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Mayan Energy outlines plan for Zink Ranch
Oil and gas company Mayan Energy updated the market on its proposed low-cost development programme at the 1,520 net acre Zink Ranch Field in Oklahoma on Tuesday, in which it has a 100% working interest and a 75% net revenue interest.
The AIM-traded firm had announced on 15 May that the multi-phase work programme, consisting of workover, new drill and pressure maintenance operations, was focussed on increasing production and proving up substantial reserves at Zink Ranch that it believed to be economically recoverable.
On Tuesday, it said a turnkey contract had been entered into with a third-party oilfield service company to initiate a well workover programme, for a total of five wells at Zink Ranch targeting 100 net barrels of oil per day in the mid-term.
Following the approval of Mayan as the operator at Zink Ranch, its intention was for four wells to be worked over as producers from the Pennsylvanian Sands formation, with an initial baseline level of production for each well to be established over a 30-day period.
A fifth well would be worked over as an injection well, the board said, as part of a pilot pressure maintenance test project focussed on enhancing production levels.
Nitrogen would be injected in three phases, with the amount injected increasing with each phase and the performance of the wells closely monitored after each phase to evaluate the impact of the test project.
Subject to positive results, Mayan said it intended to implement a field-wide pressure maintenance programme in 2019, to enhance production on the remaining 12 wells in the field.
As part of the turnkey contract, an environmental impact study, permitting and site selection for the drilling of possible future new wells - beyond the initial five - would be undertaken, Mayan added.
The total cost of the programme would be $0.26m, the board claimed, which included an initial payment of $0.13m to the contractor, payable in Mayan shares, based on £0.0085 per share and equivalent to 11,141,176 ordinary shares.
It also included an additional payment of $0.1m upon completion of the five well workovers prior to the nitrogen injection.
Mayan said it could elect to pay in cash or ordinary shares at the time of completion.
A payment of $5k per month in cash for six months for pumping and regulatory reporting services was also part of the total cost.
The contractor indicated a preference to receive the initial $0.13m payment in shares of Mayan, the board claimed, which it said highlighted the contractor's confidence in the success of both the programme at Zink Ranch as well as ongoing activity across Mayan's Texan assets.
It said the contract anticipated initiation and completion of the five workovers within 30 days of Mayan assuming operatorship at Zink Ranch.
The company said it had engaged counsel to complete that process, and anticipated a "timely resolution" of the matter.
"Zink Ranch represents untapped value for Mayan," said managing director Eddie Gonzalez.
"With the signing of this contract we have now taken the first tangible step towards unlocking what could become a significant asset for the company.
"Together, with the success we are having at the Forest Hill and Stockdale Fields in Texas, we believe that Zink Ranch can make a substantial contribution towards achieving our production goal of 300 to 500 net barrels of oil per day."
Gonzalez claimed that furthermore, oil production from the Pennsylvanian Sands tended to be longer-lived than production elsewhere, and as a result, the implied value of a barrel of oil in the ground from that horizon had historically realised a premium to other formations.
"We are therefore keen to commence this programme which, subject to positive results, could confirm our view that Zink Ranch is a high quality and valuable asset.
"As development milestones and nitrogen test results become available, Zink Ranch will generate much news flow in the coming weeks and months."
Gonzalez said he was further encouraged that seasoned oil field professionals were interested in receiving shares as payment for their services in lieu of cash.
"This serves as a testimony to the hard work the Board and our employees have done not only in restoring the reputation of the company with both investors and industry partners but also in delivering on our strategy to build a highly cash flow generative oil and gas company."