MANAGEMENT DISCUSSION
Curlew Lake Resources Inc. is an independent oil and gas exploration, development and production company with operations in the western sedimentary basins of Canada and the United States. Management has undertaken to maximize shareholders' value through a combination of participation in low-risk development and acquisition of oil and gas properties, and well as participation in high-risk, high potential exploration projects.
NINE MONTHS ENDED OCTOBER 31, 2000
Ekho Oil Project, San Joaquin Valley, California
The Company signed a Letter of Intent with Tri-Valley Oil and Gas ("TVOG") in July, followed by a formal participation Agreement and Joint Operating Agreement on August 24, 1999,). The agreement provided for Curlew Lake to participate in the Ekho Project by funding 5% of the estimated U.S.$9,500,000 cost of reimbursing TVOG for land and data costs and the drilling of a test well to 19,000 feet in the center of the south San Joaquin Valley near Bakersfield, California. The Company must participate in a total of three wells to fully earn into the project. TVOG retains a 12.5% carried interest to payout, which converts to a 25% working interest after payout on the first three wells. The Company's share of costs will be 5% before payout and 3.75% after payout, and its share of working interest revenue will be 4.375% before payout and 3.75% after payout. The Vancouver Stock Exchange accepted for filing the Letter of Intent agreement on this project by letter of July 30, 1999.
Located 40 miles northwest of Bakersfield, California, the Ekho No. 1 is the first of three wells scheduled to test a large structurally controlled stratigraphic trap identified geologically and confirmed by seismic data. The target formation is the Temblor sandstones, a thick package of Middle and Lower Miocene horizons in which previous drilling identified hydrocarbon prone sections.
Drilling of the Ekho No. 1 well began on February 7, 2000, and on May 7, 2000 the well had reached total depth of 19,085 feet, under budget and ahead of schedule. Logging and interpretation of the well was completed in mid-May and as a result of the analysis of all core and log data a decision was made to proceed with completion and production testing. The drilling indicated that the primary target, the Vedder Sand, has a gross sand thickness of 440 feet. The Phacoides, a secondary target, has a gross sand thickness of 160 feet over two intervals. As originally projected, other horizons that have indications of hydrocarbons include the Olcese and Antelope/MacDonald intervals. Based on log interpretation there is potential for hydrocarbons in all the sands. The total net footage of hydrocarbon bearing sands has been determined to exceed 1,000 feet
Casing was run into the top of the Vedder Sands at 18,015 feet, and the Vedder and Phacoides section was then open hole production tested from the top of the Vedder to T.D. at 19,085 feet. Flow testing, completed by June 27, 2000, produced high quality oil with an API of 48.7 degrees. Associated natural gas has a net BTU content of 1,460 with no water, H2S, CO2 or nitrogen. Subsequent wire line work revealed the presence of plugging in the open hole section at 18,343 feet in the Vedder formation. Surface pressures then indicated the well was completely blocked. As a consequence it was determined that the open hole completion had not resulted in a reliable flow test. The operator recommended a program to clean out the hole and install a liner to obtain an accurate test of the well. At this point the original budget for the well had been spent, other than funds reserved for possible abandonment.
Ekho Oil Project, San Joaquin Valley, California (cont'd...)
On July 10, 2000, the Company announced it had signed and submitted to TVOG a Consent to Proceed. The additional work, budgeted at $1,028,900 U.S., consisted of a program to clean out the hole and install a liner to obtain an accurate flow test of the well. The budget contained a contingency of $274,000 U.S. The Company's proportionate share of the additional work program was $51,445 U.S. The clean out and liner installation program was essentially completed by August 17. Due to encountered hole conditions the operator was only able to run the slotted liner through the Vedder zone, from 18,015 feet to 18,440 feet, which in TVOG's opinion represents 90% of the potential of the open hole. Subsequent flow testing indicated insufficient flow rates. It is the opinion of the operator and partners that good oilfield practice dictates that the Vedder interval justifies a hydraulic fracturing program. Of the $1,028,900 U.S. noted above, some $653,900 remained available as of August 19, 2000.
It was decided to proceed with a three-stage frac program, a data frac, a test frac and a final frac, if justified by the results of the test frac. The data and test fracs were estimated to cost $225,000 U.S. each and a final frac up to $1,500,000 U.S. All participants elected to proceed with the data frac using part of the remaining funds on hand. The data frac was completed by September 23 and did not indicate a clear cut fracturing. Although the well flowed small quantities of oil following the frac, it was decided that a different medium and more pressure would be required. An encouraging note at this point was the unusually rapid pressure build-up after shut in on September 28.
After consulting with world experts, the operator has submitted a further AFE for a total of $2 million U.S. to conduct a second data frac, to be followed by a test and final frac if indicated by results. If the data and/or test frac do not justify a full scale frac of this zone the operator proposes to use the balance of funds to go up hole and test the two other horizons with hydrocarbon potential. Curlew Lake has indicated its intent to proceed with the program at a cost of $100,000 U.S. for Curlew's 5% working interest. A number of other participants in the well have dropped out of the play and will be replaced by the operator prior to commencing the new program.
Although the drilling of the Ekho No 1 well was accomplished ahead of schedule and under budget, the completion and testing programs have put the project over budget. The Company will have to raise additional funds to maintain its interest in the play. The costs incurred in drilling and completing this deep well has been significantly below other wells in the area. It is the opinion of management that this well and the potential of the overall project have such exceptional risk/reward aspects that the share dilution we are encountering is justified.
Turner Valley Oil and Gas Project, Alberta
Four wells have been drilled and three have been successfully tested on Company interest lands in this area to date.
On our original discovery well a report dated July 12, 1999 received from Farries Engineering (1997) Ltd. of Calgary, Alberta provided a Reserve and Economic Evaluation of the Hartell Wabamum Crossfield D-1 Pool, which includes our discovery well at 4-13-19-2 W5M and the proposed deepening of the 11-12-19-2 W5M well. Total Proven and Probable Reserves net to Curlew Lake's interest are reported as 4,536.5 million Cubic Feet (MMCF) of raw gas; 2,948.7 MMCF sales gas; 65.3 thousand Barrels (MBLLS) of condensate; and 40.8 thousand long tons (MLT) of sulphur. This pool is in a deep Devonian reservoir on the southern portion of our Turner Valley land holdings.
On lands farmed out to Imperial Oil in the northern portion of the Turner Valley lands some 15 miles north of the Hartell pool, the 2-21-21-3 W5M well and the 10-16-21-3 W5M well have been successfully drilled and tested. Imperial Oil and Berkley Petroleum Corp, their partner in the project, have reported that these wells would be placed on production in the first quarter of 2001. A combined production rate in excess of 10 million cubic feet of gas plus associated liquids is anticipated. Both wells have been completed in a Mississippian Turner Valley gas zone. This Mississippian structure is at a depth of approximately 10,000 feet, some 3,000 feet above the Devonian reservoir noted above. The Company holds a 1.312% after payout working interest in these wells.
The Stampede Turner Valley 2-34-20-3 W5M well commenced drilling on August 21 and reached total depth on November 9, 2000. This well is located about 3 miles south of the 10-16 well noted above, and was drilled to test the Regional Turner Valley formation. The top of the targeted reservoir came in 9.5m (31 feet) structurally high to an old offset well drilled in 1943. The well has been logged and cased to the top of the Regional Turner Valley formation in preparation for an open hole completion. The operator reports 31m (100 feet) of net reservoir of good quality and definitely oil bearing. The well has been completed for production with tubing and wellhead installed. Production flow testing is presently underway to determine a flow rate for the well. This will be reported when reliable numbers are available.
Two additional wells on Company interest lands in the Turner Valley are in the public consultation process prior to well license applications. Both of these are considered low risk development wells and it is the intention of management to make every effort to finance participation.
Material Expenditures and Financings
During the period the Company continued efforts to keep general and administrative expenses as low as possible, while maintaining its participation in major projects. All services are provided on a contractual basis. Companies controlled by the President and Secretary of the Company accrues or receives $5,000 and $2,000 per month respectively. Services provided by a Company controlled by the President include performance of corporate business, arranging financing for company activities, and investor relations. Loans to the Company from a company controlled by the President totaled $182,500 at the end of the period.
Subsequent to the end of the period, on November l, 2000 the Company announced a private placement of 1,650,000 common shares at a price of $0.10 per share. The shares are subject to a hold period expiring December 5, 2001. These funds were required to pay for Company participation in the 2-34 well noted above and to maintain our land position (lease renewals and land acquisitions) in the Turner Valley project.
______________________________________
___________________________________________________________________
(c) Market News Publishing Inc. Tel:(604) 689-1101
All rights reserved.
Fax:(604) 689-1106
MarketbyFax(tm) - To get the NEWS as it happens, call (604) 689-3041. |
