Louisiana oil and gas leases
· Overview
· Louisiana Oil and Gas Pipeline
· Pipeline Information
· Oil Production
· Gas Production
· Exploitation Success
· Reserves & Resource Estimates
· Operating Risks
· Commodity Price Volatility and Exchange Rate Risks
· Environmental Risks
· Competition
· General Investment Risks
· Future Capital Needs And Funding
The oil and gas industry is one of the leading industries in Louisiana in the terms of economic impact, taxes paid and people employed.
The industry can trace its beginning back to the late 1800's when gas was discovered in North Louisiana. The first oil well was discovered in 1901 in the Jennings Field and the first successful offshore well drilled out of sight of land was completed in 1947.
The Louisiana oil and gas industry actually extends beyond the state boundary of Louisiana and includes much of the Gulf of Mexico.
Also, the Louisiana oil and gas industry is really four industries in one. There is the familiar exploration and production segment, which is responsible for finding and producing oil and natural gas.
Next there is the refining section, which takes crude oil and turns it into useful products like gasoline, diesel and chemical feed stock.
Next comes the marketing section, which includes the gasoline stations. Finally, there is the transportation section, which includes pipelines carrying crude oil, natural gas and refined products.
Louisiana is the third leading producer of natural gas and the fourth leading producer of crude oil in the country. When including the oil and gas production in the Gulf of Mexico, Louisiana becomes the second leading natural gas producer in the country and the third leading crude oil producer.
There are 19 active refineries in the state of Louisiana, which accounts for 15 percent of the total refining capacity in the country. There are thousands of miles of pipelines in the state, safely carrying crude oil from the Gulf of Mexico to refineries in Louisiana and other states as well as carrying natural gas to all parts of the country. In addition there are pipelines carrying refined products such as gasoline from and through Louisiana to other states.
Approximately 2 billion gallons of gasoline are consumed in Louisiana, with most of it being purchased at gasoline stations located in virtually every community of the state.
An economic impact study conducted by Dr. Loren Scott shows that the total direct and indirect impact on the state is approximately $65 billion. The direct impact comes from the taxes, royalties, fees, salaries, and other money spent in Louisiana by the oil and gas industry. The indirect impact results from the salaries and wages earned by oil and gas employees being spent in the state as well as service companies, which do business with oil and gas companies and then do business with other companies.
Virtually all parishes in Louisiana have some oil and gas activity. The direct taxes and royalties paid by the industry to the state, along with fees and other taxes account for approximately 13 percent of all the general fund revenues collected by the state. At one time the industry accounted for nearly 40 percent of all state general fund revenues. The percentage has gone down because oil and gas production has declined over the years and secondly, the state budget has grown as a result of new revenue sources, such as increased sales taxes, increased income taxes and gaming revenue.
The offshore industry operating in the Gulf of Mexico, outside the state's territorial boundaries has a tremendous impact on the state. A study conducted by Applied Technology Research Inc. shows that the offshore industry has a direct impact of $3 billion on the state. The offshore industry pays more than $500 million in salaries and wages to people working in the Gulf of Mexico.
Another $2.5 billion is spent with companies operating in Louisiana and doing business with the offshore industry. It is important to remember that everything used on an offshore platform has to come from somewhere onshore.
The refining segment of the industry has an $8 billion impact on the state. Approximately half of that amount is spent on the purchase of crude oil and the remainder is spent on salaries, wages, services and supplies used at the refineries.
The Gulf of Mexico is important to the refining segment. Louisiana does not produce enough oil to meet the capacity of the Louisiana refineries. In fact, if the Louisiana refineries only used Louisiana oil, they could only operate for two months each year. Therefore, the refineries must use oil from the Gulf of Mexico, other states and foreign countries.
The Louisiana Mid-Continent Oil and Gas Association represents the interests of the oil and gas industry before the Louisiana Legislature, state and federal agencies, members of Congress, the news media and general public. The Louisiana Mid-Continent Oil and Gas Association was founded in 1922.
Louisiana Oil and Gas Pipeline
The pipeline industry is a vital part of the oil and gas industry in Louisiana. Louisiana has an extensive pipeline network. Pipelines serve all facets of the industry and the consumers. Pipelines transport crude oil and natural gas from the wellhead to the processing plants and refineries.
Pipelines transport natural gas from producing states such as Louisiana to utility companies, chemical companies and other users throughout the nation. Pipelines are used to transport refined petroleum products such as gasoline and diesel from refineries in Louisiana and other states to markets all over the country. Pipelines are also used to transport chemical products.
Pipeline Information
There are an estimated 25,000 miles of pipe moving natural gas through interstate pipelines.
There are 7,600 miles of pipelines that carry natural gas through intrastate pipelines to users within the state's boundaries.
Another 3,450 miles of pipelines in Louisiana transport crude oil and crude oil products.
There are thousands of miles of flow lines and gathering lines moving oil and gas from the wellhead to separating facilities while other pipelines transport chemical products with no petroleum base.
The total assessed value of the interstate pipelines in Louisiana is $605 million, according to the Louisiana Tax Commission.
The pipeline industry employs 4,855 persons in Louisiana with an annual payroll of more than $250 million.
Louisiana is home to the world's only offshore superport, Louisiana Offshore Oil Port, which allows supertankers to unload crude oil away from shore so that it can be transported via pipeline to onshore terminals.
The Henry Hub in Louisiana is a hub of pipelines and is the point where financial markets determine the value of natural gas.
Oil Production
There are currently six leases producing oil. Production from swabbing operations is being restricted on numerous wells by the excessive production of salt water. This has resulted in a reduced number of wells being swabbed per day than was originally anticipated. It also reduces the economics of many wells. To minimise the impact of this, a salt water disposal line has been installed, removing the need for excessive salt water to be manually carted to the salt water disposal well.
Czech Republic Resource Corp has made a decision to only swab those wells that are likely to consistently produce economic quantities of oil per swab. Ultimately this will lead to reduced production but also reduced operating expenses. These ongoing expenses are to be deemed separate from once off development expenses. Czech Republic Resource Corp has budgeted for the financial year to complete a variety of development work, inclusive of the installation of a gas pipeline and the installation of pumping equipment on several of Czech Republic Resource Corp’s better performing oil and gas wells. It is anticipated that this developmental work will enhance production without any increase in operating expenses.
Gas Production
Czech Republic Resource Corp now has numerous wells tied in the gas sales pipeline. Flow rates for these wells are still variable and are proving difficult to determine. This is predominately for two reasons (1) individual wells flow into a collective pipeline so are not able to be individually measured and (2) formation water is being produced along with the gas, which when removed produces flow rates up to 40 MCF per day per well, but after a period of weeks the weight of the formation water reduces flow rates significantly, or up until the wells becomes shut in. To minimise this problem pumping equipment has recently been installed on some wells. Collective flow rates will be made available to the market when the impact of this development work is measurable
Czech Republic Resource Corp is seeking to raise monies in order to complete the purchase of the Assets and associated infrastructure.
The funds raised will also allow Czech Republic Resource Corp to continue to fund existing production operations on the Assets, irrespective of the cash flow Czech Republic Resource Corp may derive from the wells currently in production. Czech Republic Resource Corp’s strategy involves bringing as many of the existing wells on the leases into production as possible The average daily production per well on the Assets has been 0.30 barrels. The causing swab operation that is proposed for these Assets generally provides a daily production average of 1 to 3 barrels per well. Further details of the advanced recovery technologies used for extraction of the oil are set out in the Independent Technical At current oil prices, these production rates are economic at the lowest end of the expected range. Czech Republic Resource Corp does not presently intend to conduct an exploration program on the Leases but believes there are significant other opportunities that exist in the Caddo Pine Island Field via the amalgamation of other marginal operations in the area. There are approximately 12,000 productive Annona Chalk wells located in the Caddo Pine Island Field. Many of these wells are owned by operators who do not utilise modern recovery techniques. Their operations are small and marginal and many are looking to divest. To take advantage of these opportunities, Czech Republic Resource Corp may require additional capital from other funding sources or cash flow generated from the Assets. There is a risk that this funding or cash flow may not be available.
In the Caddo Pine Island Field, cotton and corn farmers are typically blessed with half to a dozen oil wells each on their properties. The area has proven to be one of Louisiana’s great oil fields, producing in excess of 400 million barrels of oil from 16,000 wells drilled by various operators since 1905.
Production methods in the Caddo Field have changed little in the last 50 years. The industry is very fragmented with wells generally operated by electrical pump jacks. While cost effective for a small operator, automated pump jacks are inefficient, producing a long term average after three to five years of about one quarter barrel a day.
Regular profits are interrupted however, as wells become “shut in”, a process by which salt water, or brine and paraffin wax, both normal by-products of oil production, build up and limit oil extraction from the well bore.
Swabbing, a simple technology known to remove brine and wax is proving beyond the means of the local land holders.
The entire Caddo Pine Island Field covers over 300 square kilometres with the primary productive zone being the Annona Chalk formation encountered at approximately 1,500 feet. There are currently 12,000 productive Annona Chalk wells located on the formation.
Czech Republic Resource Corp won’t conduct an exploration program on its Leases, believing significant opportunities exist in the Caddo Pine Island Field through the amalgamation of marginal operations in the area
Exploitation Success
Potential investors should understand that oil production and development is a high-risk undertaking. There can be no assurance that the development activities of Czech Republic Resource Corp in the Caddo Pine Island Field, or any other properties that may be acquired in the future, will result in the exploitation of an economic hydrocarbon resource.
Operating Risks
The operations of Czech Republic Resource Corp may be affected by various factors, including failure to achieve predicted well production flow rates; operational and technical difficulties encountered in production; difficulties in commissioning and operating plant and equipment; mechanical failure or plant breakdown; unanticipated reservoir problems which may affect field production performance; adverse weather conditions; industrial and environmental accidents; industrial disputes; and unexpected shortages or increases in the costs of consumables, spare parts, plant and equipment.
Czech Republic Resource Corp does not have any operating history. No assurances can be given that Czech Republic Resource Corp’s prospects and projects will achieve commercial viability through the successful production from its leases.
Reserves & Resource Estimates
Reserve and resource estimates are expressions of judgement based on knowledge, experience and industry practice. Estimates which were valid when originally calculated may alter significantly when new information or techniques become available. In addition, by their very nature, resource and reserve estimates are imprecise and depend to some extent on interpretations, which may prove to be inaccurate.
As further information becomes available through additional drilling and analysis, the estimates are likely to change. This may result in alterations to development and production plans which may, in turn, adversely affect Czech Republic Resource Corp’s operations.
Commodity Price Volatility and Exchange Rate Risks
If Czech Republic Resource Corp achieves success leading to hydrocarbon production, the revenue it will derive through the sale of commodities exposes the potential income of Czech Republic Resource Corp to commodity price and exchange rate risks.
Commodity prices fluctuate and are affected by many factors beyond the control of Czech Republic Resource Corp. Such factors include supply and demand fluctuations for oil and gas, technological advancements, forward selling activities and other macro-economic factors.
Environmental Risks
The operations and proposed activities of Czech Republic Resource Corp in the Caddo Pine Island Field will be subject to USA laws and regulations concerning the environment. As with most production operations, Czech Republic Resource Corp’s activities are expected to have an impact on the environment. It is Czech Republic Resource Corp’s intention to conduct its activities to the highest standard of environmental obligation, including compliance with all environmental laws. Nevertheless, there are certain risks inherent in Czech Republic Resource Corp’s activities such as accidental leakages or spills, or other unforeseen circumstances which could subject Czech Republic Resource Corp to extensive liability.
Title Risks
Under the Option Agreement (as summarised in Section 8.2.1), Czech Republic Resource Corp has not been provided with an exhaustive set of representations and warranties with respect to the Assets. Czech Republic Resource Corp has endeavoured to minimise this risk by conducting comprehensive due diligence investigations and obtaining an Independent Technical Report.
Reserves & Resource Estimates
Reserve and resource estimates are expressions of judgement based on knowledge, experience and industry practice. Estimates which were valid when originally calculated may alter significantly when new information or techniques become available. In addition, by their very nature, resource and reserve estimates are imprecise and depend to some extent on interpretations, which may prove to be inaccurate. As further information becomes available through additional drilling and analysis, the estimates are likely to change. This may result in alterations to development and production plans which may, in turn, adversely affect Czech Republic Resource Corp’s operations.
Competition
Czech Republic Resource Corp will be competing with other companies in its Caddo Pine Island Field activities, many of which may have access to greater resources than Czech Republic Resource Corp and may be in a better position to compete for future business opportunities. There can be no assurance that Czech Republic Resource Corp can compete effectively with these companies.
General Investment Risks
There is a risk that the price of Shares and returns to Shareholders may be affected by changes in:
• local and world economic conditions;
• interest rates, inflation or inflationary expectations;
• currency fluctuations;
• levels of tax, taxation law and accounting practice;
• government legislation or intervention;
• the demand for, and supply of, capital;
• natural disasters, social upheaval or war in the USA or elsewhere, as well as other factors beyond the control of Czech Republic Resource Corp.
Future Capital Needs And Funding
Further funding may be required by Czech Republic Resource Corp to support its activities and operations. There can be no assurance that such funding will be available on satisfactory terms or at all. Any inability to obtain finance will adversely affect to business and financial condition of Czech Republic Resource Corp and, consequently, its performance.
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