Projects

The Chico Martinez Field - Kern County, California

Background

The Chico Martinez Field is located in an active tectonic setting between the cities of Los Angeles and San Francisco in the prolifically productive San Joaquin Basin, which is situated in the southern portion of the Central Valley of California. Its immediate neighbors (located two miles away to the Northeast and Southeast, respectively) are the well-known Belridge South Field (discovered in 1911 with current oil accumulations of approximately two billion barrels) and Cymric Field (discovered in 1909 with current oil accumulations of approximately three hundred-fifty million barrels), two of the most productive oil fields in the United states. In March of 1910, the Lake View Oil Company drilled what would come to be known as the "Lake View Gusher" well in the nearby Midway-Sunset Field. This well blew-out, spewing a twenty foot thick oil column over the top of the derrick at a peak rate of 125,000 barrels of crude oil per day. In its first eighteen months, the Gusher well would produce more than eight million barrels of oil and spawn a drilling and wildcatting boom along the western side of the San Joaquin Valley. This drilling boom would make Kern County home of some of the largest and most valuable oil properties in the world, attracting huge sums of investment capital. In January 1911, the land known as the Belridge property was purchased for one million dollars before the first well on the property was spudded. This same well was completed in April 1911, representing the discovery well in what became known as the Belridge South Field. The Belridge Oil Company - on the basis of this single field - grew into one of the ten largest U.S. oil companies and was purchased by Shell Oil Company in 1979 for the reported amount of $3.65 billion. In 1985, a 480 acre property in this area was purchased for $395 million by Celeron Oil & Gas Corporation, and Exxon, in a 1987 acquisition, valued this property at approximately $1,000,000 per acre - making it, at the time, the most expensive oil-field acreage in the world.

The Chico Martinez Field - A Brief History

The PetroMark Energy Group, LLC ("PetroMark") and Portrush retain an option to aquire a 90% working interest in a 640 acre lease-block comprised of the adjacent Mitchel and Bacon leases (the "property"). Together, such leases account for the entirety of Section 35 of Township 28S, Range 20E and represent the majority of the Chico Martinez Field. Production was established in the field in 1927 with the Max L. Pray #1 well, which produced heavy-grade crude oil (12.8 API gravity) at a rate of 11 BOPD from a 21 foot thick section found at a depth between 830 - 851 feet. At the time, heavy oil was much less desirable than it is now, and subsequent drilling in the field was sporadic into the late 1960s. In 1969, a company called Energy Reserve, Inc. (later known as Cox Technologies) acquired the property and retained it for almost 35 years. During the 1970s, refined steam-injection techniques and higher oil prices resulted in a record level of California heavy-oil production. From 1970 to 1980, the price of Kern County heavy-oil grew steadily from $2.15 to $24.30, encouraging the development of its numerous heavy-oil fields (by 1985, California oil production reached an all-time high). In the late 1970s, Energy Reserve began negotiations to partner with Pacific Gas & Electric (PG&E), a large California utility, to build a $50,000,000 co-generation facility on the property, and in the early 1980s entered into an agreement with PG&E that would allow for the construction and mutual utilization of the co-generation plant. Energy Reserve then raised millions of dollars through a public offering and drilled wells on the leases, anticipating an imminent usage of the co-generation facility to provide steam for a heavy-oil well steam-injection program it planned to undertake; also, in anticipation of the new facility, Southern Counties Gas Co. laid a gas transportation line to its proposed site. Circumstances changed abruptly, however, when oil prices collapsed in the mid-1980s (without making a full recovery until 2004), and when the state of California changed the requirements governing the purchase of electricity from third parties. As a result of these two factors, PG&E backed out of the joint venture, leaving Energy Reserve devoid of a reliable and cost effective source of steam for its steam-injection program. Energy Reserve sued PG&E, precipitating a lengthy legal battle, and ultimately collected several million dollars - which "disappeared" with the company's principals. During and after the period of this legal battle, Energy Reserve exerted only the minimal effort (financially and operationally) necessary to retain control of the leases; in late 2002, the leases were sold to Paladin International Corporation of Houston. In Autumn 2006, Paladin and PetroMark Energy Group, LLC entered into a joint venture to operate the property and secure the funding necessary for its proper development.

There are 62 wells on the property which are reported to have produced a cumulative total of approximately 550,000 barrels of oil, most of which has been produced from the Etchegoin formation (Pliocene age). The Mitchel-Bacon Etchegoin sands, which occur at depths ranging from 400 to 1,500 feet, are deltaic deposited sands which vary in quality and character, and which produce a low gravity, viscous crude oil (average API gravity of 12.8 degrees). Although development activities were initiated on the property in 1966, attempts to implement an enhanced production program weren't undertaken until October 1981, during which time an inadequate cyclic steam injection effort was made. Such undertaking, even though anemic in size and effort, resulted in a ten-fold increase in production and confirmed that the Etchegoin reservoir possesses the petro-physical characteristics necessary to respond to and support a successful thermal enhanced recovery operation. The cyclic steaming of the reservoir was discontinued within a few years, due to a dramatic and protracted decline in oil prices; an effort to implement a full steam flood was never made. The property has remained almost completely inactive since the middle 1980s. Several excellent quality reserve reports and analyses have been conducted in regards to the property, but development activities predicated on the conclusions made by these reports have yet to be fully implemented.

Thermal Enhanced Oil Recovery (TEOR)

During the past fifty years, a variety of special oil production techniques, known as enhanced oil recovery (EOR) methods, have been developed for application to specific types of reservoirs. These methods vastly improve the efficiency and totality of oil recovery compared with traditional pressure depletion or secondary recovery (water flooding) techniques. EOR techniques are applied most often to mature, depleted, or heavy-oil reservoirs. The Chico Martinez Field, as well as most of the great oil fields of the San Joaquin Basin, produces a heavy gravity (12.5 - 13 degree API) and high viscosity crude oil. Operators of heavy oil fields, such as Shell Oil and Chevron-Texaco, often utilize a thermal enhanced oil recovery (TEOR) method known as steam flooding in order to improve production rates and efficiency. Steam Flooding involves the injection, at high pressure, of high temperature steam into an oil reservoir in order to decrease its viscosity and thereby improve its ability to flow. Steam Flooding operations are under way in eighteen individual oil fields in California, most of which are concentrated in Kern County, comprising the world's largest steam flood development, producing approximately 500,000 BOPD and accounting for more than 99% of TEOR production in the U.S. These heavy oil fields are ideal for steam flooding because they possess certain necessary geologic characteristics such as: shallow depth (less than 2000 feet), good lateral continuity and permeability, and low gravity oil (12 - 15 degree API). The Chico Martinez Field possesses these same geologic characteristics, and, additionally, a dense well spacing allowance - which permits a more thorough recovery of oil.

Development Plan

The Company intends to enact a comprehensive development of the Chico Martinez property. This effort will be undertaken on a modular basis, beginning with a cyclic steam injection program (Phase I). New wells (200-400) will be drilled, current and idle wells will be reconditioned, and a steam injection program subsequently implemented. Phase II represents the further development of the property via a full steam flooding of the Etchegoin formation. The Company intends to establish a consortium to immediately develop the property using enhanced oil recovery methods proven to be viable in surrounding properties.