Nobel Petroleum USA, Inc., (“Nobel”) owns a 50% working interest (“WI”) and a 37.50% Net Revenue Interest (“NRI”) in the City of Gonzales Lease Area (“Lease or COGLA”) located within the City of Gonzales, Gonzales, Texas. A 75% interest in the Lease Area was acquired by sister entity Nobel Petroleum LLC in November 2016, and it is currently the operator subcontracting the drilling operations. Nobel acquired its interest from Av-Tech Oil & Gas LLC (“Av-Tech”), a long time local operator in South Texas which had over prior years assembled with difficulty the petroleum lease acreage over mainly the central portion of the City of Gonzales, which is effectively the central undrilled portion of the Gonzales Oil field. The acquisition obligates Av-Tech and Landex being carried for their 25% proportional costs contribution in the drilling of the first two horizontal wells within a defined Area of Mutual Interest (“AMI”) making up some 1,800 leasehold acres. Subsequent additional land leasing has increased the AMI. Other than the drilling and completion costs of the first two horizontal wells, both Av-Tech and Landex contribute their full 25% working interest to all drilling, completion and operating costs. Subsequently Nobel assigned out from its 75% WI a direct 25% working interest to Sunrise Energy LLC, which obligates Sunrise to pay one third under the original acquisition obligations inclusive one third of the drilling and completion of the first two horizontal wells, together with the Av-Tech and Landex initial carry obligations.

The Lease Area has been evaluated here and is illustrated on Table 1.

 

LEASEOperatorWI %NRI %AREAEXPIRATION DATE
City of Gonzales TownsiteNOBEL PETROLUM LLC5037.502,250 acreApprox. 1000 leases 2017 through 2019 subject to releasing and/or drilling

The Lease Area collectively constitutes some 1,000 leases. Primary lease term agreements are for three years with a two year extension, with a further automatic 6 months’ extension if any well is drilled within the Lease Area. Certain of the leases have expiration terms ranging from late 2017 to 2019 as they were originally leased in 2012 and 2013, but are available for primary re-leasing by Nobel, who maintain ground personnel for this purpose, unless drilling activity has commenced within Lease Area. Following completion of a productive well within the Lease Area, the leases designated within the drilling unit in their entirety remain in effect for as long as a well produces.

Estimated revenue and costs attributable to Nobel Petroleum USA, Inc’s interests in the 1P reserves, as of December 1, 2017, are summarized as follows, expressed in millions of U.S. Dollars:

 

UNDISCOUNTED U.S.$@10%@20%
TOTAL PROVED62,049,78026,946,52017,277,480

According to the plans for the development of the COGLA Leasehold, each well will be vertically drilled through the Austin Chalk, through the Eagle Ford, and through the Buda Limestone, and logged. Total well depth to be approximately 8,500 ft. The Buda Limestone is a main field pay in this area, and if as expected it is encountered productive, Nobel may choose to complete the well for production in the Buda. Otherwise, and according to plans, following logging of the vertical well, Nobel will come back up hole and horizontally drill out along the lower Austin Chalk where the natural fractures are indicated, up to a 5,000 ft. lateral. Each well would then be completed “open-hole” as a lower Austin Chalk oil producer.

Of the horizontal wells drilled in this area, some fractured Austin Chalk completions have commenced production at rates of as much as 2,500+ barrels of oil per day. On the South side of the COGLA Leasehold, EOG Resources, Inc., one of the largest independent oil and gas companies in the United States (market cap nearly US$55 Billion), has been very active drilling horizontally in the upper Eagle Ford Shale and fracking into the lower Austin Chalk, having very good results. Nobel’s plan to horizontally drill the lower Austin Chalk to encounter the known natural fractures are expected to provide successful results without the need to frack the interval.

 

EOG REOURCES, INC., DRILLING RIG OPERATING SOUTH SIDE OF NOBEL LEASE AREA. GONZALES

The initial well, #COG 1H, was granted a Drilling Permit in May and is sited on a 279.6 acre lease within the COGLA, and as prior stated herein the Development Plan was to drill down vertically to test the Buda formation at some 8,500 ft., whereupon a determination would be made to either set casing to produce from the Buda, or alternatively, to cement off the lower horizons and to go back up hole and drill horizontally into the lower Austin Chalk. As there have been primary shows of oil and gas has been flared, drilling out of the lower Austin Chalk was commenced laterally some 3000 ft. The well is capped awaiting completion, with recent inspection confirming flows of sweet gas. A further 1700 ft. additional is available post completion of this well for future additional reserves. Funding for this well has been provided under a term loan note.

PROPOSED INITIAL ADDITIONAL SEVEN DRILLING LOCATIONS, BASIS 320 ACRE SPACING: