Northwest Lost Hills
In January 2008, Proteus acquired a 100% working interest in oil and gas leases on the Northwest Lost Hills field (NWLH), located in Kern County, California. As the first field in which Proteus has assumed full operator control, NWLH represents a significant milestone of long-term strategic importance. Since the acquisition, Proteus has completed operations transitions and initial field upgrades. In August 2008, Proteus completed workovers of four of 16 existing wells, and in September and October 2008 recompleted four additional wells. Both of these activities led to improvements that have resulted in increased production by approximately 38%.
Virtually all of the current production comes from the Antelope Shale formation in the Monterey zone at a depth of approximately 4,500 feet. Based on our consulting geoscientist’s interpretation of the Company’s 3D seismic data, Proteus believes this zone has the potential to realize an additional 2 million BOE of proved reserves.
In September 2008, Proteus recompleted three of its existing wells into the shallower Etchegoin zone at approximately 2,100 feet. 3D seismic indicates this zone could be either gas or oil, with at least 1 million BOE of reserves.
Proteus is currently planning an extensive drilling program to exploit both of these zones.
In August 2007, Proteus acquired a 5.4% leasehold interest in oil and gas leases on the Lynch Canyon Field (“Lynch Canyon”) in Monterey County, California. Lynch Canyon has 320 proved acres in the Lanigan Sands, with a 30-foot pay. The field was discovered in 1963 and abandoned in 1968 after 10 productive wells produced a total of 125,000 barrels of oil. Three new horizontal wells were drilled and completed in 2006. Two additional horizontal wells were drilled in September 2007, one additional horizontal well was drilled in December 2008, two additional horizontal wells were driled in 2009 and one additional horizontal and three diagonal wells were drilled in early 2010. The current development plan is for 15 to 25 horizontal wells, initially on a cyclic steaming system, eventually converting to a steam flood. The field has averaged 450 barrels of oil per day (BOPD). The Company’s petroleum engineers project that the field has a potential for gross reserves of 10-11 million BOE.
In April 2010, Proteus and the other co-owners of the property sold a 50% working interest to a large Asian trading company. Proteus realized a 44.9% return on investment and a 15.4% internal rate of return (IRR) on its investment from the sale of its half interest. The transaction included $15 million in development capital; when the field is fully developed by the end of 2010, it is estimated that daily production will be increased to 1200 to 1500 BOPD.
In May 2010 the ownership group approved the drilling of two additional horizontal production wells and two diagonal well control/temperature monitoring wells that will subsequently be converted to steam injection wells. These wells were drilled in the fall of 2010 and are expected to begin production by the end of 2010. Four additional wells are planned to be drilled in November and December 2010. A substantial expansion of the field’s surface production facilities is in the final stages of planning and is expected to be completed by the end of the first quarter of 2011. This projet includeds the installation of a second steam generator, several additional storage tanks, wash tanks and related production facilities, a free water knockout, a new water production well and a new loading dock.