Gateway Resources USA Prior Report
4 October 2010
We survived the last round of refinancing and loan renewal from Coppermark Bank largely by hocking our two pulling units and taking the funds and paying the payment. However, that is not going to work next time as I am running out of assets to mortgage. Now the battle is in the cash flow. This is no small problem as it seems everyone has got their straw in the cup and takes the money out about as fast as it comes in. For a short list let's see... loan interest, electricity costs, supply bills, workers comp, unemployment Insurance, wages and the list goes on and on. We are trying desperately to reduce debt and consolidate loans where possible. The real impact will be felt to the cash flow as 2011 comes to a close as we will have paid off multiple loans that are currently splitting our cash flow in too many directions. By the end of 2011 we will have $2,600 less in loan payments per month. Of course that assumes we can actually make it to the end of 2011. During the same time we have two big loan payments from Coppermark Bank to pay as well, those are the problems.
If Gateway Resources USA is to survive we need s few good things to happen. First we need the current oil price distribution to continue through this year and into 2011. Secondly we have to maintain existing levels of production from the current producing leases. Thirdly we need to come up with additional production that can be started at a price we can afford.
This summer we have expanded our possibilities of increased production by adding a new well to the Sanders lease. A new well in on the Kansas leases often takes 6 months to a year to start producing oil. EM-6 started producing some gas right from the first and we hope the oil will increase as the well is pumped over time. I don't hold a lot of hope for natural gas prices in the future, but if they will stay above $4 per MCF it will allow us to pursue some of the cheaper projects to increase our gas production. In addition we hope to increase production by adding the Anderson B lease to the list of producing leases. We also hope to add production from the Holland lease.
Sadly the re-completion of the deeper Tucker zone in the Khan #3 well was a complete flop. Hard to understand how that zone had nothing in it when it blew out at 1.1 MMCFPD gas and blew oil all over the pit. However it has proven to be a dud. I risked the money to complete it, when I had little money to risk, so it bites that it was a flop. We can't afford any more flops like that!
25 March 2010
To say the least our current situation is challenging. Our sources of new credit have dried up, and the existing sources of credit have tightened their terms, cut credit lines and demanded more payments. In 2007 they were handing out credit like candy, now you can't barely keep your credit card active and with enough credit to run the business. If I can make it through the next two years things should get better, but to say the least my appreciation of banks source credit has been diminished. And I say this, because for all the difficult times I've gone through I've never missed a payment, and have yet to default on any financial agreement The to turn around and have credit lines cut, interest rates jacked up and to be treated like some California mortgage promoter absolutely irritates me.
Secondly what a disappointment natural gas prices have been! A lot of our increased debt load was created by investing in gas wells. Now it appears we will be lucky to get a few dollars and MCF despite Oil's run back up to near $80/BBL. If the price drops much below $4/MCF the gas can stay in the ground as far as I am concerned and we will just produce our gas in the winter when the price is higher.
Production decline in oil is eating me up. Some of the key wells that used to put out pretty good, have lost the ability to do so now. This has made cash flow tight, and difficult to keep operations going and to service the debt at the same time. Obviously I will be concentrating in increasing and building oil production. At least we are emerging from the winter, snow, mud and short days. I hope to add the Anderson B, and Holland 2 leases to our producing leases this year. As well as expanding production on the Sanders and Scovel leases in Kansas.
It is as daily battle to keep ahead of all the elements that are constantly trying to tear me down. Obama and all the governments energy policies certainly will prove to be a great obstacle as well. Sometimes I just shake my head as a small business man and wonder how I can ever do all the things the government expects from a company. It is truly the case of the anvil that broke the camels back. I swear for a year and a half I have been looking over my shoulder, and wonder if the company is only the living dead. At every turn I wonder if this is it? Is this the thing that is going to kill the company? And even today I don't know we will make it. Every day is a new day and I just get up go out and do my best for that one day I am given.
14 September 2008
It seems the past year has been quite a struggle just to stay ahead of the obligations of maintaining 11 producing leases and attempting to add two more leases to the list. As oil prices increased so did my mandatory obligations to land owners and government agencies. And it has been quite a struggle to do all of that and finish what we started by drilling 6 additional wells on the Khan Lease.
It goes without saying my objective for the corporate year 08-09 has to be to complete these projects and increase our production, and decrease our obligations to government and land owners. Obviously the falling oil price is not going to help get things done. But so far if I just keep working and using my time and assets well, most of the other issues work out.
I estimate that we could double our production if we could just get more wells going on the leases that we own. That is easier said than done, because each opportunity to increase wells has an opposing reason as to why the wells have not been producing so far. Most of the time it is the lack of our ability to handle the produced water. Other times it is just a matter of getting the time to fix electric or other issues with the well. But we can improve the company without requiring a huge investment in buying new leases.
However could I master the problems stated above, there is still an opportunity to acquire new non productive leases and bring them on production. The delicate balance required included maintaining the proper mixture of staff, equipment and money. From one year ago we had James, Heidi and myself working for us. This year we have added Dale, Marty (Temporarily until December) and Calvin (Contract worker). Oh, it would be so much easier if we could keep the same regime of oil and gas prices, but it does seem like that one is in the cards.
One thing I learned last year is the power of continuing working even though the odds seem impossible and everything is stacked against you. As I looked back at what we accomplished from last November until now it is remarkable. But it is not over, nor is there any time to waste. I still have government obligations to meet, grumpy land owners to please, field projects to accomplish and a never ending stream of paperwork to tackle. So there it is: just keep working and hope the work bears fruit.
In the near term I expect us to re-establish production on the Anderson B and Drummer leases. I hope to increase gas production on the Khan Lease to 100 MCFPD. I plan on further expanding our production on the Bryant, Anderson A, Holland, Sanders and Scovel leases. Obviously lower oil and gas prices will interfere with any of those plans.
3 November 2007
After finishing up the reporting of last November 2006, we decided to think big and try to drill our way into greater gas production. For quite some time we had been shooting seismic and working on a structural gas play on part of the Khan lease. We had an interesting seismic structure anomaly on one of our seismic lines that needed to be tested. The mapping was encouraging and helped me believe we had the potential to drill wells with multi-pay production from the Arbuckle to the Oswego Lime. We had one hitch, the fact that there were old wells near our potential location. I was convinced that they would ultimately cause us problems in trying to complete a new well next to old wells. The old well information indicated the old wells were also sitting there with no casing in the hole.
Also we had been in a midst of a 2 year drought and field working conditions were ideal. Also other companies that tend to tie up drill rigs had slowed down and left a drilling rig available to us for several months. The drought had been so severe one of the key old wells that actually sat in the bottom of a cow pond was surrounded by dry dirt. I decided to move on the project and do it before the winter rains hit.
We dug up the old casing around the old Jessie E. Woods #4 well, renamed it the M. I. Khan F-4 and commenced rearranging the structure of the pond, so that the well had a drilling pad where there was once water. Of surprise when opening up the old hole was the recovery of over 25 BBLS of oil. Our target in opening the old hole was to reopen the well to the Arbuckle zone that had flowed 1.6 MMCF of gas in 1928. All was going well until about 1200 ft when we hit debris and old casing in the hole. We worked on trying to get through the old casing with a smaller bit for a while but to no avail had to abandon our attempt to get deeper. Because of coal gas potential and the oil show while drilling we determined to case the well for further completion potential.
To the north of the F-4 there was an unidentified old well of which we dubbed the M. I. Khan F-1. We had no idea what was in this well other than we knew it had no casing, the walls had collapsed and the farmer had used it for gas for years. The F-1 upon arriving at the debris in the hole proved to be an Oswego gas well and we cased it in preparation to become just that.
In December we prepared to re-enter the old #12 well which also had been an Arbuckle well, and according to the information in my had had all the casing pulled. The trick was there was no surface manifestation of the location of the well except a slight depression on the surface where it might have been. We essentially dug a 18ft deep hole down to a shallow lime and found where the old well had drilled through the lime and put new conductor casing in. I was really positive we were going to get some where with this well as it also sat right on top of my seismic anomaly.
We commenced re-opening the old well and started making gas in greater quantities the deeper we went. At the time we hit the junk in the hole at a surprising 853 feet we were flowing 195 MCFPD. We really couldn't go any deeper with this well, it wasn't deep enough to do anything but later drill out the bottom of the casing and take what came from below from where ever it came. However I strongly suspected most of it came from the Oswego Lime.
We moved over to the old #2 well that had been an old Mississippian well. The M. I. Khan F-2 also recovered considerable quantities of oil from the old hole. This well also was located on what should be an Arbuckle high up structure from the #4 well that tested 1.6 MMCF from the Arbuckle. We hit junk in the hole at the Mississippian Level but managed to push through it and decided to keep drilling to the Arbuckle. With some difficulty we managed to tag 6" into the top of the Arbuckle, it was high as expected. We tested 260 MCF from all the zones above the Arbuckle. So we pulled out of the hole to get ready to set casing, when we went to go back in some debris from above had fallen back into the new hole and prevented us from getting the drill bit back in the hole to TD. We gelled the hole and left it for a future project. So we had attempted to get back into 4 wells and had varying degrees of success on all of them.
My seismic seemed to indicate if we moved to the East of the F-2 well we would have a clear shot at hitting a high Arbuckle and other high zones relative to all our drilling to that point. Geologically I was not as happy with that location as we moved closer to the F-12 well which reportedly had been low and wet in the Arbuckle. I was afraid there was a fault and we just might step over it as the drill bit deepened.
The flow rates from the M. I. Khan #4 well were encouraging and surprising. By the time we had cleared the Oswego lime and below the Mulky Coal we had a combined flow rate of 758 MCF. We pushed on to the Arbuckle to either find the high or test a low and ultimately have the choice to make it an Arbuckle disposal well. The Mississippian Chat was thin, tight and did not contribute to overall gas flow. And then surprisingly we went low on the Arbuckle even though the Mississippian had been the highest found to date. The Woodford shale was very thin (about 5 ft), limey and fractured. I fear counting on the Woodford shale to be much of a seal, doesn't seem to be going to happen.
So my Arbuckle play sort of evaporated. However we still had a high Arbuckle in the F-2 well of which we had purposely only tagged 6". So we are left with the challenge of getting the casing to the Arbuckle in the F-2 well. A project that has sat idle for about six months now, as all the other stuff started to happen.
The drilling distractions in December had led to the worst production and oil sales in 13 years. I had some cash to fall back on, so we were okay, and planned on getting things going again as soon as possible. Then it started one thing after another, after another, things started breaking, stripping, plugging, falling apart. It seemed like week after week we had another major disaster. If it wasn't the weather it was something else. The wells have not been too cooperative in returning to prior levels of production either once they were fixed. So it has been a long run of negative cash flow and using up my cash resources just to stay afloat.
And that is where I sit today, walking the tight rope of tight money, trying to get cash flow back positive and hoping I have enough time to do it.