Lexaria Corp. is actively exploring for oil and natural gas in low-risk areas of Canada and the United States. Lexaria has particpated in drilling wells in Mississippi, Oklahoma, and Alberta and is producing both natural gas and oil from various wells.
This strategy embraces a steady results-driven exploration and production agenda. To this end, Lexaria first particpated with a 20%working interest (WI) in a planned 10-well drilling program in Mississippi. We subsequently expanded this interest from 10 wells to 12 wells, and we also increased our WI to 30%. Based on good results we increased our interest in subsequent drilling programs over a much expanded area of Mississippi, to 45% of the next 7 wells drilled (drilling completed by May, 2007) and now control 50% of this remaining 43-wells in this total 50-well program. This is a good demonstration of how Lexaria employs sensible risk management controls – smaller initial interests followed by increased interests when justified by field success - in an effort to preserve the capital entrusted to them by it’s shareholders.
Lexaria Corp. intends to become a growing force in overlooked North American energy opportunities and has already enjoyed demonstrable success with its intelligent strategies.
Properties
Mississippi:
Lexaria has a 30% working interest (WI) in a 12-well program, a 45% WI in a 7-well program, and 50% WI in a 43-well program, located in Palmetto Point, Red Bug, and other areas of SouthWestern Mississippi. As of 09/24/07, a total of 22 wells have been drilled, with 40 wells remaining to be drilled under the Area of Mutual Interest. (AMI) The Frio Geological formation is the primary target.9 wells are currently producing and 6 wells are currently shut in or awaiting connections. This includes the F-12 oil field discovery, an important oil discovery that is expected to add significant cash flow to Lexaria.
During 2007, Lexaria strategically negotiated and acquired additional percentage interests in the Mississippi assets. For example it now holds a 50% WI in the wells to be drilled in the 32,000 acre Palmetto Point 3D shoot, which surrounds on all sides, the F-12 oil field discovery. Likewise, the Red Bug project is of a total of 18.5 square miles (approximately 11,840 acres) which has also been entirely shot with 3-D seismic.
* The Mississippi region is a key focus of Lexaria for several reasons, drilling costs for shallow holes are inexpensive and completion times are quick. Reliable and extensive infrastructure exists, including pipeline gathering systems. Success rates of Frio wells have been around 70%. The AMI is very large, in excess of 200,000 acres.
Oklahoma:
Lexaria has acquired a 7.5% interest in the Owl Creek Project for payment of $100,000.00. Lexaria has participated in the drilling of two wells at Owl Creek since it acquired its interest, and one of those, the Isbill #2, is producing roughly 40 BOPD and 10Mcf/d as of June 2007.
Alberta:
As of May 31, 2006, the Company has paid $348,000 for up to a 4% gross interest to participate in any oil and gas produced (before recovery of the costs of the drill program), reducing to a 2% interest after recovery of the drilling costs. Drilling of this well has been completed to a total depth of 13,650 feet and total cost of over $10 million. Testing is underway. The operator encountered extremely high gas pressures of up to 10,000 pounds per square inch in several zones.
Main Targets
Lexaria is targeting three main geological zones in southwest Mississippi and in Louisiana:
Frio Characterized by shallow depths of up to about 4,000 feet; these are relatively inexpensive wells (less than $400,000 each) that are generally quick to drill and complete. The use of "Bright Spot" technology has yielded a geologic success rate of about 80% for Frio natural gas exploration. Economic success will necessarily be lower, depending on many variables.
The term "Bright Spot" is used to describe a geophysical amplitude anomaly which is simply a velocity change from high to low. Sands that contain gas are predicted by this method because the gas provides a slower velocity response giving an abnormally intense trough-peak reflection, therefore termed a "Bright Spot."
We also have made an important Frio oil discovery in our PP F-12 well and field. Because of their shallow depth and low drilling costs, Frio oil deposits can offer considerably stronger economics, and we are currently evaluating potential PP F-12 look-alike targets as our strongest candidates for strongly leveraged corporate financial success.
Wilcox Normally found at up to about 9,000 feet, but still enjoying relatively fast and easy drilling, these wells generally cost less than $1 million to drill and complete. Normal Wilcox criteria include the presence of a regional structural nosing overlain by a bar sand which terminates to the north either by shaling-out or loss of porosity and permeability, thereby providing the trapping mechanism for hydrocarbon accumulation. Wilcox wells will often produce for 10 years. We are not planning to drill any Wilcox targets in the immediate future, although both the Frio and Wilcox zones are subject to our existing 50-well AMI.
Tuscaloosa Although we are not drilling any Tuscaloosa wells with our current operator, we are interested in the geological zone and could pursue this type of target with others either in Mississippi or in Louisiana. These are deeper wells, generally between 12,000 and 14,000 feet that are nevertheless rarely overpressurized and thus not often technically challenging to complete. The objective Lower Tuscaloosa "A" Sand was deposited on a broad carbonate platform (Lower Cetaceous Shelf). This Sand is generally deposited in a fluvial-deltaic depositional environment with numerous reservoir studies conclusively identifying the sand systems as predominately point-bar sands positioned on regional monoclinal dip. Since these point-bar sands are "enclosed" sand bodies encased in shale, the necessary parameters for a stratigraphic trapping style are available.
All known productive Lower Tuscaloosa reservoirs in southwest Mississippi and north central Louisiana have displayed these types of trapping characteristics. High-resolution stratigraphic seismic data can enable geological success rates of up to about 65% though commercial success rates will be lower. Drilling and completion costs are typically over $3 million for each Tuscaloosa well, with up to a 20-year well life possible. Lexaria does not expect to drill any Tuscaloosa wells in 2007.
Chris Bunka addresses the investment community.