- Large Oil and Gas Development in Tuscola, Texas
- Planned Production Expansion in East Texas and Eastland County
- Leases located on proven and known reserves
- 100 BPD Potential Within 3 Months
- Condensed Field Operations to Enhance Production
Introduction to Texas Operations
Since January 2013, Treaty Energy Corporation has undergone numerous different internal changes to ensure financial success of the Company in its Texas Operations, with its Texas Operations receiving the largest overhaul. During Q1 2013, the Company went through a major evaluative study on wells that it acquired in 2011 and 2012, revealing an inefficient and non-profitable lease inventory. As a result, the Company has sold a majority of its lease inventory and acquired new leases based near Tuscola, TX.
The Company is currently developing an oil field around the Tuscola, TX region. Currently, the Company has operations on three leases there: the Mitchell, Stockton, and Standard. The Mitchell has three wells, two of which are newly drilled. The Company acquired the Stockton lease and is in the process of drilling two additional wells there as well. The Standard lease will complete the Tuscola, TX oil field farm out operation once the Company works over 5 wells on the lease.
Plans for the Company include revamping and farming out a group of east Texas leases that are already in the Company's inventory and then develop another similar field in Eastland County, based around the recently acquired Stroebel lease.
As a result of the changes made since January 2013, the Company is at an all time high for production and continues to expand operations.
Q1 Evaluations and Results
During Q1 2013, the Company performed several tests that evaluated the production on leases acquired in 2011 and 2012. These tests included work overs, general maintenance (hot oil rinses, well head cleanings, etc.), reservoir studies and production schedule changes. The results of these tests determined that:
- The current well inventory would not be large enough to support a stripper well operation.
- A dedicated work over crew and operation would be required for the existing inventory.
- The distance between leases proved to be an unexpected challenge.
- The leases operated well below expected potential production.
During this time, the Company did maintain a positive growth in the first three months. As a direct result of these lease evaluations the Company’s leases generated revenues in the first three months of 2013 equal to approximately 81% of the previous reported 2012 fiscal year’s total revenues. However, as a result of these tests, the Company decided to opt for a new business strategy, one that would ensure the financial success of the Company.
Change in Business Plan
Under the Company’s original business plan, all wells were to undergo extensive reworks to increase and stabilize production rates. However, with the data provided by the lease evaluations, continuing with these operations would have resulted in a greater net loss for the Company.
As a response, the Company opted to change its operating strategy by mid-second quarter of 2013. A set of specific criteria (or guidelines) were created to ensure that the new business plan would result in success and move the company towards greater profitability. These criteria were:
- Marginal costs must not exceed marginal revenues (unless absolutely necessary) and further losses should be minimized
- New revenue streams cannot come from large stripper well purchases, as current revenues would not support the existing business plan
- Already incurred losses must be offset
- Operations must shrink to a confined area to cut operational costs
- A dedicated work over crew should not be created until well operations and revenues grow
- Current assets must be replaced
- A partner operator must be found in Texas to ensure new well maintenance and help facilitate with operations.
Based on these requirements, the Company re-organized its business plan to be less reliant on stripper/marginal well operations and began to refocus its Texas operations as a purely oil and gas development operation.
Following the Company’s newly established business plan criteria, the Company began to reduce operating costs immediately by ceasing production on several wells. Several wells, such as the Lakeshore, continued to operate as they consistently produced with little to no maintenance or work overs required, resulting in a positive cash flow.
As a result of building losses from continued operations, the Company immediately sought a purchaser for the existing lease inventory. Selling the assets would reduce operating costs significantly and offset the losses gained by the operation of these leases. The sale would also provide the Company with capital to fund further prospective operations.
To supplement the sale of the leases, the Company upgraded its lease inventory. In the beginning of the second quarter of 2013, the Company acquired the Mitchell lease located in Tuscola, Texas, and drilled two new wells, the Mitchell #3 and #4. As a result of the production on these leases, the Company has made plans to drill two additional wells (Stockton #2 and #3) and have acquired additional acreage surrounding the Mitchell lease to develop on. The Company also shrunk the operating area down to reduce the large operational sprawl that the previous lease inventory had.
Since implementing the new business plan, the Company has significantly cut operating costs and simultaneously increased production and operating efficiency. The new wells are producing consistently and have low operating costs, which make it ideal for the current status of the Company. Production is at the Company’s highest levels and looks to be on track to meet cash flow positive status within the next two quarters, if not by the end of the 2013 fiscal year.
Estimates predict that with all reworks in Texas completed by the end of the 2013 fiscal year, the Company will be at more than 100 BOPD. Estimated production figures show that that the Company will generate a conservative $225,000 per month off of Texas production alone with the completion of the Tuscola, Texas development.
The Company now plans to further develop the Tuscola, Texas region by completing all remaining work overs. After that, the Company will return to its east Texas operations in an attempt to further develop the area. It will then begin work on the Stroebel/Murl area, making it the third development zone. The Company will use the Tuscola region as a template to apply to other areas for future development.