Oil and Gas Exploration, Development and Production in Texas and New Mexico
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Permex Petroleum Corporation (CSE:OIL,OTCQB:OILCF) is a junior oil and gas company with over 6,500-acres in assets across the Permian Basin of west Texas and the Delaware sub-basin of southeast New Mexico. The company is focused on identifying, evaluating and acquiring oil and natural gas assets in North America as well as enhancing and developing its current properties. Permex is combining its low-cost development projects with its blue-sky projects for scalable growth, creating value for its shareholders.
Permex acquired its current portfolio in the oil and gas downcycle, which provided the company with significant cost savings. Land prices in the area are currently as high as US$95,000 per acre and were US$2,000 per acre when Permex purchased its assets. Permex’s properties also reside in the Permian Basin, which includes the San Andres, BoneSpring and Wolfcamp formations, all of which are known to be oil and gas-producing.
Permex’s flagship ODC San Andres and Taylor properties are located in Gaines County, Texas in the Midland Basin. The ODC San Andres unit hosts 35 active oil wells, two shut-in wells and 15 water injection wells, while the Taylor unit hosts one producing well and one water supply well. Permex intends to restimulate the producing wells, frac the well that has low fluid entry and bring online the shut-in wells. In addition to this, the company is also considering additional vertical and horizontal wells on the property to increase Permex’s production rate, providing the company with a near-term cash flow opportunity.
The Pittcock properties are located in Stonewall County, Texas. Over the course of 2018, Permex was able to increase its waterflood enhanced oil recovery (EOR) program at the Pittcock North property to 2,000 barrels of water injected per day (bwipd), which is expected to help the company raise its production output as they open new wells and optimize old ones. The Pittcock South property has a cumulative production of 270 million barrels and hosts six producing wells, 13 shut-in wells and two saltwater disposal wells. Moving forward, Permex intends to re-enter 11 wells and drill 12 new wells at Pittcock South.
The Mary Bullard property is located in Stonewall County, Texas, and has produced 177,000 barrels of oil and 2.8 million cubic feet of gas. The property currently has one producing well, four shut-in wells and two water injection wells. Permex intends to restore production in the producing wells and will also be drilling additional wells.
Permex also has two exploration-stage projects in New Mexico: Henshaw West and Oxy Yates. When the Henshaw West unit was formed in January 1966, it had 41 wells that produced 1.735 million barrels of oil. Waterflooding was initiated on the property in December 1966 and produced approximately 2.5 million barrels of oil. The Oxy Yates property, meanwhile, has produced 27,000 barrels of oil and 4.25 million cubic feet of gas. Permex intends to continue drilling and optimizing existing wells to move the projects into production.
Permex has an offset partnership in place with Occidental Petroleum Corp. (NYSE:OXY), an international oil and gas exploration and production company with operations in the US, Middle East and Latin America. The company is also looking at forming partnerships with other operators in the area. Permex is led by a team of experienced operators in exploration, production, geology, engineering, field development and M&A. Management owns 12 percent of shares and looks to increase its position in the company when the opportunity arises.
Permex’s Company Highlights
- Operating in the Permian Basin of western Texas and southeast New Mexico.
- The San Andres formation has produced approximately 12 billion barrels of oil and two trillion cubic feet of gas.
- Permex controls over 6,500 acres of land which was bought at a discount.
- Permex has over 145 oil and gas wells, 72 producing wells, 37 shut-in wells, 34 saltwater disposal wells and two water supply wells across eight properties.
- As of November 2018, the company has proven and probable reserves of 7.69 billion barrels of oil and 8.24 million cubic feet of gas.
- Offset partnership in place with Occidental Petroleum Corp., an international oil and gas exploration and production company with operations in the US, Middle East and Latin America.
- Management owns 12 percent of shares.
The Oil and Gas Market
According to Deloitte, the overall oil and gas market looks stable and healthy as unemployment is low, business investment is up and prices are stable. The Organization of the Petroleum Exporting Countries (OPEC) believes that global oil demand will rise by 38 million barrels a day to 115 million barrels per day by 2025. However, sustainability has become an issue that is affecting the energy industry as public sentiment shifts towards renewable energy sources and green initiatives.
The oil and gas industry has also been experiencing some supply issues, such as a decline in discoveries and the slow rise in exploration spending. There have also been supply disruptions in existing oil fields as production declines, with geopolitical issues also doing their part to disrupt supply.
As supply issues increase, so does the demand for oil and gas in developing countries such as China and India. The need for oil is growing in these markets as the middle class grows and improves its standard of living. Another factor affecting the market is US President Donald Trump as the US’s trade dispute with China continues. The President continues to post tweets calling on OPEC to lower the prices.
The Permian Basin
The Permian basin has been a key area in the energy sector as it is the largest petroleum-producing basin in the US and the second-largest oil field in the world. Since 2017, over US$24 billion has been invested in the region as producers figured out how to extract the oil and gas trapped in the ground below. The Permian Basin accounts for approximately 30 percent of the country’s oil production for an output of over three million barrels per day.
The Permian basin hosts the San Andres formation, which has produced approximately 12 billion barrels of oil and two trillion cubic feet of gas. The formation has produced billions of barrels of oil over several decades and is expected to do so for years to come. In Texas, the formation has a depth between 4,500 feet and 5,500 feet. As of March 2019, over 312 horizontal wells have been permitted in Texas within the past 12 months.
Permex’s Reserves and Resources
As of November 30, 2018, Permex’s reserves and resources are as follows:
ODC San Andres and Taylor Property
The ODC San Andres and Taylor property is located in Gaines County, Texas in the Midland Basin. Permex holds a 41.4 percent working interest with a 34.7 percent net revenue interest in the ODC San Andres unit and owns a 48 percent working interest with a 41.51 percent net revenue interest in the Taylor lease. Permex’s offset partner is Occidental Petroleum.
Oil was discovered in the county in 1936; however, the ODC (San Andres) field was discovered in 1957 at a depth of approximately 5,450 feet. There are currently 35 active oil wells, two shut-in wells and 15 water injection wells in the field. The W.J. “A” Taylor lease was drilled in 1970 and currently hosts one producing well and one water supply well.
Permex intends to restimulate the producing wells, frac the well that has low fluid entry and bring online the shut-in wells. In addition to this, the company is also considering additional vertical and horizontal wells on the property to increase Permex’s production rate, providing the company with a near-term cash flow opportunity.
Pittcock North is located in Stonewall County, Texas and is approximately 60 miles north-northwest of Abilene. Permex holds a 100 percent interest in the property and an 81.25 percent revenue interest.
In February 2016, Permex initiated a waterflood EOR program that successfully moved water from east to west across the property towards a shale pinch-out in the northeast area of the lease. This resulted in a 160 percent increase in oil production from the field; however, due to downhole mechanical issues, the company halted the waterflood program in 2017.
After a review of the process, Permex was able to change the mechanical portion of the water supply well in 2018 to create an artificial lift instead of using a traditional pumpjack method. Through the change, Permex was able to keep the supply well from going down. The company also now has the opportunity to increase its floodwater to over 2,000 bwipd for a maximum sweep of the field.
Permex intends to increase its daily water injection to a total of 2,000 barrels of water. The company also plans to re-enter four shut-in wells and drill eight new wells.
Pittcock South is also located in Stonewall County and is approximately 60 miles north-northwest of Abilene. The project is situated on the eastern shelf of the Midland Basin. Paramex holds a 100 percent working interest in the property and a 71.90 percent net revenue interest.
The property was drilled in 1996 and had cumulative production of 270 million barrels and production has benefitted from water injection into the reservoir. The property hosts six producing wells, 13 shut-in wells and two saltwater disposal wells.
To date, Permex has completed a detailed reservoir study. The study outlined the areas of the reservoir that were underperforming, revealing how to optimize them through a water injection scheme. Moving forward, Permex intends to re-enter 11 wells and drill 12 new wells.
West Henshaw Property
The West Henshaw unit is located in Eddy County, New Mexico in the Delaware basin and is 12 miles northeast of Loco Hills. Permex holds a 100 percent working interest in the property and a 72 percent net revenue interest.
In January 1966, Mobil Oil Corporation formed the West Henshaw unit. When the property was created, it had 41 wells that produced 1.735 million barrels of oil. Waterflooding was initiated in December 1966 and produced approximately 2.5 million barrels of oil. The property currently hosts nine producing wells and four saltwater disposal wells.
Permex intends to restore production in the producing wells by stimulating them with acid treatments. The company will also be studying the Bone Springs and lower Wolfcamp potential on the property with the intention to drill additional wells.
Oxy Yates Property
The 4,198-square-mile Oxy Yates project is located in Eddy County and is approximately eight miles north of Carlsbad, New Mexico. The project resides in the Delaware Basin and is producing oil and gas. Permex holds a 100 percent working interest in the property and a 77 percent net revenue interest.
In the late 1990s and early 2000s, the Fed wells were drilled. The property currently hosts eight producing wells and two shut-in wells that produce six barrels of oil per day. To date, the Oxy Yates property has produced 27,000 barrels of oil and 4.25 million cubic feet of gas from the shallow Yates sand of the Permian Basin, which has a 50-foot to 60-foot thick pay zone.
Permex intends to optimize production at Oxy Yates by utilizing acid treatments as well as cleaning the wellbores and downhole pump replacements. The company also plans to complete a drill program on the field within the Yates sands. The program will evaluate the results of 10-acre down spacing in the Yates formation on the land a mile east of the property.
Mary Bullard Property
The Mary Bullard property is located in Stonewall County, approximately 5.5 miles southwest of Aspermont, Texas. The property is situated on the eastern shelf of the Midland Basin.
The Mary Bullard property was drilled in 1980 and has produced 177,000 barrels of oil and 2.8 million cubic feet of gas. The property currently has one producing well, four shut-in wells and two water injection wells. Permex holds a 100 percent working interest in the property and a 78 percent net revenue interest.
Permex intends to move the shut-in wells back into production. The company is also planning on drilling three new wells before initiating a waterflood project on the property.
Permex’s Management Team
Mehran Ehsan — President, CEO and Director
Mehran Ehsan has over 12 years of experience in the oil and gas industry. He has led teams in the creation of many upstream oil and gas companies with a focus on acquisitions and divestitures. Over the last 12 years, he has been involved as owner of O&G DPP programs, manager in mergers, acquisitions and divestitures, financing arrangements and investment with a specialty in oil and gas opportunities. He has been directly involved and facilitated over $87 million in capital syndication and injection. His academic background ranges from a spectrum of marketing management, business management, wealth management and petroleum-based curriculums and programs such as engineering and geology. He is also an MBA candidate with a specialty in Finance. Ehsan has authored various articles in the oil and gas industry, with presence as a guest speaker and judge in both this industry and academia-related events.
Scott Kelly — CFO, Corporate Secretary and Director
Scott Kelly has 15 years of experience acting as a senior officer and/or director of various private and public companies with large scale resource assets throughout North and South America. He obtained his Bachelor of Commerce degree from Royal Roads University in 2001. He has helped manage companies through all stages of their life cycle; from initial publics’ offerings through to being successfully acquired by major multinational corporations.
Barry Whelan — COO and Director
Barry Whelan has over 40 years of experience as a geologist. Initially with Gulf Oil in International Operations, then with such companies as KOS Energy Ltd., Next Millennium Commercial Corp., Opal Energy Ltd., Copper Creek Ventures Ltd., Avro Energy, Polar Resources Ltd., ProAm Exploration Corporation, Voyageur Oil and Gas Corp. and Bighorn Petroleum to name a few. Whelan has represented a diverse array of energy market participants including oil, gas and other resources-based companies with clients ranging from global energy concerns to start-up companies. As a Geological Consultant, he has been active in natural resource and industrial development companies with natural resource holdings in oil, gas and minerals, worldwide.
His responsibilities include economic evaluations of properties; research and development of projects which have economic potential; evaluation of projects and their requirements for capital; presentations to management, financial institutions and shareholders; economic analysis of resource properties and coordination of acquisition, development and production for resource properties; and the filing of V.S.E. reports, assessment reports and property evaluations for petroleum and mining companies on resource properties. Whelan received his Bachelor of Arts, Geology, from the University of Western Ontario in 1961, Bachelors of Science, Honours Geology, McMaster University, 1965. He is or has been a member of the Geological Association of Canada, Association of Professional Engineers and Geoscientists British Columbia, Association of Professional Engineers, Geologists and Geophysicists of Alberta, Canadian Society of Petroleum Geologists and the Institute of Petroleum in London.
Earl Tobin — Geologist
Earl Tobin has over 30 years of experience working as a geologist, building and growing both public and private oil and gas companies. His career has focused on full-cycle exploration, from regional geologic mapping and reservoir modeling to field development and planning. He has been involved in the drilling of hundreds of wells, both vertical and horizontal, through a variety of depositional basins. His experience enables him to quickly assess geologic risk and to recognize potential in a broad range of play types.
As a new graduate of University of Saskatchewan, Tobin joined Tri Link Resources Ltd. where he gained significant experience and success drilling horizontal wells. At Tri Link, he ultimately moved into the role of Chief Geologist, Alberta. In this position, he managed all gas properties, and through a five-year process of drilling and acquisition, gas assets increased by over 100 BCF. He then joined Bolt Energy Ltd. as Manager of Exploration when the company went public in 1997. He was quickly promoted to VP Exploration, and in that role was responsible for all aspects of growing the company, from corporate development to financial management. He assisted in the growth of the company to approximately 900 BOPD with minimal debt. Bolt was subsequently successfully merged with Blue Mountain Energy. At Blue Mountain Energy, he was responsible for the discovery and exploitation of several key assets. Blue Mountain Energy was then sold to Trilogy Energy Corp. for $142 million in October 2006.
Tobin went on to be the co-founder of the GAMET Resources Ltd., a private company. As an integral member of the management team, he played a key role in the development and implementation of the corporate business plan. He is a member of the Association of Professional Engineers, and Geoscientists of Alberta (APEGA), the Project Management Institute (PMI), Canadian Society of Petroleum Geologists and the American Association of Petroleum Geologists.
Dale Lee — Petroleum Engineer
Dale Lee has over 25 years of experience in the oil and gas sector. He is currently the President & CEO of DL Petroleum & Engineering Consulting. Some of his past notable involvements and experiences include, but are not limited to, Petro Canada and Breaker Energy as a Reservoir Engineer and Canadian Natural Resources as an Exploitation Engineer. As a reservoir engineer, Lee has been active in natural resource and industrial development companies with natural resource holdings in oil and gas worldwide. His responsibilities include engineering with a focus on analyzing partly depleted reservoirs to predict the locations of underperforming wells based on statistical analyses of hydrocarbon production. In 1994, he earned his Professional Engineering status with The Association of Professional Engineers and Geoscientists of Alberta (APEGA).
Connie Hang — Controller
Connie Hang has over 17 years of finance, accounting and management experience in a variety of industries, including the energy industry. She has acted as an independent financial consultant since 2009 and has served over 40 public and private companies, which span across Vancouver-based companies to foreign-controlled entities. Prior to starting up her consulting business, she worked for 10 years in professional accounting firms and held senior positions in tax and audit practices. Hang is a Member of the Chartered Professional Accountants of Canada and a Member of the Certified General Accountants Association of Canada and British Columbia and holds a Bachelor of Accounting Science from the University of Calgary.
Doug Urch — Director
Doug Urch is a Chartered Professional Accountant (CPA) and a member of the Institute of Corporate Directors (ICD), with a degree in Commerce. He has been involved in the oil and gas industry for over 35 years. Doug Urch has been a director for a number of listed (TSX & AIM) and private companies, offering financial management services. For the last 10 years, Doug was the Executive Vice President, Finance and Chief Financial Officer and Corporate Secretary for Bankers Petroleum.
Justin Kates — General Counsel and Director
Justin Kates is a partner of DuMoulin Black, practicing primarily in the areas of securities, corporate finance, mergers and acquisitions and corporate and commercial law. He works with clients in a wide range of industries including oil and gas, technology, life sciences, food and beverage and natural resources. He advises clients from all stages of development ranging from early-stage to large public companies. His practice includes advising these clients on a range of matters, including equity and debt financing, stock exchange listings, mergers and acquisitions, reorganizations and general corporate and commercial matters. He received his J.D. from the University of Western Ontario and his Bachelor of Business Administration from Western Michigan University.
Edward A. Odishaw — Barrister, Solicitor and Director
Edward Odishaw serves as the President of Austpro Energy Corp. He served as a Barrister and Solicitor with the law firm of Swinton & Company in Vancouver, Canada from 1972 to 1992. He was a Barrister and Solicitor with the law firm of Boughton Peterson Yang Anderson, located in Vancouver, Canada from 1992 to 1999. He practiced law in Saskatchewan and British Columbia, Canada, with emphasis on commercial law, corporate mergers, acquisitions and finance from 1964 to 1999.
Odishaw serves as the Chairman of Austpro Energy Corp. and has been its Director since December 1995. He served as Chairman of the Board of United States Lime & Minerals Inc. from July 1993 to May 2005. He has been Vice Chairman of United States Lime & Minerals Inc. since May 2005 and has been its Director since July 1993. He has been Director of Valterra Resource Corporation since June 1, 2006. He served as Director at Valterra Resource Corporation since June 01, 2006 and served as its Director from November 10, 2003 to June 17, 2005. He served as a Director of Hester Creek Estate Winery Ltd. He holds Directorships in numerous companies in Canada. He is a member in good standing of the Law Society of British Columbia and the Canadian Bar Association and is a non-practicing member of the Law Society of Saskatchewan.
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