Hi Bob,
It's been so quiet here lately, I thought I'd get you some background reading on one of your sleepy juniors. Just in case you haven't seen it yet, this is excerpted from PYR's quarterly, just released in time for their annual meeting tomorrow. You can get the whole thing on EDGAR.
Check it out and have a great day.
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April 14, 1999
PYR ENERGY CORP (PYRX)
Quarterly Report (SEC form 10QSB)
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company is an independent oil and gas exploration company whose strategic focus is the application of advanced seismic imaging and computer-aided exploration technologies in the systematic search for commercial hydrocarbon reserves, primarily in the onshore western United States. The Company attempts to leverage its technical experience and expertise with seismic to identify exploration and exploitation projects with significant potential economic return. The Company intends to participate in selected exploration projects as a non-operating, working interest owner, sharing both risk and rewards with its partners. The Company has and will continue to pursue exploration opportunities in regions where the Company believes significant opportunity for discovery of oil and gas exists. By reducing drilling risk through seismic technology, the Company seeks to improve the expected return on investment in its oil and gas exploration projects.
The Company currently anticipates that it will participate in the drilling of two to four additional exploratory wells during the next twelve months, although the number of wells may increase as additional projects are added to the Company's portfolio. However, there can be no assurance that any such wells will be drilled and if drilled that any of these wells will be successful.
The following provides a summary and status of the Company's exploration areas and significant projects. While actively pursuing specific exploration activities in each of the following areas, the Company is continually reviewing additional opportunities in these core areas and in other areas that meet certain exploration and exploitation criteria. There is no assurance that drilling opportunities will continue to be identified in the current project portfolio or will be successful if drilled. The Company's primary focus area is the San Joaquin Basin of California.
The San Joaquin Basin of California has proven to be one of the most productive hydrocarbon producing basins in the continental United States. To date, the approximately 14,000 square mile basin has produced in excess of 12.7 billion barrels of oil equivalent, and contains 25 fields classified as giant, with cumulative production of more than 100 million barrels of oil equivalent ("MMBoe").
The San Joaquin basin contains six of the 25 largest oil fields in the U.S. All six of these fields were discovered between 1890 and 1911, a full decade prior to the discovery of the first giant Texas oil field. The basin accounts for 34 percent of California's actively producing fields, yet produces more than 75 percent of the state's total oil and gas production. Most of the production within the basin is located along the western and southern end of Kern County. San Joaquin basin production totals for 1997 reported by the California Department of Oil and Gas for all producers in the aggregate indicate total production of 246.9 MMBoe. Of this figure, Kern County accounts for over 90 percent of the oil production from the San Joaquin basin.
This basin as a whole has suffered from a lack of applied exploration technology and deep drilling. Only about one percent of the total basin wells have been drilled to a depth greater than 12,000 feet and none of the 2,000 wells drilled during 1996 was drilled to a depth greater than 12,000 feet. Additional 1996 statistics indicate that the average well depth drilled during the year was just slightly more than 1,800 feet. Three-dimensional seismic has been employed only in limited quantity and in certain areas of the basin.
With limited exploration in the San Joaquin basin since the "boom" days of the early 1980s, the Company believes that multiple exploration opportunities are available. Deep basin targets, both structural and stratigraphic in nature, remain largely untested with modern seismic technology and the drill bit. In addition, continued retrenchment of major oil companies has opened up fee acreage positions to outside exploration by aggressive independent companies. Although the Company has identified a number of exploration plays in the San Joaquin basin, the project that has advanced most rapidly has been the company's East Lost Hills Prospect.
In 1997, the Company had identified and, together with Armstrong Resources LLC ("Armstrong"), had undertaken technical analysis of a deep, large untested structure in the footwall of the Lost Hills thrust. This prospect lies directly east of and structurally below the existing Lost Hills field, which has produced in excess of 350 MMBoe from shallow pay zones in a large thrusted anticlinal feature. Early in 1998, the Company and Armstrong, entered into an exploration agreement with a number of established Canadian partners to participate in the drilling of an initial exploratory well to fully evaluate the feature. Bellevue Resources, Inc., a subsidiary of Elk Point Resources, Ltd., is operator of the well. Currently, other participants in the well include: Berkley Petroleum Corporation, Paramount Resources, Ltd., Richland Petroleum Corporation, Westminister Resources, Ltd., Kookaburra Resources, Inc. and Hilton Petroleum Company. PYR received cash consideration for its share of acreage in this play and a carried 6.475% working interest through the tanks in the initial exploration well. PYR owns an additional 4.1% working interest for a total before payout working interest of 10.575%, which reduces to 9.253% after payout in the initial exploration well. The Company owns a total working interest of 10.575% in the six township area of mutual interest, subject to a back-in interest after payout on approximately 900 acres that would reduce the Company's working interest on those approximate 900 acres to 9.255%. The Company and its joint working interest owners control approximately 30,000 gross acres of leasehold over the prospect.
The Bellevue Resources et al. #1-17 East Lost Hills well, located in SE1/4. Sec 17, T26S, R21E, Kern County, California, commenced drilling on May 15, 1998. The well was designed to test prospective Miocene sandstone reservoirs in the Temblor Formation. During September 1998, the well was sidetracked in an attempt to gain better structural position and delineate potential uphole pay. On November 23, 1998, the well was drilling at 17,600 feet toward a total depth of 19,000 feet when it blew out and ignited. No personal injuries resulted, and an expert well control team was engaged to contain the fire. Currently, the well is fully contained with produced water, natural gas, natural gas liquids and oil being separated and delivered to disposal and processing facilities. In order to control the well, the operator commenced drilling a relief well on December 18, 1998, designed to intersect the wellbore of the blowout well at a depth of approximately 16,500 to 17,000 feet. Upon intersection, the relief well is intended to perform a bottom hole kill to permanently plug the blowout well.
Additional projects in the San Joaquin Basin include the Company's neighboring Southeast Maricopa and San Emidio projects. At Southeast Maricopa, the Company's seismic contractor, Western Geophysical Company, completed acquisition and processing of approximately 52 square miles of 3-D seismic data in late 1998. The Company continues to interpret the data in order to further refine drillable prospects. At San Emidio, the Company's approach is to incorporate approximately 39 square miles of existing 3- seismic data with the newly acquired data at its Southeast Maricopa acreage in order to further understand the complex stratigraphic geometries and trapping mechanisms found here. The Company may present this project to potential industry partners in conjunction with its Southeast Maricopa project or may create an independent project for presentation. The Company's approach may be to obtain industry participation in order to receive a carried interest in the drilling of one or more exploration wells. No drilling commitments have been made or received.
On April 5, 1999, the Company reported it has signed an agreement with Armstrong Resources, LLC to participate in three additional deep exploration projects in the San Joaquin basin of California. All three projects lay outside the East Lost Hills joint venture area. The agreement calls for PYR to pay Armstrong a combination of cash and common stock in exchange for a working interest, ranging from 3.00% to 3.75%, in each of the three exploration prospect areas. PYR's interest will be carried in the initial test well in each of the three separate exploration prospects. The first exploration well in the program is expected to spud in May and will be operated by Berkley Petroleum Corporation. The three of exploration prospects, targeting the Temblor Formation at depths ranging from 15,000 to 18,000 feet, are expected to be drilled in sequence with the same rig. It is expected that this agreement will close on or before May 1, 1999.
In addition to the above activities in the San Joaquin Basin of California, the Company has signed an exploration farmout agreement with Chevron Production, USA on approximately 68,000 gross (37,000 net) acres of leasehold in northwestern Montana. In exchange for the Company's payment of delay rental obligations and Chevron retaining overriding royalty interests, ranging from 2 to 5%, the Company has obtained Chevron's interest in this acreage position.
At February 28, 1999, the Company had a negative working capital amount of ($1,774,000). Included in this figure are $2,500,000 of convertible debentures sold by the Company in a private placement during the quarter ended November 30, 1998. The private placement securities issued are 10% convertible notes that will automatically convert to 10% convertible preferred stock at the time, if any, that PYR has obtained stockholder approval for, and issued, the convertible preferred shares. The preferred stock is ultimately convertible into common stock at a conversion price of $.60 per common share.
The Company had no outstanding long-term debt at February 28, 1999 other than a capital lease obligation and has not entered into any commodity swap arrangements or hedging transactions. Although it has no current plans to do so, it may enter into commodity swap and/or hedging transactions in the future in conjunction with oil and gas production. Nevertheless, there can be no assurance that the Company will ever have oil and gas production.
It is anticipated that the future development of the Company's business will require additional capital expenditures. The Company is in the process of attempting to control an exploration well at East Lost Hills. Depending upon the ultimate results at East Lost Hills and the results of the Company's other exploration projects, the Company may require as much as $4,000,000 to $6,000,000 for capital expenditures during the next 12 months. The Company intends to limit capital expenditures by forming industry alliances and exchanging an appropriate portion of its interest for cash and/or a carried interest in its exploration projects. The Company anticipates that it may need to raise additional funds to cover capital expenditures.
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