Company Operations and properties
Unconventional Assets:
Lario’s inventory of lower risk locations targeting the Woodford
Shale, Bakken Play, and the Mississippian Chert are constantly being
evaluated. Our drilling inventory in the Barnett Shale in Texas is also
substantial, and a continued analysis is necessary to drill only the
ones that demonstrate economic success. Reduced drilling costs will be
the big driver in this play.
Middle Bakken Play:
In 2001, discovery of the Elm Coulee Field in eastern Montana kicked
off a furious drilling program that resulted in the creation of the
25th largest oil field in onshore U.S. Lario has approximately 7 high
working interests in Elm Coulee, Richland County Montana. The next
apparent and significant Bakken resource play was discovered in late
2006 by EOG. The Parshall Field in Mountrail County, ND may rival the
size of Elm Coulee, but it’s still too early to tell. We began
assembling our position in the play last fall, and have over
approximately 37,000 gross and 13,200+ net acres in the core area. We
have participated in 15 oil discoveries, three additional wells are
currently drilling and numerous non-operated locations have recently
been staked on our acreage. We have staked 5 additional locations which
will be operated by Lario. Based upon two wells per section, Lario will
be exposed to 280 locations. This area is expected to have a
substantial impact on Lario and should generate attractive economics.
Woodford Shale:
The Woodford Shale play in eastern Oklahoma appears to be an excellent
shale gas resource play. Successful drilling over the past 18 months by
a multitude of operators have resulted in a reaching a milestone of 125
MMCFD, surpassing the pace of both the Barnett (18 years) and the
Fayetteville Shale (2 years). Lario entered this play spring of 2007 by
leasing 1,508/12,778 net/gross acres, and drilling commenced on our
leases last fall. We currently have a small working interest in over 30
producers, another 12 locations have been staked on Lario and our 3P
locations are speculated to be over 288 based upon 160 acre spacing. We
estimate that our working interest to be approximately 3.3 % on average
in this inventory of locations. We have calculated approximately 23 net
BCF of 3P reserves in our inventory. Future drilling should confirm
this.
Mississippian Chert Play:
26 wells were drilled in this area during 2007 resulting in 19
producers and approximately 24 wells are planned in 2008. The key to
economic prosperity in this play is dependent on repeatable success.
Significant reserves have been added and we will continue to exploit
this resource while maintaining an acceptable rate of return.
Other Shale Plays:
Lario has entered a development contract on our 14,000 net acres in the
Fayetteville Shale of Arkansas, and a 3D program is underway. Lario has
also placed its 100,000 acres in the Floyd Shale play of Mississippi
with a strong industry partner. 3D seismic has been shot, pilot tests
are being drilled and data is being analyzed.
Unconventional Thinking:
With continued success, our commitment to our
“unconventional” assets will continue. We anticipate strong
performance and significant growth potential with these assets.
Impressive production rates have been demonstrated in our Arkoma
Woodford Play and in the Middle Bakken play in ND. During 2008, over
65% of our CAPEX will go towards developing our resource projects with
excellent reserve growth potential.
Conventional Assets:
The MC LLC, in which we currently own 25%, has been quite active over
the past year. As of the end of 2007, MCLLC owned an interest in over
600,000 gross/441,468 net acres. It has participated in 282 completed
gross square miles of 3D seismic (approximately 50% net participation).
To date, the MCLLC has participated in 46 wells, yielding 29 producers.
Current daily production is approximately 1,000 gross/400 net BOPD.
Exploratory and development success is now approximately 52%. We
currently have one rig working through the 3rd quarter with a second
rig coming to wrap up the rest of the year and into 2009. Additional
JVs are being negotiated and 3D seismic is continuing to be shot.
Lario’s ownership will increase to 35% ownership of MCLLC by
achieving certain hurdle rates.
Sacramento Basin:
Lario's active 3D drilling program continues to deliver solid results
on a consistent basis. The development of Lario's deep drilling
inventory continues throughout the year, limited only by drilling rig
shortages. Year in and year out, the Sacramento Basin represents one of
Lario's lowest cost of finding and lifting regions.
Southwest Kansas:
Large blocks of leases and large 3D programs have been acquired by
Lario and several potential drill sites are being evaluated. We expect
to drill at least 8-10 new wells on seismically identified structures
in 2008. In addition, at least 3 new shoots covering 60 square miles
are in the planning stages for 2008.
Permian Basin:
West Texas represents our largest PDP value District in the company. We
continue to explore successfully in our Legacy properties.
Wyoming:
Lario operates multiple oil fields in the Powder river Basin, primarily
long life Minnelusa Fields. We also have a significant non-operated
presentation in the Green River Basin. With higher gas prices and
continued down spacing, Lario will have decades of drilling inventory
in this region.
Canada:
We strongly believe that our opportunities in Canada are excellent.
Early indications are that our assets are attracting increased
attention due to the addition of staff whose primary responsibilities
are to evaluate existing and potential value of our asset mix. The
industry relationships that have been developed as a result of these
additions have increased awareness regarding the value of our asset
mix. With our expanded capability regarding evaluation of prospective
drilling projects, existing producing properties and significant value
is being created and added to our existing asset base.