Naturally Fractured Monterey Shale
Underground Energy has two drill-ready Monterey Shale prospects in the Santa Maria Basin of Northern Santa Barbara County, California. The prospects are double-plunging anticlines on the eastern margin of the basin. Underground Energy has 5855 net acres under lease covering the prospects and is planning seismic and drilling in 2011. The prospects are known as Asphaltea North and South, referring back to a small mining town that existed in the area in the late 1800’s.
The principal targets for the two prospects are the middle and lower intervals of the Tertiary Miocene-aged Monterey Shale with the Oligocene-aged Vaqueros Sandstone as a secondary target. The Monterey Shale is an organically rich siliceous shale, comprised of diagenetically altered diatomaceous (biogenic silica) mudstone. The Monterey Shale varies from high porosity, ultra-low permeability diatomite, or Opal A; to medium porosity, low permeability porcelinite, or Opal CT; and finally to a low porosity, usually fractured quartz phase. Inter-bedded within the Monterey are sections of chert, dolomite, and clay.
The Monterey shale is the source rock for the majority of oil and gas in Central and Southern California, having generated in excess of 200 billion barrels of oil, much of which is still “locked” within the Monterey. Figure 1 below shows the primary petroleum basins of Central and Southern California where the Monterey or equivalent rocks are prevalent. Figure 2 shows a stylistic cross-section of the Monterey formation in Central California from the Pacific Ocean to the Sierra Nevada Mountains.
The Monterey Shale is also a prolific reservoir rock. In the Santa Maria Basin shown in Figure 3, the fractured Monterey has produced over 1.2 billion barrels of oil to date. In the San Joaquin Basin, the Monterey (also known as the Antelope Shale, MacDonald Shale, McClure Shale, and Diatomite) has produced an estimated 1.3 billion barrels of oil from less fractured or matrix dominated and even non-fractured rock through acid stimulation and hydraulic fracturing.
Underground Energy’s Asphaltea Monterey prospects are located on the eastern margin of the prolific Santa Maria Basin, on trend with several other large Monterey fields. The Asphaltea prospects are within 5 to 6 miles of the All American Pipeline which transports oil from the Santa Barbara Channel to the Bakersfield and Los Angeles area, the same distance from Southern California Gas Company’s regional transmission line, and within 30 miles of two heavy oil refineries as illustrated on Figure 3.
GLJ Petroleum Consultants of Calgary, AB, Canada have completed an independent resource evaluation of the two prospects shown in Figure 4, and have provided a “best estimate” (or 50% probability) of undiscovered petroleum in-place of 632 million barrels in the North Prospect and 1.7 billion barrels in the South Prospect. GLJ estimates that given discovery, prospective resources of 30.6 million barrels of oil equivalent (28.1 MMB oil and 15.1 Bcf gas) could be recovered from the North Prospect and prospective resources of 78.7 million barrels of oil equivalents (74.0 MMB oil, and 34.0 Bcf gas) could be recovered from the South Prospect.
Underground Energy has permitted the initial 26 well development of the Asphaltea prospects, and plans to drill 2 appraisal wells in the second-half of 2011. Assuming the initial drilling confirms the prospects, planning, permitting, and installation of permanent processing facilities, pipeline tie-ins, and development drilling will begin in 2012. Underground Energy is planning to develop the prospects from centralized drilling and production sites to minimize the surface and environmental impacts. Wells will be directionally (or slant) drilled from the sites to reach the extent of the reservoirs. Additionally, horizontal and sinusoidal wells will be utilized to maximize the wellbore contact with natural fractures in the reservoir.
In addition, the Company signed a purchase and sale agreement on October 31, 2011 for the acquisition of a total of an additional 33,037 net acres in six prospect areas, including two areas in the Santa Maria Basin and four areas in the San Joaquin Basin. Through this acquisition the Company’s Monterey focused acreage has increased from 7,314 net acres to 27,380 net acres. The acquisition consolidates the Company’s position in the Santa Maria Basin and provides a solid entry into the San Joaquin Basin and provides a mix of initial production, multiple drill ready locations and multiple exploration prospects. This acquisition is scheduled to close on or around November 15, 2011 and full details are contained in the press release dated November 1, 2011 and the Company’s November Corporate Presentation. Copies of both are available on this web site.
NodalSeismic’s 3D Seismic Survey at Asphaltea Monterey
Nevada Opportunities
Underground Energy holds a 100% Working Interest in 42,840 net acres of US Bureau of Land Management (BLM) oil and gas leases in the state of Nevada. The leases comprise seven prospect areas, each of which has both conventional reservoir and shale oil potential. UE has been an early mover in recognizing the potential of the highly organic rich shales of Nevada's Great Basin to be a future Bakken- type play. While only about 2000 wells have ever been drilled in the State, many of the State's wells have been very prolific, producing in excess of 1 million barrels each from conventional reservoirs. Substantial information is available in the form of outcrops, seismic lines, and well penetrations with oil and gas shows through the Mississippian and Paleozoic aged shale to confirm that they are thermally mature, oil-rich source rocks. With new long horizontal drilling and multi-stage fracturing techniques, UE believes it will be possible to unlock the oil and gas trapped in the shales.
Recently, large acreage blocks in Nevada have been acquired by large independents who are known as early movers in other shale plays in North America. The companies include Cabot Oil and Gas, EOG Resources, SM Energy, and Petro-Hunt.
UE plans to grow its position in prospective areas of Nevada and may seek partners to enable a large footprint to be acquired within budget. UE expects to shoot seismic and drill its initial well in Nevada in 2012.
