Sugarloaf Gas and Condensate Project >> Hilcorp Energy – Sugarloaf Farm-in
In the 3rd quarter of 2009 Eureka, together with other Sugarloaf AMI participants, was successful in farming out its Sugarloaf acreage to Hilcorp Energy Company (“Hilcorp”), one the largest privately owned E&P companies in the USA.
At the time, in the midst of the Global Financial Crisis, the farmin by an established large company such as Hilcorp represented a significant endorsement of the multi TCFe potential of the Sugarloaf gas and condensate asset and the value of Eureka’s interest. Since that time, Hilcorp has demonstrated its ability to efficiently operate the Sugarloaf AMI.
Pursuant to the farmout arrangements, Eureka has and will continue to be free carried for the:
- drilling, completion, fracture stimulation and tie in of 3 new horizontal wells (these wells have now been drilled & tied in to sales lines and are awaiting stimulation - Rancho Grande #1H, Morgan #1H, and Easley #1H), and
- fracture stimulation of the three existing Sugarloaf horizontal wells; Kennedy #1H, Kowalik #1H and Weston #1H (the stimulation of Kennedy#1H and Weston#1H has occurred – with very encouraging initial production rates).
Under the Farmout, Eureka’s working interest in the Sugarloaf AMI will reduce by 50% (from 12.5% to 6.25%) upon completion of the above work obligations.
The Hilcorp activity within Sugarloaf has yielded very encouraging production from the first two stimulation operations and the initial production results from the first two new wells are amongst the best reported in the field. Eureka believes that these results together with the production results from the final farminwell which is soon to be stimulated and the widespread ongoing regional activity will greatly assist in establishing the considerable value of our interest in the Sugarloaf AMI.
Eureka’s capital requirements during the farmin period have been minimal as Hilcorp is providing a free carry over 100% of Eureka’s costs. Hilcorp will receive priority pay back of its capital costs, thereafter, Eureka is entitled to its post farmout share of production income.
Hilcorp has also committed to a farmin over other land areas within the Sugarkane Field either adjacent to or nearby the Sugarloaf AMI, with corresponding drilling requirements. This additional activity will lead to a meaningful drilling and completion program that aims to establish a portfolio of producing wells within the Sugarkane acreage that in turn will assist in demonstrating the multi Tcfe potential of the Sugarloaf AMI.