped, due to the loss of formation drive. The daily production potential is somewhat limited without the flood. Hemi will continue to drill vertical wells in strategic locations in support of our business plan: these vertical wells will continue to be a part of flood infrastructure, will provide exploratory data and will enhance revenue to a certain degree. The vertical wells are critical to any future implementation of a flood program. In fact, it is the performance of the vertical wells which has led Hemi management to consider horizontal drilling.
Put simply, that is the situation Hemi is facing with the oil reserves on its leases. When new wells are drilled, small pockets of the original drive mechanism are still left in place, but more times than not the water is depleted or there is a minimal amount of natural gas that pushes the oil to the bore hole. The new wells start with higher “flush in” numbers, but transition into lower numbers as the pocket of drive mechanism is rapidly depleted. A daily baseline average is then established; however, there are still large amounts of reserves left with a slower migration to the borehole due to the lessening formation drive pressure pushing the oil along. To facilitate this process, Hemi has been drilling new wells with multiple uses, to generate immediate revenue and to also be available for future use to stimulate the Squirrel Formation with an artificial drive (“flood”), using water, gasses or polymers. This is the second phase of Enhanced Oil Recovery (EOR) that Hemi has planned to execute.
Results of Operations
Hemi did not meet its expected production or drilling projections in 2008.
The current cost to produce a barrel of oil ranges between $40 and $50. At current prices, management deemed it in the best interest of Hemi and Hemi shareholders to wait on drilling activity so that profitability could be ensured.
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