Melbourne, Sep 12, 2008 AEST (ABN Newswire) - Marion Energy Limited (ASX:MAE)(PINK:MAEJF) has previously advised the ASX it was significantly behind (6 to 9 months) its target to establish stabilised production from its Clear Creek project. After overcoming severe winter weather and infrastructure delays, which led to a delayed commissioning of the Clear Creek project in June 2008, the Company wishes to advise that it has experienced a further delay in achieving its forecast levels of stabilised production due to the wells unexpectedly encountering hydrates in the reservoirs.
As a result, the Company recently undertook a review of the production operations with a view to achieving forecast stabilised production rates. The Company believes the review has clearly identified the issue and has now instituted appropriate remedial action as detailed below.
The Company has to date completed seven wells at Clear Creek, the Ridge Runner ("RR") 13-17, 11-17, 2-19, 1-30 and 11-20 wells and Alpine School District ("ASD") 6-17 and 3-17. All wells have now been successfully connected to the gathering systems and are in the start-up process. Necessary pipelines have been laid, and pumps and compression equipment installed. Nonetheless, technical issues and severe weather conditions combined to put operations behind target.
During this commissioning phase, the RR wells have experienced considerable fluctuations in production rates. Flow rates started strongly and moved towards the high rates encountered during testing only to then drop significantly before starting to increase again. As a result, the Company has been unable to establish stabilised production rates and has also had to slow all operations while investigating the possible cause of these fluctuations.
Outside Specialists Retained
Management has retained the services of P & M Petroleum Management (P&M) of Denver, Colorado, a specialist Rocky Mountain oil field management consultancy group to assist it with its review and to assist in all future production operations.
As a result, it has been established that all the RR producing wells are encountering what are commonly known in the industry as hydrates. These are caused by the supercooling of naturally occurring reservoir water to a level that results in freezing, due to the sudden pressure drop at the well bore. This forms a partial downhole blockage resulting in both inconsistent and varying flow rates. This is not an uncommon occurrence in Rocky Mountain gas wells and is mostly associated with high volume wells.
Records relating to the historical Clear Creek wells drilled in the 1950's and 1960's have been reviewed and although incomplete, indicate some possible occurrence of hydrates in the early stages of production. Once dealt with, the wells produced at high rates. Stabilized production rates in the pre Marion wells at Clear Creek were in a range of 1 million to 5 million cubic feet per day, with most wells producing at the upper end of this range.
Production levels expected to stabilise as a result of remedial action taken
The solutions for dealing with the occurrence of hydrates are well established in the petroleum industry and involve adding chemicals such as glycol or methanol to the wells to prevent their formation. Each well is currently being treated, and it is anticipated that this operation will continue over the next two to three weeks. At the end of the process, the hydrates should be cleared and by keeping the chemicals in the well bores, future hydrating should also be prevented.
Successful completion of these workover operations should result in the wells quickly increasing their flow rates and establishing stabilised production at forecast levels. The Company will advise the market on the progress of these routine workover operations. Both Management and their retained experts remain extremely confident that all the newly drilled Clear Creek wells will produce at rates within a range similar to the pre Marion wells and in aggregate are targeting combined production of at least 20 million cubic feet of gas per day as previously advised to the ASX.
The ASD wells have not yet encountered hydrates as they are still in the early phases of commissioning. These wells are being chemically treated to prevent a hydrate occurrence. The operations to treat the wells will unfortunately hold back production. It is expected this will be completed over the next 2 to 3 weeks, after which production should gain momentum and stabilise.
On an ongoing basis, all the Clear Creek wells will be continually treated with small levels of glycol/methanol to prevent future occurrence of hydrates.
Ridge Runner (RR) 8-19 well
Marion intends to undertake the fracture stimulation and completion operations of the RR 8-19 well in late September 2008. This well will be able to undergo production commissioning quickly as all the infrastructure is already in place. During drilling, this well exhibited gas show levels similar to the other RR wells. This well will also be chemically treated during completion operations to avoid occurrence of hydrates.
Reserve and Resource update currently in progress.
In June 2007, the Company received an independently assessed reserve report with regard to its 2P reserves of gas. This report was prepared by William M. Cobb and Associates, Inc. and assessed the net reserves in Clear Creek to Marion at 236 Bcf of gas in the conventional sandstone reservoirs.
It is expected that the reserve report currently in preparation will show a significant increase on this amount, as it will take into account the drilling activities for the last twelve months.
A reserve report prepared in 2002 by Ryder Scott, Petroleum Engineers, estimated the coal gas resource potential in place at Clear Creek to be approximately 1.456 Tcf of gas and of this amount, approximately 962 Bcf would be recoverable. Marion is yet to test any part of this significant coal seam gas resource.
In order to provide a broader perspective of Marion's total resource potential and to assist in the Goldman Sachs ongoing strategic review of alternative Company directions, the Company recently commissioned an updated reserve and resource report by independent engineers Ryder Scott and Cobb and Associates. This report will cover both the Clear Creek and Helper projects for both conventional and non conventional gas.
Management expects that the first part of this report, namely the assessment of the Company's overall resource potential at Clear Creek and Helper and the estimate of the amount of potentially recoverable reserves from this resource, will be available in late September.
Preliminary indications are that a significant increase is likely over the amounts previously assessed as indicated above. The second part of the report which will assess the Company's overall booked 1P, 2P and 3P reserves is expected to complete in October and is also expected to show a significant increase over the level of reserves reported in June 2007. Further information will be released to the ASX as it becomes available.
Contact
North American Contact:
Mr Jeff Clarke
Managing Director & CEO
Ph: +1-214-244-7690
Email: jclarke@marionenergy.com
Australian Contact:
Mr Peter Collery
Executive Director and Company Secretary
Ph: +61-3-8862-6466
Email: peter@marionenergy.com.au
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