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Thursday, July 14, 2011

Solimar Doubles Stake in Paloma West Project

- Solimar Doubles Stake in Paloma West Project

Thursday, July 14, 2011
Solimar Energy Ltd.

Solimar has confirmed terms to increase its working interest to 25% (doubling the original 12.5%) in the Paloma West project and is soon to be participating in an appraisal well on the project.

The Paloma Deep -1 appraisal well will be drilled using Nabors Rig #710 which is expected onsite at the end of July supporting commencement of drilling in early August.

The Paloma West project is operated by Neon Energy and covers some 1400 acres all within the structural closure of the Paloma oil and gas field which has produced some 61 million barrels of light oil and 432 billion cubic feet of gas (133 MMBOE) since discovery in the 1930s. The Paloma field is a large anticline structure some 12 miles long by 4 miles wide.

The well location has been chosen using 3D seismic which was acquired after the prior development of the field. The 3D data has been used to help identify favourable reservoir trends within the field closure and all the targeted sandstone reservoirs at the well location are characterised by amplitude anomalies on the seismic. This is believed to support the presence of hydrocarbons and may also be indicative of reservoir quality.

There are seven (7) individual, stacked reservoir targets in the well commencing at approximately 10,000 feet. The well has a planned total depth of 15,500 feet and will take up to 2 months to drill. All the targeted sandstone and shale reservoirs are part of the Miocene age Monterey Formation, the famous oil source and reservoir formation in the southern San Joaquin Basin. The estimated unrisked in place hydrocarbon volumes are up to 300 million barrels OIP and based on an 11% recovery factor (equivalent to the historic recovery from the main producing reservoir of the Paloma field) the targeted recoverable resource is 33 MMBOE. Significant upside to these estimates is possible if higher recoveries are attainable.

The well will drill though a series of shallower Pliocene mostly dry gas reservoirs on the way down that are expected to be depleted by historic production. Some of these sand reservoirs are equivalent to the San Joaquin Formation gas sands that Solimar is attempting to develop at its SELH gas project further to the northwest in the basin. The shallow sands produced 23 Billion cubic feet (Bcf) of gas at Paloma.

The first reservoir to be evaluated will be in the Antelope Shale member of the Monterey which envelopes the main reservoir of the field, the Paloma or Upper Stevens Sandstone. This sand has produced 58 mmbbls and 415 Bcf and is likely to be at least partially depleted at the well location and is therefore considered a secondary target. All the Monterey Formation sandstone reservoirs including the Paloma Sandstone were originally formed as submarine fans derived from the NE and deposited into the deep water basin prevalent in the San Joaquin Basin during the Miocene. The anticlinal structure which traps the hydrocarbons was formed much later and has a
different, NW – SE orientation. So there has been varying sand quality encountered across the field which affected the historic field development, particularly for the Lower Stevens Sandstone reservoirs which were not discovered until 1973.

Only three wells have penetrated to the deeper reservoir levels in the west half of the field area (the most recent being some 26 years ago in 1985) each encountering extensive live oil and gas shows and with two wells flowing oil and gas at low rates.

Solimar believes that the 3D seismic data and modern drilling and completion technologies provide an excellent chance for a successful appraisal of the sandstone reservoirs in the western Paloma oil field. Unlike most of the original field wells that were drilled using water based muds that can react with clays in the reservoir reducing permeability (or ability to flow), the Paloma Deep - 1 will be drilled with a synthetic oil based mud to reduce drill time and minimise formation damage.

With the exception of one old vertical well recompleted for production in the Antelope Shale in 1993, the fractured oil shale potential of the acreage remains untapped. In the context of the escalating production and re development of equivalent rocks in other fields in the area, the fractured oil shales present an exciting opportunity for the new joint venture.

Solimar is increasing its interest via a farmin with Neon. The increased position in the project will be subject only to any consents to assignment of the interests that may be required by the underlying lessors and to completion of Solimar's previously announced private placement to raise A$7 million which will be processed at an EGM on July 29.

The dry hole cost of the Paloma Deep -1 is estimated at US $4.9 million. Solimar will be funding its share from cash reserves and the proceeds of the placement.

Commenting on the drill program Solimar CEO John Begg said, "It is very pleasing to be announcing another step up in the scale of the Company's assets in the San Joaquin Basin focus area. The Paloma West project perfectly illustrates Solimar's strategy of acquiring
material interests in oil prone assets that have targets in both conventional and unconventional reservoirs. Further, where hydrocarbons have already been discovered. Solimar has the opportunity to be part of the first joint venture to apply modern, off the shelf technologies to evaluate and exploit the assets. The Paloma Deep -1 is an ambitious drill program designed to evaluate a series of targets within part of a known field where the reservoirs have not been adequately tested by the historic drilling. The project provides an exciting opening to a virtually continuous 12 month program of drilling and production testing on the Company's core projects which is well illustrated in the activity schedule accompanying this release. Each of these projects represent stand - alone, technically independent opportunities for growth."

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