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Carrizo Oil Project

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History

The Days Chapel oilfield in Anderson Co., East Texas is a shallow (550ft. to 700 ft.) oil pool containing approximately 14 million barrels of “oil-in-place” (OOIP) over the entire acreage of 900+ acres. HJ Gruy & Associates, consulting reservoir engineers from Dallas and Houston, Texas, have determined in March, 2011 there is approximately 9.1 million barrels of OOIP at Days Chapel on less than 300 acres, applying a 20 ft. net pay cut-off.

The composite “East Texas Oilfield”, of which Days Chapel is a very small component, covers 140,000 acres and parts of 5 counties. It is the largest oilfield in the United States outside of Alaska, both in extent and in total volume of oil and gas recovered since its discovery in 1930. It is a component of the Mid-Continent Oil Province, the huge region of petroleum deposits extending from Kansas to New Mexico to the Gulf of Mexico. Overall the oilfield is approximately 45 miles long and five miles wide. The primary producing formation in East Texas is the Woodbine formation. Cumulative Woodbine production from initial discovery to the present is approximately 4 billion barrels of oil.

The shallow, producing formation at Days Chapel is the Carrizo sand, an Eocene formation. Oil from the Carrizo is “dead oil” in that it lacks natural reservoir energy in the form of natural gas or a water drive. The sand is generally very clean, however, and the oil is in the 19 degrees API range. The Days Chapel oilfield is one of four contiguous Carrizo oilfields within a 5 mile radius of one another in the southern part of Anderson County, including the Slocum Main oilfield which was subjected to full-scale steam-injection operations by Shell Oil Co. (Shell) in 1966.  These operations commenced with 13, 7-spot injection patterns (Phase 1) and were further expanded in 1968-1969 with the addition of 13 new 7-spot patterns (Phase 2). The Slocum Main operations were successful by EOR standards which prevailed at the time and through December, 1969; oil production from Phase 1 alone was 1.2 million barrels representing a recovery rate of 36% of OOIP. Shell produced a total of 3.1 MM BO’s from inception to 1978. Slocum Main essentially served as one of Shell’s steam EOR “pilot” projects for the Belridge (Kern River) heavy oilfield in the San Joaquin Valley of California near Bakersfield in the early 1970’s.

Shell, also the owner of Days Chapel, never developed the oilfield. However, Shell did drill 11 core holes at Days Chapel and this data was used by a successor operating company, Dallas Gas & Electric (DG&E), to map the Days Chapel oilfield in the early 1990’s. DG&E also drilled a number of core holes to calculate the porosity, permeability, and oil saturation of this reservoir as well as one oil well, the DG&E D.C. Mays #1 well.  The data from these core holes and oil well was applied, together with the Shell core hole data, by DG&E to prepare Upper Carrizo Sand Net Pay Isopach maps for Days Chapel and determine OOIP and recoverable reserves in a comprehensive report prepared in June, 1991. This report was audited by HJ Gruy at the time (then ‘Gruy Engineering Corporation’) who concluded “in our opinion”, the data developed by DG&E is, in the aggregate, reasonable, and have been prepared in accordance with generally accepted petroleum engineering and evaluation principles, as set forth in the ‘Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserve Information’ promulgated by the Society of Petroleum Engineers. The estimates of reserves, prepared by DG&E are also, in the aggregate, reasonable and have been prepared in accordance with generally accepted petroleum and evaluation principles.”

The HJ Gruy engineer in charge of the evaluation, Robert Naas of Dallas, visibly inspected all Days Chapel cores as part of his Firm’s audit work and verified the accuracy of the contours on the ispoach map current in use by Anderson County Land Company (“ACLC” or “the Company”). Mr. Naas is presently an advisor to the Company.

Following DG&E’s Chapter 11 bankruptcy proceedings in the early 1990’s, the Days Chapel oilfield was acquired from the Trustee in Bankruptcy by Basa Petroleum Corp., now the 7th largest oil producer in the State of Texas and the largest private oil producer. The DG&E “D.C. Mays #1” well was never stimulated and eventually was plugged and abandoned in 2010.

 

The Carrizo Sand Trend

The Carrizo sand sits above the Wilcox formation in East Texas. It is the largest aquifer in east and south Texas running from the Rio Grande Valley. Due the lack of a natural reservoir drive due to its shallow depth (less than 1,000 ft.) and minimal solution natural gas, it has never been a prolific oil producing formation.

Characteristics of the Carrizo formation obtained from the Shell and DG&E core holes and the G.C. Mays #1 well are:

•             Oil gravity – 18 degrees to 20 degrees API;

•             Viscosity – 800 centipose;

•             Porosity – Average of 36%;

•             Permeability – 1,500 Millidarcies, and

•             Oil saturation – 45%.

It should be noted that Carrizo oil has minimal impurities like sulphur or metal which increase the costs of refining. Therefore, it does not sell at a discount to West Texas Intermediate crude oil like many “heavy” grades of crude oil. On the contrary, the oil would be sold today as “Light Louisiana Sweet (Onshore)” at approximately $124.00 per Bbl. (Chevron posting, May 2, 2012); less a gravity adjustment of about $2.40/Bbl. Minor trucking charges would also apply.