Investment Update

RNS Number : 6046B

Xtract Energy plc

22 February 2011

 

22^nd  February 2011

AIM: XTR

XTRACT ENERGY PLC

("Xtract" or the "Company")

Investment Update

Xtract Energy Plc ("Xtract") notes below the Shareholder Update which was issued by Elko Energy Inc. ("Elko Energy") to its shareholders on Monday 21st February 2011.

"Elko Energy Inc. ('Elko') is pleased to provide this further business development update. 

Business Update

Denmark

Elko announced on February 1 2011, that the 02/05 license group had been awarded a new license offshore Denmark 01/11, immediately to the west of the original 02/05 license area. The 02/05 license group relinquished 3645 square km of the existing 02/05 license whilst retaining some 1727 square km of the license. The combined area of both licenses is 3638 square km.

The 01/11 partners also announced that they intend to drill the 'Luna' well in 2011 through which the partners intend to test the overall Rotliegendes play concept, having already selected the specific well location on the 01/11 license area.

Elko commissioned TRACS International to update the previous version of the Danish acreage Competent Persons Report (CPR) to reflect the new combined 01/011 and 02/05 license area. This update has now been completed and has been posted on the Elko Energy website under the news section,  (www.elkoenergy.com).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Précised Extract from CPR Section 3.1 Lead A (Rotliegendes) Prospect

The CPR reported Gross Oil Prospective Resources range in both licenses for Lead A, in the oil case scenario, is 642 mmbbls to 4996 mmbbls (see table 3.3 on CPR). The CPR reported Gross Gas Prospective Resources range in both licenses for Lead A, in the gas case scenario,  is 1988 bcf to 15338 bcf (see table 3.4 on CPR). (Elko has a net 33% working interest in license 01/11 and in 02/05). The overall probability of success on the Lead A prospect of confirming the presence of Source, Seal, Reservoir and Trap is evaluated by TRACS at 4.6% (see Table 3.5 of CPR). The probability of oil vs gas is 50/50.                                                                                                                                                                                                  

Précised Extract from CPR Section 3.2 Luna (Rotliegendes) Prospect

The Luna prospect is a combination pinch-out and faulted Rotliegendes defining the trap. It is located in a small half graben with the pinch out edge to the south east of the structure. The Rotliegendes reservoir is thought to have a high probability of being present at this location (see Fig 2.7 of CPR) based on the seismic interpretation. Uncertainty still exists however on which seismic event represents the top reservoir and where the pinch out occurs.

In addition to the uncertainty on the pinch out position, there is a possibility that the Rotliegendes does not, in fact pinch out but continues up dip into Lead A (see Fig 3.1 of CPR). It is therefore possible that Luna and Lead A are connected and represent one feature. The current well location which targets the Luna prospect was picked in order to maximize the information gathered by the well and is designed to address this uncertainty.

There are a number of outcomes of a well drilled on the Luna prospect (see table 3.6 of CPR), all of which will provide information that will allow decisions to be made on future activity. There are a number of outcomes which can be described as technically successful in that they prove the presence of reservoir and source. If these are added together there will be a 28% chance of getting a positive result in terms of hydrocarbon presence when the Luna prospect is drilled. The existence of shows would be encouraging as it would indicate that migration had been successful and it could be interpreted that hydrocarbons have migrated through the location and are potentially trapped up dip in Lead A.

For the purpose of this (CPR) evaluation and in order to define the prospectivity of the Luna feature, it has been assumed that Luna is a separate structure. The range of hydrocarbons in place therefore reflects the possible range of volumes for Luna and does not include the possible upside of being part of Lead A. The CPR reported Gross Oil Prospective Resources range for Luna, in the oil case scenario, is 107 mmbbls to 464 mmbbls (see table 3.9 on CPR). The CPR reported Gross Gas Prospective Resources range for Luna, in the gas case scenario, is 430 bcf to 1908 bcf (see table 3.8 on CPR). (Elko has a net 33% working interest in license 01/11 and in 02/05).

The overall probability of success on the Luna prospect of confirming the presence of Source, Seal, Reservoir and Trap is evaluated by TRACS at 9.8% (see Table 3.10 of CPR). The probability of oil vs gas is 50/50.

A small area of 3D seismic data is available covering the northern part of the Luna prospect (see fig 3.5 of CPR). This was made available (to TRACS) after the interpretation of the 2D had been completed. On inspecting the 3D data, there is no evidence to suggest that the interpretation would be significantly altered or would significantly impact the volumetric estimates. The 3D dataset has been used to identify any potential shallow drilling hazards close to the proposed well location.

Précised Extract from CPR Section 3.3 Chalk Channel Prospect

The CPR reported Gross Oil Prospective Resources range in license for the Chalk Channel, in the oil case scenario, is 109 mmbbls to 1074 mmbbls (see table 3.12 on CPR). (Elko has a net 33% working interest in license 01/11 and in 02/05). The overall probability of achieving commercial success on the Chalk Channel prospect of confirming the presence of Source, Seal, Reservoir and Trap is evaluated by TRACS at 5.4% (see Table 3.13 of CPR).

Précised Extract from CPR Section 5 Conclusions

As a result of the evaluation TRACS can report the following volumetric estimates for the Rotliegendes Lead A, the (Rotliegendes) Luna prospect and the Chalk Channel.

Prospective Resources (Oil)                                  Net Attributable to Elko MMbbls

                                                                                    Low Est.          Best Est.         High Est.

Rotliegendes Lead A within license                            212                  552                  1649

Luna                                                                              35                    81                    153

Chalk Channel                                                              36                  115                   354

Total                                                                           283                  747                  2156

Prospective Resources (Gas)                                Net Attributable to Elko BCF

                                                                                    Low Est.          Best Est.         High Est.

Rotliegendes Lead A within license                            656                  1711                5062

Luna                                                                            142                    332                  630

Total                                                                           798                  2044                5691

Elko Energy Management Comment

At the time of signing the farm in agreement between Noreco and Elko in May 2010, the 02/05 Joint Venture (JV) partners including the Danish North Sea Fund were aligned in their belief that the optimum location for the first exploration well was in the area to the immediate west of the original 02/05 license. The frontier play concept is focused on the Rotliegendes sandstone which embraces both the Lead A and Luna prospects which may constitute one large geologically coherent entity.  The JV has focused on this Rotliegendes play by applying for and being awarded the new 01/11 license whilst relinquishing part of the original 02/05 license.

The June 2010 CPR reported Elko Energy's net attributable resources at the pre farm out Elko 80% 02/05 license working interest (as the farm out had not been fully completed at the date of that CPR issue). The combined impact of being awarded the new license area and relinquishing part of the 02/05 license is that the net attributable, best estimate, oil case, prospective resource to Elko, as reported in the latest CPR, is unchanged at circa 550 mmbbls in the Rotliegendes Lead A (Table 5.3 of CPR). This effectively is because we have relinquished low probability reservoir areas in license 02/05 in exchange for medium to high probability Lead A areas of sandstones in license 01/11 (as illustrated in Fig 2.7 of the new CPR). In addition the Luna prospect has been acquired.

The Luna prospect benefits from being in an area classified in the TRACS report as having high probability of reservoir (Fig 2.7 of CPR). The Luna well has been located to test the overall Rotliegendes play and is estimated by TRACS to have a 28% probability of getting positive results.

Further updates regarding the drilling of this well will be provided as appropriate.

Peter Moir

President, February 21 2011"

Qualified Person

In accordance with AIM Guidelines, Peter Moir, B.Sc. Civil Engineering, M.Eng. Petroleum Engineering, UK Chartered Engineer, President of Elko Energy Inc. and CEO of Xtract Energy plc is the qualified person as defined in the Guidance Notes for Mining, Oil and Gas Companies, February 2010, of the London Stock Exchange, that has reviewed the technical information contained in this press release. Mr Moir has more than 30 years experience in technical, operational and commercial aspects of the E&P business.

Enquiries please contact:

Xtract Energy	Peter Moir, Director	[phone]
Cenkos Securities Plc	Jon Fitzpatrick Beth McKiernan	[phone] [phone]

About Xtract Energy

Xtract identifies and invests in a portfolio of early stage oil and gas assets and business interests with significant growth potential. The Company aims to work closely with the associated management teams to achieve critical project milestones, to finance early stage asset and business development activity, and then to finance the asset development phase, or if appropriate to crystallise value for all shareholders at a suitable exit point. Xtract aims to achieve returns for our shareholders through access to the significant upside rewards associated with our investments.

For further information on Xtract please visit www.xtractenergy.co.uk

A short description of the principal assets of Xtract is set out below. These assets are either held directly or through wholly owned subsidiaries of the Company.

Extrem Energy AS ("Extrem Energy")

Extrem Energy is an exploration and production joint venture with Merty Energy of Turkey. The JV's aim is to create a new medium-sized oil and gas exploration and production business, initially focused on Turkey where Merty Energy has particular experience and expertise. Extrem Energy has a portfolio of licence interests including the high potential prospect at Candarli Bay in south-west Turkey. Xtract owns 50% of the issued share capital of Extrem Energy.

Elko Energy Inc. ("Elko")

Elko is a Canadian registered oil & gas exploration company which has interests in exploration and production licences in the Danish and Dutch North Sea. Its major asset in the Danish North Sea is a 33% working interest in an exploration and production licence 02/05 and a 33% working interest an adjoining exploration and production license 01/11, close to the prolific Central Graben oil kitchen. Technical work indicates the potential for significant resources on these combined licenses. Elko also holds a royalty interest in gas-bearing license blocks P1 and P2 in the Dutch North Sea. Xtract owns approximately 50.0% of Elko's issued share capital.

Zhibek Resources Ltd ("Zhibek Resources")

Zhibek Resources is an oil and gas exploration and production company which has a 72% interest in the Tash Kumyr exploration licence in the Kyrgyz Republic. Xtract has entered a farm-out agreement to fund a seismic and drilling programme for 2008-2011. Xtract owns 25.0% of the issued share capital of Zhibek Resources.

Xtract Oil Ltd ("XOL")

Xtract's wholly owned subsidiary, XOL, is focused on the development of the Company's oil shale resources in Australia and the technology for oil extraction from oil shale resources. Xtract has oil shale exploration rights over mining tenements in the Julia Creek area of Queensland. In addition to evaluating third party technologies, XOL has been developing proprietary technology for the commercial extraction of liquid hydrocarbon products from oil shale.

Xtract Energy (Oil Shale) Morocco SA ("XOSM")

XOSM is a joint venture with Alraed Limited Investment Holding Company WLL, a company controlled by His Highness, Prince Bandar Bin Mohd. Bin Abdulrahman Al-Saud of Saudi Arabia. XOSM has signed a Memorandum of Understanding with the Office National des Hydrocarbures et des Mines for the purposes of evaluation and possible development of an oil shale deposit near Tarfaya, in the south west part of Morocco. Xtract currently holds 70% of the joint venture.

 

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