CALGARY, Sept. 27, 2016 /CNW/ – Montana Exploration Corp. (“Montana Exploration” or the “Company“) (TSXV: MTZ) today announced that it has entered into an agreement (the “Farmout Agreement“) under which the Company will drill and operate five Shaunavon oil well prospects that were delineated using the Company’s extensive 3D Seismic on its directly held and option lands comprising approximately 447,000 acres (or 689 square miles) in Blaine & Hill Counties, Montana.
Drilling Program & Farmout
The Farmout Agreement was entered into with Rioco Partners, Ltd. (“Rioco“), a company managed by Montana Exploration’s largest shareholder, who is also a director and “control person” of Montana Exploration. Five prospect wells identified by 3D Seismic will be drilled under the Farmout Agreement, targeting undiscovered recoverable resources of over 21 million barrels of oil, with the first well intended to be spudded on or about October 4, 2016 (the “Drilling Program“). All five wells will be drilled vertically to approximately 4,000 feet and are expected to cost approximately CAD$750,000 per well for a total program cost of CAD$3.75 million.
Under the terms of the Farmout Agreement, Rioco will pay 100% of the costs associated with the drilling of each well, plus a prospect identification fee for each well. In exchange, Rioco will earn a 75% working interest in each of the drilled wells. After the five-well project has paid out the costs to drill, complete, equip or abandon all five wells, Rioco’s working interest in each well will reduce to 50%. Rioco will also earn a 50% working interest in the acreage associated with each of the prospects drilled (a “Prospect Area“), which can be converted at Rioco’s election to a 5% gross overriding royalty prior to the drilling of any development well in the Prospect Area. Four of the initial prospects to be drilled pursuant to the Farmout Agreement are on lands held by Montana Exploration and one is part of the option acreage to be earned by the Company through a farm-in it has with a large Montana based utility that was announced on December 1, 2015.
These shallow, low cost oil prospects are economic at below the current commodity prices of approximately $45 per barrel and economics are competitive with drilling being undertaken in the United States in the Permian basin. In addition to completing the Drilling Program pursuant to the Farmout Agreement, Montana Exploration remains focused on financing the Company’s outstanding payables and general, administrative, technical and land costs associated with the Drilling Program implementation.
The Drilling Program is based on the results of the first phase of a geophysical study of 286 square miles out of 315 square miles of 3D seismic data (the “3D Seismic“). The 3D Seismic covers approximately half of the 447,000 acres of land to which the Company holds the development rights.
The 3D Seismic has greatly assisted in resolving regional geology. 3D seismic has only recently been available in the region where most of the activity has occurred in drilling for gas in the shallow Eagle and Judith River sands from 800 to 1200 feet. Although there have been relatively few local Shaunavon penetrations, more than 20 million barrels of oil have been produced from offsetting acreage in the Montana portion of the Shaunavon trend (Source: Montana Board of Oil & Gas Conservation). The Company’s acreage is an extension of the Shaunavon trend north of the border in Canada, which has produced more than 400 million barrels of oil to date (Source: Saskatchewan Ministry of Energy and Resources).
The Company has identified over 30 prospect areas on its acreage so far, in both the Shaunavon oil and Eagle gas zones, from which five priority targets were selected for the Drilling Program. On a “pre-drill basis”, the five prospects represent drill targets for undiscovered recoverable resources of 21 million barrels of oil which has been extrapolated from the 3D Seismic, comparison to recovery factors from adjacent pools, and the Company’s estimate of reservoir porosity, thickness and quality from adjacent wells.
Montana Exploration is also using the 3D seismic to evaluate natural gas prospects in the Eagle and other potentially productive horizons to support a future gas drilling program as natural gas prices recover.
ABOUT MONTANA EXPLORATION CORP.
Montana Exploration Corp. is an oil and gas exploration and production company focusing on the Shaunavon oil and Eagle gas opportunities underlying its extensive land holdings and drilling rights in the State of Montana. In the United States, the company operates through its wholly-owned subsidiary, Montana Land & Exploration, Inc. The Company’s common shares are listed on the TSX Venture Exchange under the trading symbol “MTZ”. Additional information regarding the company is available at www.SEDAR.com or at www.MontanaExplorationCorp.com.