31th October 2016 September 2016 Quarterly Activity and Cashflow Report‌‌‌
Summary
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Cash position at September 30th of A$4.4m
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Company enters into MOU for the acquisition of Hydrocarbon Dynamics
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Newkirk asset in Oklahoma maintained
Financial
At September 30th, Indago Energy had cash resources of $4.4 million compared with cash reserves of $4.9 million at the end of June. The reduction in cash from the previous quarter included a once off payment for a redundancy associated with the previous management of $182,000 which was foreshadowed in the June quarter 5B.
Newkirk Project, Kay County Oklahoma (100% WI 81.25%NRI)
Indago holds a 100% WI and 81.25% NRI in 4,049 acres located in Kay County, Oklahoma near Ponca City. The leases were largely acquired during 2015 with a three year primary term and two year bonus term. The project is located within the Mississippi Lime tight oil play, a relatively mature play in which hundreds of wells have been drilled in the past decade (Figure 1).
Figure 1: Location.
After a detailed review of the project was completed in the prior quarter, the board decided to maintain the asset and would look to appraise it with Indago's joint venture partner and Operator, Empire Energy Limited (ASX:EEG):
As reported previously, the main target Mississippian Lime (MSSP) is a carbonate formation which underlies a large portion of northern Oklahoma and southern Kansas. The play lies at shallow depth of 1200-2200m (4000-7000') and is about 100m (300') thick. Oil & gas is sourced from the underlying, highly prolific Woodford shale.
Reservoirs comprise the upper 'Chat' and lower 'Solid' members. The Chat is 12-15m (40-50') thick and is typically high porosity with variable permeability. The underlying Solid displays low porosity with local higher porosity 'sweet spots'.
Both MSSP reservoirs have been the focus of drilling and fracture simulated completions employing vertical wells since the 1940's and horizontals since 2007. Initial flow rates for vertical wells average
~45 stb/d oil and ~80 Mscf/d gas. For horizontals, initial flow rates are highly variable dependant on how many 'sweet spots' are encountered. Wells produce significant salt water with low oil cuts, typically 10:1. Consequently, salt water disposal/injection (SWD) is an important consideration at the Newkirk Project.
Vertical well recoverable reserves are expected to average ~30 Mstb oil and 200 MMscf gas. Estimated vertical well drill and completion cost is US$0.5m and for SWD wells is expected to be US$0.75m. One SWD well is required for every 10-12 vertical oil producers.
The prospectivity review concluded that Indago's leases are prospective for oil and gas but given the paucity of modern wells in the immediate vicinity of Newkirk, the project should be appraised with
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wells prior to development. Should the appraisal programme confirm typical play production and recovery characteristics, the project would present an attractive development when US domestic oil prices approach US$60/bbl.
Given the improvement in oil prices, the JV is seeking an update on well costs and a review of well economics with a view to testing the play in the first quarter of next year. It should be noted that some of Indago's leases begin to expire in 2017.
Oil and gas leases held by Indago are contiguous with an additional 4,936 acres held by EEG. Under a Joint Operating Agreement, the two companies have agreed to the further development of the combined acreage (8,985 acres) on a 50/50 basis.
Corporate
As announced to the ASX on October 28, 2016, Indago Energy has signed a Memorandum of Understanding ("MOU") to acquire the Hong Kong based HCD Holdings Ltd, its related companies and associated Intellectual Property (collectively "the Companies"). Details of the Companies are contained at www.hydrocarbondynamics.com. Together the Companies own a revolutionary new oil technology and business that allows for the swift, clean and cost effective treatment of heavy asphaltenic and paraffinic oils.
The technology can be applied to improve oil flow rates by the re-liquification of oil deposition from oil wells and pipelines and can also be used to recover oil from storage facilities. The product has proved its effectiveness in large-scale commercial oil wells and pipelines in Malaysia and India.
The key product, HCD MultiflowTM is a small, specially engineered carbon-based organic molecule that can disaggregate the large, naturally occurring agglomerations of waxes and asphaltenes in heavy or paraffinic oil. Once disaggregated, these agglomerations are reabsorbed into the crude oil, reducing its pour point, viscosity and increasing API gravity thus providing outstanding flow assurance and transfer system efficiency. The HCD MultiflowTM molecule can also separate water and sediment from the crude oil and the product will have far-reaching applications in the productibility and transport of heavy/paraffinic crudes, as already evidenced by the product's use in a large offshore oil field and with many successful trials to its credit.
Key product applications identified and substantiated by successful trials include:
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flow assurance in onshore/offshore pipeline and oil gathering lines that transport heavy or paraffinic crudes;
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flow assurance in the down-hole and near well bore reservoir interface in reservoirs that produce heavy or paraffinic crudes (supported by a companion product, a paraffin consuming faculitive bacterial brew for treatment down hole);
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efficient clean-up, oil recovery and water and sediment separation of tank bottom sludge in oil tank batteries offshore/onshore;
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efficient clean-up, oil recovery and sediment separation in remediation of hydrocarbon contamination sites and potential application to hydrocarbon recovery in tar sands.
HCD MultiflowTM competes directly with and outperforms chemical polymers and toxic solvents (Benzene-Toluene-Xylene) currently utilised to combat paraffin/asphaltene deposition in pipelines, gathering lines and down-hole production tubulars. Key technical advantages that HCD MultiflowTM possesses over its competitors are:
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efficacy over a much broader application range;
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immunity to loss in the water phase of produced fluids;
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much higher "flash point" than typical chemicals used in the industry;
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advantage of not reducing the products effectiveness when transported through system pumps (Polymer chemistry typicaly shears when agitated by the pump impeller blades greatly reducing the effectiveness of the chemical product);
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it is non-toxic making it environmentally friendly as well as much safer to handle;
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HCD MultiflowTM is much less expensive than its competitors in a cost per barrel of oil comparison;
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Direct Refinery Feed - no re-treatment of crude required before Refining stage.