I sat down with a geologist and a reservoir engineer to discuss the NR’s, and see what we can learn. We’ll start off with an overview of what was stated, move on to the analysis, and then to financial projections. Due to the lack of hard data from mgmt, this is our best guess. BigTrader’s Gas in Rome Formation posting was valuable and very timely

Aug 21 NR, “Strata Energy Services…all aspects of Managed Pressure and Under-balanced Drilling Operations including compression, nitrogen, surface recovery, and rotating flow diverters, to mention a few.”

Knox Formation

Sept 13th NR, encountered @ 3511’, with up to 17’ of pay in the Upper Knox samples every 10 feet. “Hydrocarbons have been encountered” “With our sophisticated underbalance system that is being used on the well we are able to control our mud weight and our geological personnel are able to evaluate the drill cuttings continuously.

Copper Ridge

Sept 28th NR net pay is 100+ feet of 370 feed of formation. “exhibited very good inter-crystalline porosity, good vuggy stringers and open permeable fractures.” Meaning, excellent porosity and permeability. Depth 5,670 feet. Q: How much more that 100 is actual net pay?

Oct 4th NR, “completed 5 cement squeezes” Depth 6,200 feet. 88 feet per day since Sept 28th .

May 6th NR, “Completion work on the oil zone identified on the logs in the JB#2 well, which is the same zone from which the MH#3 discovery well is currently producing from.”

Mar 27th NR, In excess of 250 bbls in an 8 hr test flowing, with high gas oil ratio. Q: Does this mean over 750 bbls/day?

Mar 18th NR, “by drilling wells under-balanced, the test wells can effectively be tested and produced at the same time that they are drilled.” Q: What are the actual rates, and why have these not been reported to shareholders?

Rome Formation

Oct 12th NR, encountered the Rome formation at 7,850 feet. ”preparing to run 7.5” casing to the top of the Rome formation”

Oct 24th NR, “preparing to drill ahead under-balanced using nitrogen.” Already drilling under-balanced. Cost to date $5.1 million

Nov 6th NR, “CIDI has 33 years of directional experience drilling all profiles.” Depth = 8,600 ft. “By drilling UB the hydrostatic pressure is reduced allowing the well bore wall to remain intact and be drilled with little or no sloughing.” “Dynamic Drilling Fluids… solving difficulties encountered during the recent casing of the hole” Q: “When did the directional drillers actually start working, and doing what?

May 6th NR, after Schlumberger ran logs, “A potential gas zone at 8,275 feet in the Rome formation that has approximately 17 feet of interpreted net pay” “the presence of gas which is consistent with what was seen in the sample as well as what was recorded on the gas detectors”

Nov 14th NR, TD 9,580 ft

Howard-White #1 well

Sept 13th NR, estimated flow rate of 400 bbls, hr (9600/day) = $124,800 per day @ $130/bbl, and “in excess of 5 million cubic feet of gas per day = $ 62,500 per day @ $12.50/mcf

Mar 5 NR, estimated flow rate of 500 bbls, hr (12,000/day) = $156,000 per day @ $130/bbl

Estimates

Copper Ridge – over 100’ of pay, could be the full 370’ gross interval. In excess of 250 bbls in 8 hrs. What are the accurate figures? We don’t know what to believe.

Rome, approx 17’ of net pay, could be 20’ like the HW#1 oil flow rate estimates (400 to 500bbls), or higher, and “in excess of 5 million cubic feet of gas per day. Sept 13th NR and March 5th NR. The purpose of drilling to the basement was to find the source of the pressure behind the oil and gas coming from the blowout well.

Analysis

Reader Advisory statement in the NR’s “The Corporation’s actual results, performance or achievements could differ materially from those expressed or implied.” Meaning, MEO is telling us that they may be lying to us, but that’s Ok, because we’ve now been advised of this.

Knox formation – too little information, other than to pursue further testing.

Strata’s surface recovery refers to producing fluids encountered while drilling, meaning there’s no mystery whether they hit gas or oil.

We don’t know when CIDI actually started providing directional drilling services on JB#2, we only know when it was announced.

Copper Ridge, The loss of circulation and cement squeezes sounds negative, but with the flow rates from JB#3, and the photos of the high gas content being flared (estimated by geologist to be 500 mcf), the most likely scenario is that they tested the Copper Ridge, squeezed cement to isolate the formation and prevent contamination of the drilling mud, then drilled down to the next section to test, to repeat the process.

At some point, I’m sure, I heard that casing was run to the top of the Copper Ridge, due to hole problems, but we are unable to find a NR with this stated. All is good in each NR. UB drilling prevents hole problems. So, was the casing put in, with the excuse of hole problems, to make sure that open hole logs could not be run, and results controlled and delayed?

It took 8 days of drilling to reach the Rome formation, after the cement squeezes, which is 200 feet per day. This is better than the 88 feet per day from Sept 28th to Oct 4th. These sound like slow progress, but may be normal, but we don’t have the information required for better analysis. Or, were they testing?

The time lags from Sept 28th could have included directionally drilling 5 horizontal legs into the Copper Ridge, followed by a cement squeeze. A wealth of knowledge could be gained by doing so. With 300’ of pay (est.) that’s 60’ (vertical) between each leg. A subsequent completion could drill horizontal legs above or below these sections, in any of 360 degrees, and drill much longer legs.

After these long periods of time with little solid information – and the Reader Advisory tells us to trust nothing they do say, we can only assume that a great deal was done for “over $9 million”.

Horizontal drilling could realistically produce oil production rates that are more than triple that of the vertical wells drilled and used for comparison, but we have used a more conservative approach in the following.

Copper Ridge Production Estimate – 6 wells

1000 bbls per hr per well, plus gas and condensate production.

Oil, 24,000 bbls per well per day = $18,720,000 per day @ $130/bbl

Gas, 500 mcf per well per day is 3mmcf = $37,500 per day @ $12.50/mcf

No estimate for Condensate.

Rome Formation

The JB#2 cost over $4 million for the last 1,000’ (est.) What did they do with all that money, drill horizontal legs in several direction, to determine the trend of the formation. This would dramatically increase the production capabilities of the deep wells Rome production

The Kentucky reports show that huge rates of gas and condensate production occur in the Rome Formation nearby. 11 to 22 million cubic feet (MMcf) of gas per well per day is realistic.

Rome Formation Production Estimate – 1 well

20 million per day per well @ $12.50/mcf = $250,000/well/day.

Add in condensate @ 50bbl/MMCF @ $100/bbl = $100,000/day

With 1 Rome Formation well, that’s $350,000 per day.

Total for JB wells #1- 6 = $19,107,500 per day

Total with the above plus the 20 shallow wells and 2 deep wells announced = $82,332,500 per day