Caza Oil & Gas
Appraisal drilling in Texas could significantly increase reserves for Caza Oil & Gas
Caza Oil and Gas is an independent, Texas-based junior oil and gas company, focused on exploration and production – both offshore and onshore - in the United States. Caza has stakes in twelve fields throughout Louisiana, New Mexico and Texas. In December 2007, the company listed on the TSX and AIM, with a competent person’s report showing that the company had 2P reserves in the region of 279,000 billion barrels of oil (bbls) and 16.1 billion cubic feet (Bcf) of natural gas; with an exploration and appraisal upside of up to 800,000bbls of oil and 74Bcf of gas. (P2 reserves indicate the quantity of hydrocarbons that the company has with a 50% probability of recovery – as defined by Society of Petroleum Engineers.) The company has production, plus a long list of field appraisals and development work to get down to; its working interests range from 20% up to 70%, and these projects could yield gross production in the region of 5-6,000 million barrels of oil equivalent, per day. At the time of the company’s last quarterly report, it had $14.6m in cash and was planning to raise $23m through a private placing, which would be used for a drilling programme and possible acquisitions.
Louisiana
The Dulac field consists of two gas reservoirs at approximately 11,000ft, with good reservoir characteristics, including porosity aiding oil flow and the potential for gas recovery. Here, current production is running at approximately 3.4MMcfd and 39bopd, and estimated total reserves for the field are in the region of 110,000bbls and approximately 9.7Bcfg. Caza has a 8.24% working interest in the Dulac field and there are no immediate plans for further drilling here.
Caza’s star asset in Louisiana is the Phoenix Lake field, operated by Sterling Energy, which has 2P reserves of 2.3MMbbls of oil and 85Bcf of gas, of which 130,000bbls and 4.5Bcf are attributable to Caza. The partners in this field intend to appraise it and bring into production the remaining reserves, which could add another 5MMbbls of oil and, possibly, an impressive 175Bcf of gas – which would yield 220,000bbls and 8Bcf to Caza. As Caza has a low working interest (10% reducing to 6%) the joint venture partners activities shouldn't be too demanding on Caza’s cash, and this offers very respectable gas reserve potential.
Caza holds a 7.2% net revenue interest in the discovery well, Sterling Brown-1, which was drilled to a depth of 17,905 feet in May. Gas was encountered in 22 feet of Hackberry sand at 11,320 feet, with asecond Hackberry sand at 11,898 feet, containing 12 feet of net oil pay. At the deeper Yegua formation, another 20 feet of gas pay at 16,120 feet was also encountered; this well also revealed an interesting laminated section from 16,850-17,240 feet that did not show hydrocarbons during logging. However, it has been suggested that the absence of hydrocarbons here was due to the way logging was conducted, and the plan is to test this zone again before any further work takes place on the shallower reservoirs. A large closure up-dip of the Yegua formation discovery has also been identified and an additional well is planned to evaluate this. There is very good potential in this region as it is close to the Lake Aurthur field, which has an estimated 4-5 trillion cubic feet of gas (Tcf) recoverable, and it is also located down-dip of the Vidor Ames and West Stark fields that have produced 96.2Bcf of oil and 41.9Bcf of gas.
Also in Louisiana is the Alligator prospect, in which Caza has 70% working interest. This prospect showed seven strong “Amplitude Variations with Offset” anomalies, and similar AVO anomalies had been identified in neighbouring fields, which are now producing. However, whilst hydrocarbon indicator methods (such as AVO) help to reduce exploration risk, they don’t eliminate it, and the first exploration well drilled here was dry, leading to the conclusion that the anomalies that had been identified would lead to nothing.
New Mexico
In New Mexico, Caza has six prospects: Azotea, China Canyon, Widgeon, Forehand Ranch, Raptor and Lynch. Most of these prospects are small, but successes could have a cumulative effect on reserves and production if the company has a high strike-rate with exploration wells. A high strike-rate is conceivable because some of these prospects are in the midst of producing fields. So the prospectivity of this area is good, especially the Azotea prospect, which lies down-dip from the producing Cemetery field and up-dip from the Catclaw draw field. Moreover, this target lies on trend with multiple producing fields that are all producing from the target horizons. The China Canyon and Widgeon prospects could also prove to be interesting as they are close to five analogous fields that are in production.
In New Mexico, Caza Petroleum's targets lie primarily in the Pennsylvanian Clastics formations, which consist of gas and condensate-bearing marine deltaic sandstone reservoirs in the Atoka Morrow formations. These are at depths ranging from 8,000 to 15,000 feet and the company also has Permian oil targets at depths ranging from 2,000 to 8,500 feet. Multiple pay zones were recorded in the Morrow sands between 13,040 feet and 13,160 feet in the first well the company drilled in this area.
Texas
In Texas, one of Caza's most interesting prospects is the Las Animas prospect in Duval County, where the company is hoping to find gas in several sands within the Wilcox sands. This is a high-risk target, but a potential company-maker, which could yield reserves that would quadruple the company's current gas reserves.
The company's Texan reserves come mainly from the Aldwell Ranch, Soledad Creek and Wharton West fields, and consist of 22,500 barrels of liquids (water and oil) and approximately 7.5Bcf of natural gas. The Aldwell Ranch field consists mostly of tight sandstone and requires fracture stimulation to enhance productivity; current production is a modest 0.23MMcfd of gas, but the field has a development potential of 10.8MMcfd from reserves conservatively thought to total 7.5Bcf. Caza has a 62.29% working interest in the Soledad Creek field, with net reserves of 20,000bbls of oil and 2Bcf gas, and possible upside of 8Bcf gas. A neighbouring field has produced 3.8Bcf and 41MMbbls of condensate, giving Soledad Creek good prospectivity.
The Wharton West field was discovered in 2001 and up to May 2007 had produced 4Bcf and 1.5MMbbls of condensate from the Wilcox sands. The Upper Wilcox area consists of two pressurised zones at 14,200-14,850 feet, with gas trapped in a three-way closure. Caza drilled the Matthys McMillan well in May 2007 to 17,600 feet, which penetrated three Wilcox pay intervals between 14,500 feet and 16,550 feet. As the 15,700 feet pay zone hadn’t been penetrated before, this was a new discovery. The well produced up to 2MMcfd over a two-week period, and a production increase to around 6MMcfd has recently been reported. The management believes that production can be further enhanced through the use of fracture stimulation. The new productive deeper zone also gives this field additional potential reserves; 2P reserves on this field stand at 29.2 Bcf with the potential of a very respectable 43Bcf. Caza has a 19.6% working interest in this field with 4Bcf net reserves that could rise to 10Bcf, if appraisal drilling is successful.
Drilling started on the Wilcox 116 property in Wharton County in January, and the Jonell Cerny gas unit-1 well was taken to depth of 16,510ft; post-logging results showed multiple gas pay zones present between 13,500 feet and 16,400 feet. It was anticipated that connection and tie-in operations to the local gas gathering infrastructure would be complete in April; however, fracture stimulation of the reservoir encountered mechanical difficulties and it had to be plugged. The company noted the similarities in depth and pay zones with their Matthys-McMillian-1 well and the possibility of numerous appraisal locations locally. Caza continued its drilling programme in Wharton County with two more exploration wells - which encountered gas in multiple zones of the Frio sands - with completion and tie in of these wells expected around May. The Texas-focused drilling programme continued as Caza announced the spudding of its first well on the Glass Ranch property, which is expected to reach its planned depth around the end of July. This well is the first in a four well programme.
Conclusion
Caza has multiple appraisal and development opportunities ranging across its properties, hosting a reserve base which has yet to be brought into production. If the problems at the Jonell Cerny well can be resolved, this well, plus the Eland and Puku discoveries, could make a real difference to the company’s current production. Wells are planned on multiple properties right across Caza’s portfolio of assets, and this is likely to lead to regular news flow for investors. For such a young company, it has ambitious plans, and it will need to find $23m to put these into action. With 2P reserves of 16.1Bcf, and approximately 50Bcf in the “possible category”, appraisal drilling success could develop a very solid reserve base from existing properties. Three out of four exploration wells, to date, have encountered hydrocarbons, clearly demonstrating the quality of the prospect inventory, and the prospectivity of Caza’s licences – further targets to be investigated during 2008 include the large Las Animas prospect.