Posted yesterday on Stampede's Web Site
June 11, 2001
Report to the Shareholders
Stampede Oils Inc. was incorporated in November 1987, the year which marked the beginning of a new oil and gas exploration era in the Turner Valley area of southwestern Alberta. Stampede and Bearcat Explorations Ltd. joined forces to initiate exploration for what was considered to be, by many explorationists in western Canada, the main bypassed oil pool of the Turner Valley formation. The existence of this major oil pool was considered very likely but, until recently, it was basically considered by some in the Oil and Gas Industry to be a figment of the imagination. However, current operations at the recently drilled Stampede Turner Valley 2-34-20-3 W5M Regional Turner Valley formation oil discovery well are validating the existence of this main oil pool. The Company's geological and geophysical interpretation of this area has now been verified with the drilling of the 2-34 well, and two previous wells immediately to the north. A few wells drilled in the 1940's had in fact drilled into this pool unknowingly, but primitive rotary drilling conditions at that time precluded these wells from being completed for production.
With the exception of one major gas discovery well, the first five wells drilled in the overall Turner Valley area, by the Stampede/Bearcat group were only moderately successful. However, information derived from these wells, along with good seismic coverage, assisted in the finalization of the Company's current interpretation of the prospect. This five-well program provided data necessary for directing the next exploration-drilling phase to the Turner Valley North area. A major Devonian Crossfield gas discovery well, Stampede Bcat et al Hartell 4-13-19-2 W5M, was encountered with the drilling of the first well in the Turner Valley South area.
New drilling partners brought into this project in 1997-98 drilled a very successful well on Stampede et al acreage in Lsd 8 Sec 21 Twp 21 Rge 3 W5M, utilizing the then current Stampede/Bearcat area interpretation. A detailed discussion on this third-party involvement, set out in the 1998 Report to Shareholders, can be accessed on Stampede's website www.Stampede.ab.ca. This well has been completed in the gas cap of the Turner Valley main oil pool as a gas well, even though the well has an approximate 50 ft. oil leg. Stampede has an interest in this well, and the recently drilled offset development gas well, as set out further in this report. Stampede has been advised that both wells are to be on production in the fall of this year.
The subsurface location of the recently drilled Stampede Turner Valley 2-34-20-3 W5M well, offsets directly the first well that was drilled deep enough in this area in 1943, to penetrate into the bypassed Regional Turner Valley oil pool. Though this 1943 well had significant oil recovery on testing, it had been drilled deeper into an underlying water-laden formation, which prevented it from being completed.
Stampede and partners have been subjected to an organized objector group in this area since the two new companies drilled the 8-21 gas well. Several of the key objectors, who have connections with the above two companies, have never expressed any concerns to the drilling operations of these other two companies, which are located in the immediate area, whereas a drilling license application by Stampede et al to drill an offset well to the 8-21 gas discovery well was denied, largely as a result of this objector group, in mid 1999.
The Company's prior consultants committed Stampede to very severe testing, completion and production restrictions to apparently prevent the objector group mentioned above from forcing Stampede into a public hearing in order to get a drilling license. The surface location for the 2-34 well is located in the middle of the existing and still producing Turner Valley oil field.
Although the Regional Turner Valley oil reservoir in the Stampede Turner Valley 2-34-20-3 WSM well was subjected to a number of very questionable operating procedures (too numerous to discuss at this time), which the Company became aware of after the fact, operations that have now been conducted on the well are expected to enable it to be production tested approximately one week from the date of this report. All reservoir indicators to this time are considered very positive.
Despite numerous roadblocks the Company has encountered in its endeavours to have the Stampede Turner Valley 2-34-20-3 indicated oil discovery well tested and placed on production, by the time of Stampede's Annual General Meeting on August 3rd it is expected that the 2-34 well will have been on production for a number of weeks and producing at very significant rates as previously anticipated.
The Company and its partners were advised by Alberta Resource Development on March 28, 2001 that the Crown Petroleum & Natural Gas (P&NG) lease covering Section 22 Township 21 Range 3 W5M was to be terminated as recommended by the operator of the offset IMP Berkley Turner Valley 8-21-21-3 W5M gas discovery well and its partner. This Section 22 P&NG lease is located east and immediately adjacent to the Section 21 discovery well. The Stampede/Bearcat group (combined 70% working interest), however, was allowed to submit a separate presentation to Alberta Resource Development on April 28, 2001 by which to evidence geological rationalization for continuance of this P&NG lease. Stampede was advised on Tuesday, May 29, 2001 that in accordance with the submitted Stampede/Bearcat geological interpretation, the Crown P&NG lease underlying Section 22 had been continued indefinitely. As Imperial and its partner had registered their recommendation to allow this P&NG lease to expire, Alberta Resource Development will be requested to re-issue the lease evidencing the Stampede/Bearcat group to now hold 100% of the P&NG rights, as follows:
Bearcat Explorations Ltd. 58.3500%
Stampede Oils Inc. 24.3125%
Panda Petroleums Ltd. 14.5875%
Curlew Lake Resources Inc. 2.7500%
The Company's interpretation of the oil reservoir underlying the Section 22 P&NG lease indicates in excess of 10 million barrels of recoverable 42° - 45° gravity oil in the Regional Turner Valley formation, with production rates expected to be in excess of 1000 barrels of oil per day.
Immediately after completion of the production test of the Stampede Turner Valley 2-34 oil discovery well, preparations will commence for acquiring regulatory body approval to drill a Regional Turner Valley development well in Lsd 3 Sec 22 Twp 21 Rge 3 W5M, as well as other development locations denoted in previous communiqués.
In the accompanying financial statements a recent loan provision has been set out, the terms of which could be considered excessive. Unfortunately, Stampede et at were not able to obtain necessary financing locally to continue their ongoing exploration operation in Turner Valley, as the Stampede/Bearcat oil pool interpretation was being discredited by a major international oil and gas company with support from an associated smaller Canadian exploration company, both with operations in the Turner Valley area. A financial connection in the United States, however, that was willing to take the risk necessary to have the 2-34 oil discovery well drilled was introduced to the Company and its partners. Though the terms of this provision may be considered to be somewhat severe in part, Stampede et at did not have any alternative available. However, these terms will in fact be very minimal related to the magnitude of recoverable oil and gas reserves and associated production rates expected to be encountered with the ultimate development of Stampede's oil and gas leases over this interpreted oil pool. A mutually beneficial long- term joint venture arrangement with this U.S. financial entity has been entered into.
Management and the Board of Directors of Stampede are very proud to be able to remind the Company's shareholders of the decision to provide an irrevocable assignment of a 0.1% Gross Overriding Royalty (GOR) to the Oilfields Health Foundation in the greater Turner Valley area, which was conveyed to shareholders by way of a Letter to Shareholders dated February 14, 2001. The GOR is applicable to the interests of Stampede and an associate exploration Company in the Turner Valley area, and could provide needed financing to the Oilfields Health Foundation averaging as much as $20,000.00 annually per well.
This GOR provision will provide direct and indirect benefit to all members of the overall Turner Valley community, not just special interest groups. An assignment of any interest in P&NG leases in the Turner Valley area from Stampede to another exploration company, will necessitate that company being obligated to accept a pro rata share of this GOR provision. In this manner the possibility of other companies in this area becoming involved in this GOR commitment exists and hopefully will provide incentive for more corporate entities in the Industry to consider participation by way of a similar operational policy.
The Board of Directors wish to acknowledge the incredible amount of continuing shareholder support during the Company's efforts to ensure the Turner Valley drilling operations are conducted as planned, and express their sincere appreciation for this. It has been a very successful all round corporate/shareholder team effort to date. Shareholders are requested to not lose sight of the fact that on a long-term basis, the Turner Valley project has the distinct potential of being the proverbial "company maker" of a very significant magnitude, a fact which is expected to escalate greatly the Company's value.
Look forward to seeing you at the Annual General Meeting on Friday, August 3, 2001.
On Behalf of the Board of Directors
John W McLeod
President |
