Funds raised will go toward analysing data from the Paradox Basin wells at the Golden Eagle Gas Prospect development in Utah, USA, and attending to the engineering and preliminary work for the application permit to drill the next well.

The placement of shares was through Otsana Capital to 708 sophisticated investors.

The company is engaged in demonstrating an economic case for the Paradox Basin #3 well located within the Golden Eagle 70 Unit as a “paying well” to the satisfaction of the United States Federal Bureau of Land Management (BLM) by the 15 May 2011.

Should a “paying well” determination be achieved, to retain the remainder of the lands in the Golden Eagle 70 Unit outside of the participating area, a new well must be in progress on the anniversary of the fifth year from the date of first approval, being 15 May 2006.

Kain brings 15 years experience as an executive in the oil and gas industry to the board.

Golden State is also considering a reconstruction of capital, which would include a consolidation of its existing shares on a 1 for 2 basis.

The company is also proposing a capital raising, of up to 320 million shares at $0.01 (on a post consolidation basis) payable in full on application, to raise up to A$3.2 million.

The offer would include 300 million options exercisable at $0.02 on or before 31 January 2015, issued at $0.01, (on a post consolidation basis).

Golden State is currently placing a priority on securing the Golden Eagle Gas Field, and is working in conjunction with Interactive Exploration Solutions.

The company is required to demonstrate an economic case for the Paradox Basin #3 well located within the Golden Eagle 70 Unit as a “paying well” to the satisfaction of the United States Federal Bureau of Land Management by the 15 May 2011.

This is in order to retain the lands within the Golden Eagle 70 Unit area from which the well obtains its production of gas, which area has not yet been determined.

Should a “paying well” determination be achieved, to retain the remainder of the lands in the Golden Eagle 70 Unit outside of the participating area, a new well must be in progress on the anniversary of the fifth year from the date of first approval, being 15 May 2006.

Golden State said the provider is available and willing to supply the required services such as geological technical and development support, including economic evaluation study expertise.

This expertise is necessary to determine the economic viability of current wells to meet Bureau of Land Management requirements.

The Paradox Basin houses 171 oil and gas fields containing an estimated recoverable reserves of one billion barrels of oil (BMbo), or six trillion cubic feet of gas (Tcf) equivalent.

Over its history, the Paradox Basin has produced 500 million barrels of oil and 3.5 trillion cubic feet of gas.

Providing encouragement in the basin for Golden State, is the Golden Eagle Prospect which the company said has been described as a geological ‘look-alike’ to the largest producing fields.

In another change at Golden State, Rick de Boer has resigned as geologist and executive director.

The company is currently undertaking a deliverability and stimulation study to provide the framework for production and exploration of the field, together with the projected development and operational expenses.

The Golden Eagle field is a major asset, comprising two producing wells on a large US acreage holding with considerable retained infrastructure.

The company is also actively establishing all the required clearances for construction of a gas pipeline.

Golden State has positioned itself to benefit from any increases in gas prices, with 220 new gas power stations in the US expected by 2013, supporting steadily increasing demand.

The company has received the revised independent reserves from RPS Energy and the company said it requires time to finalise matters and avoid any speculation in the market place.

The company expects to make this announcement before trade on Tuesday 28th September, after which time it would expect its securities to be trading.

Allegra Capital had agreed to purchase the Golden State stake, with the July 2010 announcement indicating net proceeds to have only been above $2 million.

Golden State said there are now no plans to raise any further funds prior to the end of the year, as a result of the increased White Canyon sale price.

Golden State has already received a part payment of $2 million, with the $1.5 million balance expected in January 2011.

Golden State has a market capitalisation of $17 million, with shares currently trading around $0.03.

The company has sent tenders to several independent gas gatherers to provide quotes for production facilities.

Promisingly, GDN reported that well head pressure at the Paradox Basin #3 was still increasing after 10 days after retrieving the down-hole pressure gauges from the well after conducting a 24 day build-up.

The raw pressure data will be sent to RPS Energy for analysis and a  revised reserves estimate. At the time the gauges were recovered the well head pressure had reached 3800psi. The measured bottom-hole pressure was 4670psi.

The gauges were placed in the well on July 9th and were pulled on August 3rd, the data was received by the company on Sunday the 8th. The build-up was initially planned for ten days but was extended as the well head pressure was still increasing after 10 days.

The well head pressure at the time the gauges were recovered was 3800 psi which is the highest seen on the field to date.

The data will be evaluated and compared to various pressure measurements taken at different stages of the overall testing process.

GDN's Rick de Boer explained "what is initially apparent on the data is that the pressure is still noticeably increasing and that it is closely approaching the most likely virgin reservoir pressure as measured during a static gradient on June 12th."

De Boer said the long build-up period is a good indication that Paradox Basin #3 would benefit from a larger fracture stimulation. The current Stimulation has only placed approximately 32,000 pounds of the intended 120,000 pounds of proppant into the formation. The field is in a review and planning stage and there are currently no field operations taking place.

Evaluation of the Paradox Basin #3 testing and pressure data from both productive wells will form the basis of a revised reserves report for the Golden Eagle Field.

The Company has submitted the application for a gas right of way (ROW) to the Bureau of Mineral resources. The Company expects to update the market with further information after the reserves report is available.

Another possibility for GDN is to attempt to re-fracture before building a pilot plant and producing.  

An increase of 25 psi was observed in the past 24 hours and as a result the down-hole gauges will be left in the well until early August. The down-hole gauges are rated for 30 days of measurement.

The well head pressure on Paradox Basin #3 is the highest seen on the field so far and indicates that the bottom-hole pressure is approaching the virgin reservoir pressure which was measured prior to the clean-up and flow testing operation on the well.

Extending the build-up time will improve the data and allow more detailed analysis of the well. The analysis should also indicate whether Paradox Basin #3 would benefit from a larger fracture stimulation.

The long tail on the build-up is a preliminary indication that a larger stimulation would increase productivity. The current Stimulation has only placed approximately 32,000 pounds of the intended 120,000 pounds of proppant into the formation.

Rick De Boer, executive director of GDN said the gas analysis from Paradox Basin #3 confirms the gas is a sweet dry gas with low inerts. The thermal value is 1024 BTU/cubic foot.

He said the directors are pleased with the gas analysis and high well head pressure.

The operation was completed over the weekend, approximately 4 days behind schedule due to operational delays.
The well is currently producing at a controlled flow rate limited to approximately 600,000 cubic feet of gas per day via a 34/64” choke while recovering fracture fluids.

Since the fracture stimulation a total of 1315 barrels of fluid has been recovered. A total of the 1565 barrels was used in the fracture stimulation.

The forward plan is to continue to clean-up and monitor the well in line with standard post-fracture procedures.

A production test and build-up will be conducted on completion of the clean-up operations at which at which stage the flow rates will be determined.

During the procedure, surface rates were choked back to approximately 1.9 Million cubic feet per day with the down-hole rate measured at 1.897 Million cubic feet per day.

The production log of the currently completed interval (11,674’-11,790’) which comprises the lower three of eight pay intervals indicates the gas production is entering the well via the uppermost perforations over the interval 11,674’ to 11678’.

The result is consistent with the revised Schlumberger petrophysics. The new petrophysics increases the net gas pay in the currently completed production interval to 22’ between 11,670’ to 11,700’. The gas pay zone corresponds to drilling show 5 of 416 units (11,683”-11690’) and an unreported show of 228 units at 11,668’. The lower perforations are not contributing to flow, and the high gas shows at that level are associated to gas rich shale.

The upper five gas pay zones in the well are not currently completed.

A completion rig arrived on location Late Thursday (US time) and will commence operations at daylight.
Once the production casing is set an extended production test and build-up will be undertaken.

Importantly, "the directors are confident the current completion will be capable of commercial production," executive director Rick de Boer said in a statement today.  He said the directors of Golden State are "very pleased with the progress on Paradox Basin #3."

He said, "in addition to the currently completed interval, Paradox Basin #3 has considerable untested gas pay."

Production logging had improved the knowledge and evaluation of the Golden Eagle field, confirming the petrophysical interpretation.

They say that good things come in threes - the third well in the Paradox Basin series of wells in the Golden Eagle gas field, may have come closest to understanding and unlocking commercial potential from GDN's considerable acreage in Golden Eagle in Utah.

During the operation, it was reported that gas rates remained high and a total of 180 barrels of the introduced fracture fluid was recovered from the fracture stimulation during a flow-back period of 17 hours.

The well has been shut-in for a short build-up and pressure monitoring. The well head pressure rapidly increased when the well was shut-in.

Rick de Boer, director of GDN said gas rates in Paradox Basin #3 appear to be increasing and are sufficient to naturally unload fracture fluids in the 5” casing.

On commencement of operations to run production casing in Paradox Basin #3 the well flowed gas at high rates and rapidly unloaded approximately 77 barrels of fracture fluids.

Higher than expected gas rates have enabled the well to unload fluids through the 5” casing. This "exceeds our expectation and is the most effective method to clean-up the well."

As a result the company has decided to cyclically produce the well to naturally unload the introduced fracture fluids.

"This is a very good outcome as it enables the current production interval to be better evaluated and potentially increased by adding additional completion intervals from the upper gas zones," de Boer said.

Forward Plan

The company's strategy is to continue with a series of clean-up flows prior to either add additional pay zones to current productive (pay zone) intervals by stimulating pay from zones 2, 3,4 and 4a or setting the production casing over the current completion.

The stimulation conducted on 18 May covered only the lower three of the eight gas bearing intervals in the well, or only 15 feet of the 116 feet of pay identified in the well, so there is scope for further upside.

Golden State said the directors were pleased with the progress on Paradox Basin #3 so far and its impact in establishing commercial production from its acreage.

Golden State was on schedule for today’s commencement of testing and completion operations on the Paradox Basin # 3 production well, the third well on the Golden Eagle Gas field in utah.

As a result, Golden State has moved testing rig and monitoring equipment the to Paradox Basin #1 well for commencement of the work over. The Paradox Basin #1 is currently producing water free gas at an average rate in excess of 4 million cubic feet per day.

On removal of the backpressure valve the well head pressure was measured at 3325 psi.

The well was opened to flow and produced 1.3 million cubic feet of water free gas in 5 hours at rates up to 4.59 million cubic feet per day. The forward plan is to remove the existing production tubing before injecting a tracer survey to locate the source of channelled water.

The results of the tracer survey will be used to determine whether the well can be worked over or whether to proceed with the side track.

The fracture stimulation of Paradox Basin #3 is now scheduled for next Friday May 14. Paradox Basin #3 will be fracture stimulated over the interval 11,674’ to 11,790’. The interval includes shows five and six which exhibited up to 3099 units of cuttings gas.

On completion of the perforating a DFIT (Diagnostic fracture injection test) was initiated. The DFIT provides key information on the formation which will be used to design the final fracture.

The fracture stimulation is booked to take place over the weekend after which the well will be opened for production tests.

Paradox Basin #3 contains 118’ (36m) of gas pay over a gross interval of 1,089’ (332m). Three separate fracture stimulations will be required to complete the entire gas bearing interval as the recommended maximum thickness for a single stimulation zone is 300 feet. Results of the first test interval will be evaluated before attempting to stimulate the upper two zones.

Paradox Basin #3 was evaluated using a comprehensive suite of sophisticated evaluation tools which included Nuclear Magnetic Resonance (CMR) and borehole imaging (FMI) as well as a full suite of conventional logging tools.

A large open natural fracture has been identified on both the CMR and FMI which corresponds to the 3099 unit show observed while drilling. The fracture occurs within net pay as determined by the petrophysics conducted independently by both RPS Energy and Schlumberger. The CML confirms the formation has good permeability over the perforated sections in the gas bearing interval.

Paradox Basin #3 will be fracture stimulated over the interval 11,674’ to 11,790’. The interval is the deepest of three completion intervals and includes show zones five and six. Show Six was the highest cuttings gas show observed at 3099 units.

On completion of the perforating, a DFIT (Diagnostic fracture injection test) was initiated. The DFIT provides key information on the formation which will be used to design the final fracture. The fracture stimulation is booked to take place over the weekend after which the well will be opened for production tests.

Paradox Basin #3 contains 118’ (36m) of gas pay over a gross interval of 1,089’ (332m). Three separate fracture stimulations will be required to complete the entire gas bearing interval as the recommended maximum thickness for a single stimulation zone is 300 feet. Results of the first test interval will be evaluated before attempting to stimulate the upper two zones.

Paradox Basin #3 was evaluated using a comprehensive suite of sophisticated evaluation tools which included Nuclear Magnetic Resonance (CMR) and borehole imaging (FMI) as well as a full suite of conventional logging tools.

A large open natural fracture has been identified on both the CMR and FMI which corresponds to the 3099 unit show observed while drilling. The fracture occurs within net pay as determined by the petrophysics conducted independently by both RPS Energy and Schlumberger. The CML confirms the formation has good permeability over the perforated sections in the gas bearing interval.

The first stimulation interval will encompass Petrophysical Zones 5, 5a and 6. Gas pay zone 5 corresponds to drilling show 5 of 416 Units. NMR indicates this show has high permeability extending approximately ten feet. Between zones 5 and 6 there are numerous thin bed intervals which demonstrate pay (Zone 5a).
Gas pay zone 6 recorded the highest gas level while drilling at 3099 Units.

The NMR suggests the show occurs over a zone of high permeability. This zone will be included in the testing. This zone occurs near the total depth and due to proximity to the base no neutron or density logs are available.