Rose Petroleum plc

Farm-in agreement on significant US oil and gas project

17-March-2014

Farm-in agreement on significant US oil and gas project

Rose Petroleum (AIM: ROSE) is pleased to announce that it has signed a farm-in agreement under which its newly formed subsidiary, Rose Petroleum (Utah) LLC (“Rose Utah”), can acquire 75% of certain oil, gas and hydrocarbon leases covering approximately 195,000 net acres in Grand and Emery Counties, Utah (the “Leases” or the “Project”).

Highlights:

  • Located in the Uinta and Paradox Basins of eastern Utah 
  • Rose Utah to acquire a 75% working interest, including one shut-in well
  • Both the Uinta and Paradox Basins are significant oil and gas producing basins with extensive infrastructure
  • The agreement makes Rose Utah a major stakeholder in two established U.S. unconventional shale resource plays

Rose Utah is the designated operator and its 75% working interest in the Leases equates to approximately 146,250 acres net to Rose Utah, together with a 75% interest in one shut-in well. The Project targets two prolific unconventional shale resource plays, being the Mancos and Cane Creek Shales. Rose Utah’s 75% working interest is being acquired from Rockies Standard Oil Company, LLC (the “Seller”), which retains the remaining 25% working interest. (See Figure 1 http://www.rns-pdf.londonstockexchange.com/rns/4282C_-2014-3-16.pdf)

Matthew Idiens, CEO, said, “This farm-in agreement is a major step forward in Rose Petroleum’s establishment as a significant player in the unconventional shale resource arena and affords us the opportunity to develop substantial reserves in two established producing plays. This opportunity has come about as a direct result of our U.S. based Oil & Gas team and their expertise in unconventional shale resource play evaluation and specific experience in these two basins.”

Mancos Shale

The Cretaceous age Mancos Formation (the “Mancos” or the “Mancos Shale”) is stratigraphically equivalent to the Niobrara Formation in northeast Colorado, as well as, the Eagle Ford Formation in south Texas, both of which are two of the largest unconventional shale resources plays in the world. The Mancos is also being developed south of the Leases in the San Juan Basin where EnCana Corporation (NYSE: ECA) and WPX Energy (NYSE:WPX), amongst others, have drilled over 60 Mancos wells and are producing over 20,000 barrels of oil per day (”BOPD”). EnCana and WPX both estimate individual well reserves in Mancos at 500 to 550 thousand barrels of oil (“MBO”).

The immediate surrounding area to the Leases is controlled by numerous existing producing wells, several of which have been completed in the Mancos as vertical wells with individual well cumulative production up to 120 MBO per well. Rose Utah’s Leases afford it the opportunity to drill direct offsets to existing Mancos producing wells. (see Figure 2 http://www.rns-pdf.londonstockexchange.com/rns/4282C_1-2014-3-16.pdf)

Cane Creek Shale

Rose Utah’s Leases are located 12 miles north of Fidelity Exploration and Production Company’s (“Fidelity”) Cane Creek Field, which it’s currently developing. Fidelity is a wholly owned subsidiary of MDU Resources Group, Inc. (NYSE: MDU). The Cane Creek Shale is a member of the Pennsylvanian age Paradox Formation (the “Cane Creek” or the “Cane Creek Shale”). Within and adjacent to the Cane Creek Field there are vertical Cane Creek wells that have produced over 1.0 million barrels of oil (“MMBO”) from individual vertical wells.
Fidelity’s current drilling programme is regularly achieving initial production rates of over 1,000 BOPD with individual well reserve estimates as high as 1.5 MMBO per well. Fidelity’s Cane Creek 12-1 well was among the best onshore wells drilled in the U.S. in 2012. It flowed at 1,500 BOPD for nine months and is still flowing at 1,000 BOPD and has produced over 600 MBO to date. In 2013, Fidelity produced nearly 1.0 MMBO for the year from the Cane Creek Field from less than 15 wells.

There are 30 individual reservoir intervals in the Paradox Formation, of which the Cane Creek is only one. To date, Fidelity has focused its development on the Cane Creek interval but it has been reported by Fidelity that it plans to initiate development of the other intervals this year having identified 10 additional intervals as prospective with anticipated reserves of 150 to 400 MBO per interval, per well.

Infrastructure

The area in which the Leases are situated has extensive infrastructure in place including refineries, natural gas pipelines, liquid products pipelines, oil pipelines, processing plants and access to two rivers for water at reasonable costs. There are also numerous oil field services, vendors and contractors in the area. The Leases are accessible year round with a major interstate highway running through the middle of the Project. The terrain is flat, dry, high plains desert with minimal vegetation and an extremely low population density.

Estimated reserve potential

Based on the already established production in the Mancos and Cane Creek, the directors of Rose Petroleum believe the resource potential of the Leases to be quite significant and have engaged Ryder Scott Company, LP to produce an independent resource assessment report. Further announcements regarding resource estimates will be made at the appropriate time.

Payment obligations

The consideration for the farm-in agreement consists of five cash payments to the Seller totaling US$2.0m. The first two payments totaling US$500,000 have already been made and the other three payments are to be made on 16 September 2014 (US$500,000), 16 April 2015 (US$500,000) and 16 November 2015 (US$500,000). In addition to the cash payments, Rose Utah must drill three Mancos wells and one Cane Creek well to earn its 75% working interest in the acreage. Total project carry obligations of $9.5m in the Mancos and $7.5m in the Cane Creek are ultimately required. There is no specified time requirement for the drilling of these wells or the expenditure of the carry obligations. Following deployment of Rose Utah’s carry obligations, all usual costs and expenses in relation to the Project are split as to 75% to Rose Utah and as to the remaining 25% to the Seller. The net revenues to Rose Utah associated with the Leases is 80%.

Rose Petroleum is currently considering its options in relation to the funding of the carry obligations and further announcements will be made at the appropriate time.

All production and operational information in this announcement is provided from the public domain, the State of Utah or the respective operators.

John Blair (BSc Geology and MSc Geophysics), Head of New Ventures for Rose Petroleum plc, who meets the criteria of a qualified person under the AIM Rules - Note for Mining and Oil & Gas Companies, has reviewed and approved the technical information contained within this announcement.