Golden State Resources (ASX: GDN) is primarily focused on oil and natural gas exploration in the USA and Ukraine
Golden State Resources takes definitive steps toward gas production from Golden Eagle field
In its latest report, Golden State Resources (ASX: GDN) has provided an update on Paradox Basin #3 well in the Golden Eagle field in Utah as well as development strategy and corporate initiatives.
Clean up and testing operations on Paradox Basin #3 have been successfully completed. Paradox Basin #3 has produced 9.6 million cubic feet since being stimulated. Paradox Basin #3 has been shut-in for a ten day final build-up.
Interestingly, GDN said the Paradox Basin #1 and 3 well "appear stable and are suitable for production." Current gas rates for both the Paradox Basin #1 and 3 are ready for production with an expected minimum rate of one million cubic feet per day. The company said there is considerable scope to increase overall production rates with a more aggressive fracture stimulation programme.
Futher, production rates could well improve with larger fracture stimulations and it is planned that once sufficient production history is established, both wells will be treated with larger fracture stimulations.
The current stimulation in Paradox Basin #3 has only placed 32,900 pounds of the intended proppant into the formation. Other operators in the area use typically use up to 1 million pounds of proppant and establish rates of 3 to 5 million cubic feet per day. This would provide considerable upside in terms of generating cash flows and for GDN to fund production development.
GDN is obtaining prices for a gas plant and the pipeline right of way is ready to be finalised.
Rick de Boer, ED of Golden State said the initial plan is to place Paradox Basin #3 and Paradox Basin #1 on production via a pilot plant to confirm that production rates can be sustained.
The pilot plant will also provide the company with an income stream while confirming the longer term reservoir behaviour.
Funding
Assisting funding of the development of the Golden Eagle gas field, GDN has accepted an offer from Allegra Capital Pty Ltd for the sale of its stake in White Canyon Uranium Ltd (ASX: WCU) to its cornerstone investors.
GDN held 45,670,000 shares in WCU after the completion of the listing of its US uranium assets into a new ASX company in 2007. The shares were held in escrow until 3rd March 2010. Since which time the company has sought suitable major investors interested in acquiring a corner stone investment in White Canyon Uranium Ltd.
The sale price was struck at 5c per WCU share, netting GDN over AUD $2 million after fees of 6% are paid. GDN originally pegged the Utah Uranium claims in 2005.
GDN noted it is in advanced discussions with potential debt financiers for the development.
Reserves Review
RPS Energy is being commissioned to conduct a reserves review and to analyse all pressure data. Paradox Basin #3 is currently shut-in for a 10 day build-up, the current well head pressure is 2600 psia. The results of the build-up should establish if there has been any depletion as a result of testing.
The directors "are very pleased with the results of Paradox Basin #3 and consider that the project has achieved a major milestone."
Cash received from WCU stake sale is a significant material short term benefit to GDN. The plan for a pilot plant to confirm that production rates can be sustained will advance the potential for solid future cash flow generation and terms for debt finance participation a step further.
The current flow rates estimates provide a solid starting point for GDN to model future cash flows, successful fracing could, based on other wells in the formation, increase flow rates by a factor of three. With futher testing of pay zones in PB#3 there is potential further upside.
An independent review of reserves based on latest data should lift reserves. With the latest report, GDN has achieved a number of significant milestones and improved the prospects for development of the Golden Eagle field, generating cash flows and with potential upside in flow rates and reserves.
