| Location |
Working Interest |
Acreage |
Santa Barbara
CountyCalifornia |
80%(operator) |
10,482net acres |
The Zaca Field Extension was acquired in November 2011 as part of a transaction with a private company. The assets acquired include one producing test well (15-25 bopd), existing 2D seismic coverage and numerous identified drilling locations. Targets include the Monterey Shale (analogous to Asphaltea). Drilling commenced at the Zaca project in late February 2012.
The historical production from the 61 vertical wells previously drilled into the western part of the existing Zaca field, utilizing primary recovery techniques only, has been robust. These wells had average initial production (“IP”) rates in excess of 200 bopd and have produced more than 500,000 barrels of oil per well. Even the last 18 of these vertical wells, which were infill wells drilled in pressure depleted reservoirs in the 1970’s through the 1980’s, had average IP rates in excess of 70 bopd and have produced in excess of 375,000 barrels of oil per well.
Summary of Netherland, Sewell & Associates, Inc. (NSAI) Report dated August 23, 2012:
|
Contingent Oil Resources1 (MMbbl)
|
|
Gross (100 Percent)
|
Company Gross2
|
|
Low Estimate
|
2.94
|
2.36
|
|
Best Estimate
|
15.42
|
12.34
|
|
High Estimate
|
43.9
|
35.1
|
| _ |
Prospective Oil Resources3 (MMbbl)
|
|
Gross (100 Percent)
|
Company Gross4
|
|
Unrisked
|
Risked
|
Unrisked
|
Risked
|
|
Low Estimate
|
9.18
|
4.78
|
7.36
|
3.83
|
|
Best Estimate
|
46.24
|
23.21
|
37.68
|
18.75
|
|
High Estimate
|
204.77
|
94.03
|
171.13
|
77.20
|
|
Total Petroleum Initially-In-Place5 (MMbbl)
PIIP
|
|
Low Estimate
|
242.54
|
|
Best Estimate
|
493.22
|
|
High Estimate
|
1,243.39
|
Notes:
1. Contingent oil resources are the arithmetic sum of multiple probability distributions.
2. Underground owns an 80 percent working interest in these properties.
3. Prospective oil resources are the arithmetic sum of multiple probability distributions.
4. Underground owns an 80 percent working interest in the Chamberlin Lease and a 100 percent working interest in all other leases.
5. Total petroleum initially-in-place is the sum of undiscovered oil initially-in-place and discovered oil initially-in-place.
1 Source: California Division of Oil, Gas and Geothermal Resources August 2011
GLJ Petroleum Consultants Ltd. (“GLJ”) of Calgary, the Company’s independent reserve engineers, in a report dated April 9, 2012, GLJ evaluated the Company’s proved, probable, and possible reserves as at December 31, 2011 in accordance with the Canadian standards and requirements of National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities, the results of which are summarized below. Prospective and contingent resources on each of the Company’s prospects were not evaluated by GLJ, although the Company intends to have such an evaluation completed in the next two to three months.
Management estimates that there are six million barrels of oil in 2P reserves and 20.8 million barrels of oil in prospective resources at the Zaca Extension Project.
The estimated pre-tax value of the future net revenues associated with Underground's reserves at various discount rates as at December 31, 2011 are set forth as follows:
| Before Tax Net Present Value Summary |
(thousands of US dollars) |
| Discount Rate |
Undiscounted |
5% |
10% |
15% |
20% |
| Proved |
|
|
|
|
|
| Proved Producing |
2,065 |
1,916 |
1,788 |
1,678 |
1,583 |
| Proved Developed Non-Producing |
0 |
0 |
0 |
0 |
0 |
| Proved Undeveloped |
23,652 |
12,268 |
7,219 |
4,535 |
2,910 |
| Total Proved |
25,717 |
14,183 |
9,007 |
6,214 |
4,493 |
| Total Probable |
75,963 |
46,258 |
31,658 |
23,265 |
17,903 |
| Total Proved Plus Probable |
101,680 |
60,441 |
40,665 |
29,479 |
22,395 |
| Total Possible |
114,836 |
64,201 |
40,938 |
28,290 |
20,591 |
| Total Proved Plus Probable Plus Possible |
216,516 |
124,642 |
81,603 |
57,769 |
42,986 |
Notes:
- The estimated future net revenues are stated before deducting future estimated site restoration costs and are reduced for estimated future abandonment costs and estimated capital for future development associated with the reserves.
- All future net revenue values calculated utilizing GLJ January 1, 2012 oil price forecast for WTI delivered into Cushing, OK corrected for oil gravity and local price differentials.
- It should not be assumed that the discounted future net revenues estimated by GLJ represent the fair market value of the reserves.
- Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.