TECO NEWS!!
Treaty Energy Releases Reserve Report on Kansas Oil Lease
Date : 01/13/2010 @ 11:53AM
Source : MarketWire
Stock : Treaty Energy Corporation (TECO)
Quote : 0.015 0.001 (7.14%) @ 8:08AM
Treaty Energy Releases Reserve Report on Kansas Oil Lease
HOUSTON, TX -- (Marketwire) -- 01/13/10 --
Treaty Energy Corporation (OTCBB: TECO) today released a synopsis of the 'Reserve Report' that was prepared prior to the recent completion of the agreement to acquire 57 oil and gas leases in Kansas and Missouri, comprising 481 active producing wells over 7,788 acres
Randall Newton, Chairman and CEO of Treaty Energy, stated, "We are very pleased that we can release this synopsis of the Reserve Report that was prepared for us as a part of the process in evaluating the Kansas and Missouri lease properties. It was used by Treaty Energy in making the final determination to go forward to acquire the Kansas and Missouri leases. We believe that this extensive release of information on the oil reserves on these leases will be highly beneficial to current and prospective investors as they consider adding TECO to their investment portfolios."
Mr. Newton added, "According to the reserve report issued by our independent reservoir engineer, the discounted cash flows over 20 years, discounted at 25%, are just a little above $12 million, and discounted at 10% are just under $23 million. These two numbers are significant for two different reasons. (See 'Present Worth Profile' at end of Reserve Report)
"The 10% discount number of $22.9 million is significant because it is the valuation used by the Securities and Exchange Commission to set a ceiling above which these leases cannot be valued on the balance sheet. Based on our purchase price, we will have approximately $6 million on the balance sheet. In fact, the maximum allowable carrying value of this investment at $80 per barrel would be almost four times the actual investment."
Mr. Newton added further, "The 25% discount number of $12 million is significant because it represents the benchmark used by many potential investors to place a value on the property for purposes of making an offer to a seller. As you can see, our purchase price of $6 million is half of that benchmark
"We are very excited about our opportunities in Kansas because they represent stable, predictable cash flows with good returns on investment."
RESERVE REPORT
INTRODUCTION
This report, updated as of January 1, 2010, is a review of 57 oil leases in Johnson, Miami, Linn, Douglas, Franklin, Anderson, Wabaunsee and Morris Counties, Kansas, and Cass and Jackson Counties, Missouri - operated by Town Oil Company. Included in this review is a determination and evaluation of the Proved, Developed Producing (PDP) reserves for all leases meriting PDP classification. Other leases were further evaluated of Proved, Developed Non-producing (PDNP) and Proved Underdeveloped (PUD) reserves, where sufficient data were available. If sufficient data were not available to substantiate Proved reserves, Probable reserves are assigned
LOCATION
The oil properties reviewed in the report are located in eight eastern Kansas counties; Anderson, Douglas, Franklin, Johnson, Linn, Miami, Morris and Wabaunsee; and in extreme western Missouri in Cass and Jackson Counties. Geologically, the properties are situated in the Forest City Basin and, with a couple of exceptions, produce from wells less than 1000 feet deep
The following table is a General Lease Information sheet consisting of basic lease data. All Kansas leases are located in South townships and East ranges
NET REVENUE PRODUCTION LEASE NAME COUNTY ACRES INTEREST RATE BOPD ------------- ----- ------------ ------------------ ALBERTI Miami, KS 160 80.00% 2.33 ------------- ----- ------------ ------------------ ASHBURN Wabaunsee, KS 560 78.74% 2.92 ------------- ----- ------------ ------------------ ASJES Cass, MO 80 80.00% 0.83 ------------- ----- ------------ ------------------ AYERS Miami, KS 160 80.00% 0.52 ------------- ----- ------------ ------------------ BALDWIN UNIT Douglas, KS 160 80.00% 4.23 ------------- ----- ------------ ------------------ BARTLETT Miami, KS 80 80.00% 0.23 ------------- ----- ------------ ------------------ BAUMAN Jackson, MO 240 80.00% 0.10 ------------- ----- ------------ ------------------ BEARY Cass, MO 25 80.00% 3.31 ------------- ----- ------------ ------------------ BELL, FRED Douglas, KS 40 80.00% 0.14 ------------- ----- ------------ ------------------ BELL, JIM Douglas, KS 40 80.00% 0.14 ------------- ----- ------------ ------------------ BELL, MARY Douglas, KS 80 80.00% 1.26 ------------- ----- ------------ ------------------ BIVINS Franklin, KS 80 80.00% 0.37 ------------- ----- ------------ ------------------ BROCKER Miami, KS 160 80.00% 0.38 ------------- ----- ------------ ------------------ BROWN Franklin, KS 160 80.00% 0.68 ------------- ----- ------------ ------------------ CARTER, E&W Miami, KS 160 80.00% 0.16 ------------- ----- ------------ ------------------ CARTWRIGHT Miami, KS 240 80.00% 0.63 ------------- ----- ------------ ------------------ CRAIG Linn, KS 80 80.00% 0.40 ------------- ----- ------------ ------------------ DARBY Douglas, KS 100 80.00% 0.38 ------------- ----- ------------ ------------------ DIXON Jackson, MO 25 80.00% 0.67 ------------- ----- ------------ ------------------ EVERSMEYER Franklin, KS 120 80.00% 5.35 ------------- ----- ------------ ------------------ FIEHLER, S. Franklin, KS 80 80.00% 2.08 ------------- ----- ------------ ------------------ FINNERTY Douglas, KS 80 80.00% 2.39 ------------- ----- ------------ ------------------ FLAKE, ED Miami, KS 160 80.00% 0.16 ------------- ----- ------------ ------------------ FLAKE, JOHN Miami, KS 80 80.00% 0.14 ------------- ----- ------------ ------------------ GAGE, FRANK Douglas, KS 80 80.00% 1.07 ------------- ----- ------------ ------------------ GAGE,JOHN Douglas, KS 100 80.00% 1.13 ------------- ----- ------------ ------------------ GARDNER Miami, KS 120 80.00% 0.00 ------------- ----- ------------ ------------------ GOETZ Miami, KS 65 80.00% 5.65 ------------- ----- ------------ ------------------ GOETZ, E. Miami, KS 400 80.00% 1.14 ------------- ----- ------------ ------------------ GUETTERMAN Johnson, KS 240 80.00% 2.19 ------------- ----- ------------ ------------------ JOHNSON Douglas, KS 160 80.00% 7.10 ------------- ----- ------------ ------------------ KITCHEN Miami, KS 160 80.00% 1.43 ------------- ----- ------------ ------------------ KRAMER, B. Johnson, KS 160 80.00% 1.36 ------------- ----- ------------ ------------------ KRAMER, J. Johnson, KS 25 80.00% 0.28 ------------- ----- ------------ ------------------ LAWSON Douglas, KS 40 80.00% 1.66 ------------- ----- ------------ ------------------ MADL Douglas, KS 80 80.00% 0.67 ------------- ----- ------------ ------------------ McCANN Miami, KS 320 80.00% 5.65 ------------- ----- ------------ ------------------ McCLINTOCK Jackson, MO 280 80.00% 0.09 ------------- ----- ------------ ------------------ NUTT Miami, KS 80 80.00% 2.70 ------------- ----- ------------ ------------------ O'BRIEN Miami, KS 100 80.00% 7.15 ------------- ----- ------------ ------------------ OLSON Morris, KS 80 75.00% 1.53 ------------- ----- ------------ ------------------ OWEN Miami, KS 90 80.00% 3.67 ------------- ----- ------------ ------------------ PEARSON Douglas, KS 80 80.00% 2.16 ------------- ----- ------------ ------------------ POSS Anderson, KS 103 80.00% 5.61 ------------- ----- ------------ ------------------ ROSS Linn, KS 160 80.00% 2.00 ------------- ----- ------------ ------------------ SCHMITT Miami, KS 160 80.00% 0.69 ------------- ----- ------------ ------------------ SCHUKNECHT Miami, KS 160 80.00% 0.53 ------------- ----- ------------ ------------------ SPINDLE Miami, KS 200 80.00% 0.59 ------------- ----- ------------ ------------------ TRIAN Miami, KS 320 80.00% 0.67 ------------- ----- ------------ ------------------ VAN HORN Franklin, KS 80 80.00% 0.68 ------------- ----- ------------ ------------------ WADDLE, E&W Miami, KS 200 80.00% 1.51 ------------- ----- ------------ ------------------ WALTON Cass, MO 60 80.00% 16.70 ------------- ----- ------------ ------------------ WILLIAMS Franklin, KS 160 80.00% 1.73 ------------- ----- ------------ ------------------ WILLIAMS-RICE Jackson, MO 15 80.00% 1.71 ------------- ----- ------------ ------------------ WILLIAMSON Miami, KS 80 80.00% 0.31 ------------- ----- ------------ ------------------ WISE Johnson, KS 80 80.00% 0.26 ------------- ----- ------------ ------------------ ZIMMERMAN Linn, KS 200 80.00% 1.08 ------------- ----- ------------ ------------------
Totals: 7788 110.50 ============= ===== ============ ==================
DETERMINATION OF PROVED, PRODUCING RESERVES
Proved reserves, as defined by the Society of Petroleum Engineers: "reserves of crude oil ...are estimated quantities as of a specific date, which geological and engineering data demonstrate with a reasonable certainty to be recoverable in the future from known reservoirs under existing economic conditions and current technology."
PDP reserves are those reserved estimated to be recovered from existing wells currently operating
Since reserve estimates are a function of oil price and operating economics, the stated estimates are based upon January 2010 oil prices
Significantly different production prices may result in significantly different reserve estimates and corresponding values
Many of the less significant leases were not included in this evaluation
Primarily, leases producing less than 0.5 BOPD were excluded. Although, this does not necessarily mean they are operation at a loss, their total effect, at this time, is not significant
Leases presently operation at a loss will develop a value of "zero." In these cases, the leases are expected to possess reserves in Proved, Developed Non-Producing; Proved Undeveloped, or Probable categories
Consequently, values on the PDP summary sheet reflect only producing rates and monetary amounts from the properties exhibiting positive values
PROVED, DEVELOPED PRODUCING RESERVES
Proved, Developed Producing reserves were determined by extrapolation of lease production decline curves to the lease's economic limit. Individual property decline curves, with indicated production projections are included in the report. In addition, individual lease cash flow analyses are included. The following parameters were applied to the Proved, Developed Producing reserves:
Working Interest Evaluated 100%
Net Interest Evaluated 80%; exceptions indicated
Operating Expenses; oil wells $225/well-month
Operating Expenses; deeper oil wells $750 - $850/well-month
Severance Tax Not applicable
Ad Valorem Tax 1%
Net Oil Price (Jan 1, 2010) $80.00/stb $85.00/stb, after 1 year $90.00/stb, after 2 years
In summary, the Proved, Developed Producing reserves are ("Net" indicates the interest of Treaty Energy Corporation):
GROSS RESERVES; stb 424,559
NET RESERVES; stb 339,300
FUTURE NET CASH FLOW $14,341,107
DISCOUNTED (8%) FNCF $8,518,021
stb = Stock-tank barrel
PROVED, DEVELOPED NON-PRODUCING RESERVES
PDNP reserves are assigned to leases which possess one of more of the following:
1. Reactivation of idle producing wells
2. Expansion of commercial waterflood, or other proven method of enhanced recovery, to portions of leases presently not being affected
3. Reactivation of waterflood utilizing existing infrastructure
These reserves have been reviewed and analyzed for the following significant leases:
ALBERTI & McCANN BALDWIN UNIT
JOHNSON NUTT
OWENS WALTON, BEARY & ASJES
In summary, the Proved, Developed Non-Producing reserves are ("Net" indicates interest of Treaty Energy Corporation):
GROSS RESERVES; stb 217,800
NET RESERVES; stb 174,240
FUTURE NET CASH FLOW $11,770,537
DISCOUNTED (8%) FNCF $7,168,245
IMPORTANT NOTE: In addition, many of the remainder of the leases have undrilled locations and merit application of waterflooding, but due to time constraints were not analyzed in the report (see "Probable Reserves" and "Overview of Individual Leases")
PROVED UNDEVELOPED RESERVES
Proved Undeveloped reserves are assigned to undrilled locations which offset existing wells producing at commercial rates, and/or which are expected to be recovered from expanded or increased waterflooding operations. In a few cases, reserves were assigned to well locations which are not direct offsets of existing wells, but prior drilling has proved the existence of commercial reservoir. Proved Undeveloped reserves were estimated by utilizing volumetric oil-in-place calculation, or by analogy to existing similar production
Volumetric calculations were determined from core analyses and well log data - net sand thickness, porosity, water saturation. The data was transferred to an isopach map, planimetered, and oil-in-place volumes determined
In addition to the parameters utilized in evaluation Proved Producing reserves, the following were applied to the undeveloped category:
Drilling Cost - Oil well $30,000/well
Drilling Cost - Injector $20,000/well
Development of these reserves is scheduled to occur from 2010 through early 2012
Operating costs utilized in the analyses are $335/well-month, in most cases
PUD reserves have been evaluated on several of the major leases:
DARBY & GAGE (WAKARUSA) EAST & WEST GOETZ
GUETTERMAN JOHNSON
KITCHEN & BARTLETT O'BRIEN
WILLIAMS
Nearly all of the leases possess undrilled locations. However, for the purposes of this report, analyses were limited to the more significant properties
In summary, the Proved Undeveloped (PUD) reserves are ("Net" indicates interest of Treaty Energy Corporation):
GROSS RESERVES; stb 409,952
NET RESERVES; stb 327,961
FUTURE NET CASH FLOW $17,021,716
DISCOUNTED (8%) FNCF $9,881,472
SUMMARY OF PROVED RESERVES
The summarized result of all three Proved reserve catergories (PDP, PDNP, and PUD) is:
GROSS RESERVES; stb 1,052,311
NET RESERVES; stb 841,501
FUTURE NET CASH FLOW $43,133,360
DISCOUNTED (8%) FNCF $25,567,738
PROBABLE RESERVES
Probable reserves are assigned to those leases which for some reason do not fit the criteria necessary to be classified as Proved. Leases have been assigned to this category for one, or more of the following reasons:
1. A lack of geological, operational, or engineering data necessary to confirm the existence of Proved reserves
2. The requirement of substantial additional expenses
3. The occurrence of a significant event, such as, execution of a contract, etc
Each of these leases possesses upside development potential and will need to be thoroughly reviewed
NET PROBABLE ESTIMATED LEASE RESERVES - BRLS VALUE -------------- ------------
BELL (2 leases) 12,000 $ 120,000
BIVINS, BROWN, & VAN HORN 60,000 $ 448,000
CARTWRIGHT 40,000 $ 320,000
DIXON & WILLIAMS-RICE 60,000 $ 600,000
EVERSMEYER 60,000 $ 450,000
FIEHLER, SOUTH 90,000 $ 400,000
FINNERTY 60,000 $ 540,000
KRAMER (2 leases) 60,000 $ 600,000
MADL 30,000 $ 300,000
McCLINTOCK 800,000 $ 8,000,000
PEARSON 50,000 $ 450,000
POSS 100,000 $ 1,000,000
SCHMITT 60,000 $ 600,000
SCHUKNECHT 8,000 $ 80,000
SPINDLE & BROCKER 45,000 $ 480,000
TRIAN 60,000 $ 600,000
WADDLE 75,000 $ 750,000
WILLIAMSON 16,000 $ 128,000 -------------- ------------
TOTAL: 1,686,000 $ 15,866,000
Probable reserves were assigned for the SOUTH FIEHLER and EVERSMEYER leases. The EVERSMEYER will need considerable plugging and redrilling and it is questionable if adequate reserves exist to merit the redevelopment, however, it does appear to be a possible redevelopment candidate. It is the opinion of Treaty Energy and its expert consultants that this rework will be economically successful and will recover considerable oil. Further testing and evaluation is necessary on both the EVERSMEYER, and the adjoining SOUTH FIEHLER prior to classifying reserves as Proved
Other leases are assigned Probable reserves as they lack the criteria necessary to be classified as PDNP or PUD. These properties were not evaluated because of a lack of adequate data to perform meaningful evaluation, and the time involved in acquiring data and evaluating leases was not available. Potential future oil recovery is estimated by analogy to similar Kansas production
PRESENT WORTH PROFILE
DISC PW of NET DISC PW of NET RATE (%) BTAX, M$ RATE (%) BTAX, M$ ---------- ---------- ---------- 0.0 43,133,360 30.0 10,193,468 2.0 37,218,837 35.0 8,723,867 5.0 30,512,199 40.0 7,554,867 8.0 25,567,738 45.0 6,607,394 10.0 22,952,120 50.0 5,827,390 12.0 20,743,364 60.0 4,627,612 15.0 18,016,448 70.0 3,757,451 18.0 15,821,381 80.0 3,104,975 20.0 14,584,787 90.0 2,602,584 25.0 12,083,610 100.0 2,207,260
CONCLUSION
Analysis of the Reserve Report will show that the estimated value to Treaty Energy is quite substantial. The "PROBABLE RESERVES" of $15,886,000 (a deeply discounted number), when added to the "SUMMARY OF PROVED RESERVES" - Future Net Cash Flow of $43,133,360, brings the potential estimated cash flow value to $58,999,360. It should also be noted that this Report was based on a starting point of 110 barrels per day, but production has recently been increased to approximately 150 barrels per day
About Treaty Energy Corporation
Treaty is engaged in the acquisition, development and production of oil and natural gas. Treaty acquires and develops oil and gas leases which have "proven but undeveloped reserves" at the time of acquisition. These properties are not strategic to large exploration-oriented oil and gas companies. This strategy allows Treaty to develop and produce oil and natural gas with tremendously decreased risk, cost and time involved in traditional exploration. The company's headquarters are located in Houston, Texas. For more information, please visit our website at: www.treatyenergy.com
Forward-Looking Statements:
Statements herein express management's beliefs and expectations regarding future performance and are forward-looking and involve risks and uncertainties, including, but not limited to, raising working capital and securing other financing; responding to competition and rapidly changing technology; and other risks. These risks are detailed in the Company's filings with the Securities and Exchange Commission. Actual results may differ materially from such forward-looking statements
Contact: Osprey Partners Tel: 732-292-0982 Fax: 732-528-9065 investors@treatyenergy.com
Investor Relations: Equiti-trend Advisors LLC (800) 953-3350 toll-free (858) 436-3350 local
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