YUKON, Okla., April 25, 2006 (PRIMEZONE) -- Superior Oil and Gas Co. (OTCBB:SIOR) has agreed to purchase, for cash, a 100% Working Interest in a 7-section block of lands in the Medicine Hat Field in southeastern Alberta, Canada, announced Dan Lloyd, president of Superior. Included in the purchase are two Medicine Hat sand wells recently drilled on the lands, which Superior will acquire. Superior is obligated over the next 60-90 days to drill a minimum of five more wells, each to about 1,500 feet, to validate the leases on the remaining five sections. The lands became available due to a relatively short remaining lease term.
"On a 160-acre spacing program, Superior has an opportunity to drill another 26 wells on the lands of interest, tie them in to an existing gathering system, and have all of the wells on stream by year end (subject to financing arrangements and the availability of drilling equipment)," Lloyd said.
The Medicine Hat sand is an Upper Cretaceous blanket sand that is producing from over 1,000 Medicine Hat Zone wells in the immediate area. Offsetting wells in the same township exhibited Initial Production Rates with daily gas flows from 350 Thousand Cubic Feet a day to over 1.25 Million Cubic Feet a day, and these initial rates were maintained with only a 5-10% decline over the first 4-5 years of production. Cumulative gas volumes in excess of 2 Billion Cubic Feet a well have been produced from at least 20 wells in the north half of the township, with a total in excess of 80 Billion Cubic Feet of gas being produced from 20 sections in the north half of this same township. Due to the unique manner in which wells in the southern portion of the township were completed and maintained over the last 30 years, the 16 sections in the south half of the township have only produced less than 2 Billion Cubic feet of gas. The lands located in the south half of the township that have been made available to Superior are not depleted as evidenced from subsurface pressure readings on several wells across the block, and the reservoir quality is similar throughout the entire area. Superior anticipates that, based on an evaluation of the Medicine Hat Sand Gas Reservoir and from a comparison with offsetting wells that have been on production for over 20 years, the potential remaining recoverable gas reserves utilizing one well a quarter section (160 acres) is potentially in the order of 1/2 to 1 Billion Cubic Feet a quarter section for a possible range of 14 to 28 Billion Cubic Feet of recoverable gas from the lands of interest.
Capital Costs to drill, complete (including one frac-job a well), tying-in the well to a gathering system and installation of surface treating facilities, is estimated at $400,000 a well. Recovery of these capital costs at current gas prices of $7.00 to $8.00 an MCF should be achieved in approximately a 6-month period from the start of production. Historical data indicates that the wells in this field are productive on an economic basis for periods of 25 to 40 years, Lloyd said.
There are also opportunities to expand this initial program from a 26-well drilling project to possibly as many as another 30-40 wells over the next couple of years. There are two under-utilized third party compression and treating facilities with available capacity in the immediate area, and several transmission lines tied-in to these plants are located on the lands of interest.
Assuming the full development by Superior of a 28-well Medicine Hat sand field on Superior's seven sections of land, a reputable Canadian petroleum reservoir engineering firm estimates the present value of the field, discounted at 12 percent, would be $91.4 million for Superior's 100% working interest. This assumes capital costs of $1.65 million over three years and is a value net of all capital costs, royalties and operating costs.
This Press Release contains forward-looking statements based on our current expectations about our company and our industry. You can identify these forward-looking statements when you see us using the words such as "expect," "anticipate," "estimate," "believes," "plans" and other similar expressions. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of our ability to complete required financings and other preconditions to the completion of the transactions described herein and Superior's ability to successfully acquire reserves and produce its resources among other issues. We undertake no obligation to publicly update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. We caution you not to place undue reliance on those statements.