SOURCE: VantageWire.com -- As the world starts to wake up to the reality that the low hanging fruit is gone, when it comes to oil supplies, more innovative measures seem to be rising to prominence. Whether it's Steam Assisted Gravity Drainage (SAGD) or Toe-to-Heel-Air-Injection in the oil sands, or water flooding, unconventional methods are now becoming the norm. But at the base of this push is the need to develop more heavy oil plays, as the demands on light oil cannot be met without the aid of more heavy development.
Located near the historic Big Horn Basin, Super Nova Minerals [SNP:CNSX] has two heavy-oil prospects in south central Montana that the company plans to implement an unconventional method on. The process is called a "5-Spot" as it involves drilling five holes within a 40-acre space, which includes four producer wells and one steam injector well.
The two properties are part of an underdeveloped heavy-crude asset known as the Elk Hills Property, which includes both the Morris Block and the Cottonwood Creek Prospect. Initial work will take place on the Morris Block, and upon success of that installment, Super Nova has the right to option the Cottonwood Creek for the second operation. Combined, these two properties account for more than 4,000 acres of land, over which Super Nova intends to build several additional 5-Spots.
IMPACT OF THE 5-SPOT METHOD
Super Nova's decision to utilize the 5-Spot method could prove to be quite advantageous. When looking at the recovery rates of steam injection sites, Super Nova can safely expect to recover up to 65% of the oil at these 5-Spot locations. This is a big improvement over conventional primary recovery stage, which yields a recovery factor of 5-15%.
Costs associated with the setup of a 5-Spot operation are in the $2.5-$3 million ballpark. This includes $280,000 to drill a single well, or $1.5 million for one injector well and four receiving wells, and another $1.15 million for steam generation. But one must look further at the expected income potential, which is close to $50,000,000 per 5-Spot location.
The key economic driver on these projects is in the profit per barrel numbers. If current projections hold, Super Nova should find itself generating upwards of $50 per barrel produced.
The company won't be jumping into this situation blind. Already an acid treatment was applied in April of 2012 to the Morris Block, which successfully demonstrated that oil in the target could be liquefied and extracted using the steam injection process. Injecting steam isn't something new, either, as the process has been popular with plenty of companies, including majors such as Chevron, BP, Shell, and ExxonMobil.
In some projects, the difficulty of getting a 5-Spot in place is in the location and distance to infrastructure. In Super Nova's case with the Morris Block, getting the energy needs to the site shouldn't be a problem. Located within 7 miles of the property is a natural gas pipeline that can be used for the steam generation process.
Natural gas is fed into an on-site generator that combusts both natural gas and air to create steam. Once a temperature of approximately 500 degrees Fahrenheit is reached, the steam is pumped through a series of high-pressure pipes towards the injector well. At this point it is injected hundreds of feet beneath the surface and dispersed through small perforations in the pipe for release into the layer of targeted sands that are saturated with heavy oil. This heating process allows the oil to flow more freely and gradually move towards the four producer wells that surround the injector and collect the now free-flowing heavy oil to bring back to the surface.
THE ELK HILLS PROPERTY
Through its proximity to the famous Big Horn Basin, the Elk Hills Heavy Oil Prospect and its surrounding area is one of the most attractive undeveloped heavy crude prospects in the Western United States. As noted, the Elk Hills Property is generously located near needed infrastructure. Beyond its proximity to natural gas, the property is readily accessible by state roads, and is within 10 miles of both of a major crude oil pipeline, and a large oil refinery that specializes in heavy crude processing.
Underdeveloped, but not undrilled, the Morris Block has already a successful test well under its belt, with the Bauwens 15-13 well that was drilled in 2010. In the past two years, 8 wells have been drilled in the area, whereas prior to that only 6 key wells were drilled between 1949 and 1983. But it was the Bauwens 15-13 well that confirmed the presence of significant heavy oil within the Morris Block.
A NI 51-101 Technical Report on the books pegs oil in place per well at 292,000 barrels, with a maxium resource calculation for oil in place within the Morris Block pegged at 13,623Mbbls. By utilizing this 5-Spot method with an expected 65% recovery rate, the anticipated oil recovery per well is 151,000 barrels.
THE BOTTOM LINE
It's common to hear about unconventional techniques coming to save the day, but the 5-Spot method isn't new at all; it's been around since the 60s. The only hitch with these types of operations is being in a location that would warrant and support them. Super Nova has found a location that should work very well with the 5-Spot.
The Elk Hills location is ideal, with accessibility by road, and close proximity to both natural gas and crude oil pipelines. Given the positive results from the Bauwens 15-13 test well and the acid application that was also a success, there is a lot of blue sky on this property. According to the 51-101 Report, Super Nova could eventually drill more than 100 wells at the Morris Block alone.
The next two phases on the company's agenda are a $1.5 million raise to further test the Bauwens 15-13 well, and then in the second phase to raise another $2 million to drill an injector well and 4 producer wells to complete the drilling for a 5-Spot. The company expects to be in production very shortly after that.
Upon success on the Morris Block, the company will proceed to exercise its option on the Cottonwood Creek Lease Block. This acquisition will fill the docket for the next 12-18 months after taking the new property on officially.
The company expects to produce between 400-800 bbls/d per 5-Spot at the Morris Block. With 4,000 acres to cover, and only 40 acres required per installment, there is a lot of room to move still. Adjacent oil fields, within the same Tensleep formation have produced over 500 million barrels of oil, so repeatability is not a far-fetched expectation.
Once the first 5-Spot operation is officially in place, Super Nova can expect to continue to develop the rest of the property with less resistance. As investors gain more familiarity to this form of steamflooding, subsequent capital raise endeavours should allow the company to continue growing outward, five holes at a time.
G. Joel Chury
for the Bottom Line Report
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