Red Rock Resources Plc
("Red Rock" or the "Company")
Acquisition of Interest in LM20 Well at Shoats Creek
20 January 2016
Red Rock Resources plc announces, further to its announcements of 28 October 2015 and 27 November 2015, that its wholly owned subsidiary Red Rock Resources, Inc. ("RRR") has agreed with Shoats Creek Development Corporation Inc. ("SCDI"), to acquire a 20% Working Interest ("WI") in the Lutcher More 20 ("LM20") well at the Shoats Creek Field, Beauregard Parish, Louisiana. The LM20 produced 24 hour test results of 260 barrels of oil and 500 mcf of natural gas per day (or 340 barrels of oil equivalent per day) as announced by Northcote Energy Ltd on 1 September 2015.
RRR previously entered into an agreement to participate in development activities at the Shoats Creek Field, notably the planned LM 21 and LM 22 wells, and has now agreed to acquire an equal interest in the recently drilled LM20 well (together the "Project Wells").
Red Rock acquires a 20% WI and 14.4% net revenue interest ("NRI") in the LM20 well for an immediate payment of US$120,000. RRR has also executed a 4.5% promissory note for US$80,000 payable in equal monthly instalments between July 2016 and December 2018. In the event of cumulative production from the LM20 well exceeding 100,000 barrels of oil within three years, a further payment of US$40,000 will become due.
Other Terms:
SCDI will have a 18.75% back-in after payout on the Project Wells (payout being the time when the Company has received an amount in payments for oil and gas sales minus operating expenses that is equal to the investment required to drill the Project Wells and associated facilities) so that thereafter this percentage of the Company's working interest would revert to SCDI, and Red Rock would be left with a 16.25% WI/11.7% NRI.
As part of the investment additional wells and re-entry opportunities may from time to time be proposed in the project area with the Company having the option but not the obligation to participate on a 'heads-up' (i.e. equal and without back-in) basis to other participants.
Operations Update:
The Company in its announcement of 27 November 2015 noted that it anticipated that its share of cased and completed LM21 and LM22 wells as well as related production support facilities would cost a further amount of between US$500,000 and US$600,000. A more competitive market due to the decline oil prices may enable savings from budgeted amounts to be made and an updated schedule for these wells will be announced in due course. Red Rock has made and is making sales from its asset portfolio that it expects to enable it to meet the near-term costs of its participations in LM21, LM22 and now the LM20.
Andrew Bell, Chairman, states: "LM20 at Shoats Creek was a successful well and is now moving into production. This largely de-risks the planned LM21 and LM22 step-out wells. At current prices, with a 18% discount rate, and with production assumed 40% below the level projected by the operator, our model gives a positive return on investment. At operating cost level, the operator aims at a cost per barrel on LM20 that will be in the US$8.00 to US$12.00 per barrel range over time. In our view, near-term oil production in the United States offers at current oil prices a number of attractive opportunities with low production costs and low risk, and this is one. RRR believes this is the right time to invest, with oil below $30 a barrel and associated project costs and assets sharply reduced, now that the price has declined from the $100+ a barrel level of 2014.
We continue to aim short-term at making Red Rock a net cash generating business. We believe the acquisition of the LM20 interest just as production is set to begin is a key move, and that it accelerates that process and puts RRR on the verge of becoming an oil producer."
Background Note:
This note repeats for convenience the summary information given in the announcement of 28 October 2015.
Located in the United States in the state of Louisiana, the Shoats Creek Field was originally discovered by Sun Oil ("Sun") in 1956. Situated on the US Gulf Coast, the Shoats Creek Field has produced over 2 MBOE primarily from numerous Frio and Cockfield interval sands between 5000 and 9000 feet deep. The Frio is one of three major pay zones in the multi-reservoir field.
The Frio was not initially developed by Sun until the late 1970s when commercial quantities of oil and gas were discovered. From 1981 to 1983 Sun was producing 300 BOPD from their wells in the area. Production waned over time and investigations showed that mechanical well bore issues revolving around tubing leaks were responsible. Reduced production continued until 1984 when remaining wells were plugged and abandoned. The reservoir has subsequently sat dormant for the past 30 years.
Northcote Energy Limited in 2015 begun to re-develop Shoats Creek through infill drilling. The initial efforts will be followed up with exploitation and step out locations based on production results, sub-surface data, and proprietary 3-D seismic. The main risk in the effort is deemed to be mechanical rather than geological and the use of a stronger and more durable casing along with new techniques will be employed to ensure long and productive well operating lives.
In early 2015 NCT drilled and tested the first well in the redevelopment effort, the LM20, which was a twin to the historical LM16 that had been a strong producer until it had to shut down prematurely as a result of mechanical problems. LM20 reported tested rates of over 250 BO and 500 MCF of gas per day. The LM20 encountered 10'-12' of pay with an estimated 20% porosity and was perforated over a small interval from 5018-23'. Further details on the progress of the LM20 well into production and on the planned programmes at LM21 and LM22 may be found on the Northcote Energy Limited website at http://www.northcoteenergy.com/
The technical information that is contained in this announcement has been reviewed by Mr. Kevin Green, a Petroleum Geologist who is a suitably qualified person with over 30 years' experience in assessing hydrocarbon reserves and who has consented to the inclusion of the technical information.
For further information, please contact:
Andrew Bell 0207 747 9990 or 0776 647 4849 Chairman Red Rock Resources Plc
Scott Kaintz 0207 747 9990 Executive Director Red Rock Resources
Roland Cornish/ Rosalind Hill Abrahams 0207 628 3396 NOMAD Beaumont Cornish Limited
Jason Robertson 0129 351 7744 Broker Dowgate Capital Stockbrokers Ltd.
Christian Pickel 0203 128 8208 Media Relations MHP Communications
