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United States:
Montana
On July 8, 2011, the Company entered into an agreement with EVO Energy Ltd. ("EVO") to acquire all of the shares of Cerda Capital Corporation ("Cerda"). Cerda is a BVI company which indirectly owned all of the shares of Evolution Oil Group, LLC ("Evolution Oil"), a limited liability Delaware company. Evolution Oil was party to a purchase and sale agreement with an undisclosed vendor under which Evolution Oil could acquire approximately 30,000 net acres (~40,000 gross acres) in the Williston Basin, Montana.
The purchase price paid at closing consisted of USD$1,000,000 and the issuance of 8,333,333 common shares of the Company. In addition, the Company will be required to pay a cash bonus payment of the greater of CAD$5,000,000 and 3.0% of the value of the lands acquired unless the Company elects to return to EVO all of its interest in the lands. The bonus is payable on earlier of the third anniversary of closing or the occurrence of certain specified events. The Company paid a USD$500,000 deposit which was applied at closing to the purchase price.
Simultaneously with the acquisition of Evolution Oil by the Company, Evolution Oil closed the agreement to acquire the lands in the Williston Basin, Montana. The consideration payable by Evolution Oil was USD$7,761,000 minus the USD$500,000 deposit. Evolution acquired an 80% net revenue interest and 100% working interest in the lands. The vendor retains an option to acquire a 10% working interest in the lands, by electing to receive the 10% carried working interest in any of the first four wells drilled within a specified period and electing to participate for a 10% working interest in subsequent wells.
On July 4, 2011 and July 8, 2011 the Company closed two tranches of private placements consisting of the sale of 17,686,680 units (the "Units") at a price of $0.60, resulting in total gross proceeds to the Company of $10,612,010. Each Unit consists of one common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder to purchase an additional common share at a price of $0.80 for a period of six months from closing and thereafter at a price of $1.00 for an additional six months. Securities issued under the financing were subject to a four month hold period which has since expired.
N. Dakota
On February 2, 2011, the Company entered into an agreement with Chimney Sweep Oil and Gas (US) L.L.L.P. (the "Partnership" ) to acquire a 50% interest in the Partnership.
The Partnership currently has an interest in a total of approximately 1680 net acres (~ 1760 gross acres), of which 320 acres are held under option and the Partnership holds a 3% overriding royalty over another 320 acres, as shown in the map below. These lands are located in North Dakota in an area of the southern Williston Basin which has produced more than 85 million barrels of light oil from multiple zones. The area has recently enjoyed some new oil discoveries due to advances in seismic technology and a better understanding of the geology. Previous wells in the area, drilled in the mid-1990's, have been highly prolific with some having initial production rates up to almost 2,000 barrels of light oil per day and reserves of more than 4 million barrels of oil per well. One of the more recent discoveries, drilled in 2009, produced at a sustained rate of 400 barrels of light oil per day, with no water. The Partnership owns approximately 110 square km of 3-D seismic which covers the majority of its acreage and the main play fairway from which most of the light oil has been produced and plans to acquire additional acreage in the area and drill one or more wells during 2012. This 3-D seismic was entirely reprocessed by the Partnership in late 2010.
As consideration for its 50% interest in the Partnership, Enterprise Energy made an investment equal to US$2,495,147 plus 50% of certain approved expenses of the Partnership for the period from November 1, 2010 to the date of closing which occurred on March 1, 2011.
Concurrent with the closing of the acquisition, the Company completed a non-brokered private placement of 16,666,666 units of the Company (the "Units") at a price of $0.30 per Unit for gross proceeds of $5,000,000. The Units were subject to a four month hold period which expired on June 26, 2011.
Each Unit consists of one common share and one-half of one common share purchase warrant. Each whole warrant entitles the holder to purchase an additional common share for a period of 24 months from the closing date at a price of $0.50.
Operational Update
Montana
In Montana the Company recently acquired approximately 30,000 net acres (over 40,000 gross acres), equivalent to 47 sections of land in the NE part of the State, (Sheridan and Daniels Counties) close to where Taqa North has drilled some successful Bakken, short-reach (4,000ft) lateral wells. The Bakken play has exploded in Montana and N. Dakota with more than 200 active rigs presently drilling. Various Williston Basin operating companies are now aggressively picking up acreage in NE Montana and land prices in the neighbourhood of the Company's acreage have increased to around $800-1000 per acre (Enertprise Energy's costs were approximately $430/acre).
Since closing the acquisition in July the Company has been working on selecting a drilling location and anticipate spudding our first well in mid-November. This will be a vertical well (TD around 8,100ft) designed to test the Bakken, Three Forks and Nisku formations (all of which produce in the area) and to provide the necessary data to design the Company's future horizontal drilling program. The well will be evaluated with a full suite of wireline logs and the Bakken and Three Forks formations will be extensively cored. As the Company's acreage position is so extensive we anticipate drilling one or two more vertical wells prior to embarking upon a horizontal drilling program in 2012.
Currently, in N. Dakota operators are moving towards drilling 4 long-reach (10,000ft) horizontal wells into the Bakken formation and the same into the underlying Three Forks formation in each 2-section (1280 acres) drilling spacing unit. Under this scenario Enterprise could have as many as 188 horizontal drilling locations on its current acreage. Accepted figures quoted by many operators in the Williston Basin assign about 500 -- 700,000 bbls oil recoverable per well. It is also estimated that the Bakken and Three Forks formations could each hold up to 10 million bbls of oil in place per section.
N. Dakota
The Company has a 50% interest in approximately 1,760 gross acres (1,680 net acres) in Stark County that is on the southern edge of the Williston Basin. It is in an area where the main play is carbonate "mounds" found in the Lodgepole formation, a conventional, light oil, exploration play . The main Bakken play in the Williston Basin pinches out to the north of the acreage but it is possible that the Three Forks formation could be productive in this area. A horizontal well has recently been drilled into the Three Forks close to the Company's acreage by one of the larger operating companies in the Williston Basin and is being evaluated. The results of this well will have an impact on the Three Forks potential in the immediate area of the Company's acreage.
The Lodgepole formation is found at a depth of about 9500 ft (2900m) in the vicinity of the Company's acreage and is tested by drilling standard vertical wells. Lodgepole mounds are generally small in area but can have oil columns of up to 450ft. providing both significant and highly economic production rates and reserves. Exploration in the area started in the mid-1990's and since that time some wells have produced more than 4 million bbls of light (42oAPI) sweet oil. The Company has approximately 110 sq. km of 3-D seismic covering most of the play area as the Lodegpole mounds are not easy to detect and so careful application of the latest seismic processing methods has been applied to the data.
Several drilling locations both on and off the Company's acreage have been identified and Chimney Sweep (the Operator) has been attempting to negotiate purchases and farmins on those locations that are not on acreage that we currently hold. A drilling location has been identified close to the boundary of a section that the Company owns and so we are currently negotiating with our neighbour to drill a joint well. It is anticipated that with the rig availability in the area being tight due to the very high activity levels in the nearby Bakken play that we will drill our first well in the spring of 2012.
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