Collins Hemi 1 Well Developmentsadmin
Friday, August 22nd 2008
Hemi Energy Group, Inc. – The results of the successful drilling and completion of the Collins Hemi 1 well has resulted in the natural gas cap in place with strong reservoir pressures and additional multiple coal bed methane and oil/gas formations being discovered in the Collins Hemi 1 well in Woodson County, Kansas. The well head equipment needed to safely produce and control the gas pressure in the Collins well has been installed. This new well continues to show characteristics comparable to many Texas type oil and gas wells that have good oil production with slower decline curves. This oil and gas well is in the process of development to achieve maximum production efficiency of both marketable reserves from this new field. Current production is at a necessarily choked back rate in this process and is less than 1/6 of the potential rate of production to an equivalent of 22 BOEs per day. The well’s oil cut is increasing daily and is currently producing more than 5 bbls of oil per day in this restricted rate and still venting gas to control the pressure and determine the optimum controlled volume of natural gas that will be produced for sale and to safety produce the crude oil. There are several options being considered for the natural gas pressure issue in order to insure long-term oil production at a much higher rate based on industry experts’ opinions and experiences. There is clearly a very marketable quantity of natural gas from this well. The options of selling the natural gas and gas condensate is being evaluated by a company that specializes in this area of expertise in Texas.
Hemi will be drilling more new wells on the Collins & our adjacent leases as the geological information derived about the pay zones from the discovery well clearly justify the new field’s further development. Hemi has a 100% working interest and an 80% net revenue interest in the Collins lease as we also have more than 10,000 additional leased acres in Kansas. The new oil and gas well on the Collins lease continues to validate what the company has thought about the Cherry Creek and East Owl Creek oil trends and confirms we have found one of the strongest areas in this developing trend based on well logs. This well is demonstrating the characteristics that are in new wells that have longer lasting oil production at a higher rate because the very important natural gas dissolved in water solution drive is clearly present in this high pressure well in Kansas that are not present in mature wells.
President Keith A. Anderson issued this statement: “The Collins Hemi 1 well is exhibiting all the characteristic’s of being a discovery well located on the southern flanks of the Cherry Creek trend, which appears to extend 4 to 10 miles north by northwest of this well. Additionally it appears this well and our surrounding lease acreage maybe positioned on an anticlinal fault trapping mechanism. We have discovered significant amounts of natural gas present in this field and are currently negotiating a market for this gas. Once we have established a market for this gas, shareholders should expect to see a dramatic increase in the oil and gas production over the choked back production numbers we currently are producing. Upon establishing a market for this natural gas we will aggressively continue drilling and development of Collins and other undeveloped lease acreage we have located along this trend, in a Southeast to a Northwestern pattern. I would like to acknowledge we have taken more time than usual to complete this well, we have experienced weather delays and with the discovery of additional Coal Bed methane and conventional oil and gas pay-horizons present in this well. We chose the side of caution and await lab and engineering analysis/results before completing this well and putting it into production.”
Hemi’s very artificially low market cap is substantially below book value and below tangible asset values based on conservative oil and gas industry standards, especially when ongoing increasing undeveloped lease acreage valuations in 3 states and North Dakota’s leases are factored in. All ongoing due diligence on leases’ values in several states are continuing to move forward. Hemi has been cash flow positive and continues to be cash flow positive and is meeting all normal operating expenses from oil production.