Projects

Milnesand Oil Field, Roosevelt County, New Mexico

The Company, through its wholly owned subsidiary EOR Operating Inc., owns a 99% interest in the 4,880 acre Milnesand San Andres Unit and a 100% interest in the adjacent 1,800 acre Horton Federal lease. EOR Operating Inc. is the operator of the Unit and lease with a net revenue interest of approximately 79.5%.

The Milnesand San Andres Field was purchased as a prime candidate for enhanced oil recovery using carbon dioxide (CO2) injection (“CO2 flooding”). CO2 flooding is a very effective means to increase oil recovery from existing fields where primary recovery has been ineffective in draining the original oil in place. The Permian Basin of West Texas and New Mexico is the world’s center for CO2 injection, with over seventy CO2 floods in operation today. The Permian-aged San Andres Reservoir is the most common and successfully flooded interval in the Permian Basin. Results to date from several historic San Andres CO2 floods have indicated that enhanced oil recovery using CO2 injection has the ability to equal or better the original primary recovery of approximately 14% of the original oil in place. The Milnesand Field is a prime candidate for enhanced oil recovery as, to date, the field has recovered only 12% of the estimated 100 million barrels of oil in place and has similar reservoir properties to many existing San Andres CO2 floods.

In 2007, the Company engaged Advanced Resources International, Inc. (“ARI”), a world leader in CO2 flood consulting, to evaluate the potential for CO2 flooding at Milnesand. ARI has estimated that full field CO2 flooding at Milnesand could recover an additional 16 million barrels and, at peak rates, could produce as much as 2,500 bopd. In 2008 and 2009 the Company completed a pilot CO2 flood project where CO2 was injected into one central wellbore and production was monitored from four producing wells surrounding the injector. During the injection period the production from the four surrounding wells increased to a maximum of 42 bopd before the CO2 injection was curtailed in September of 2009. Based on the results of this pilot flood, the Company is confident that a full field CO2 flood is warranted at Milnesand. The Company is now preparing for the development of this CO2 flood with an anticipated startup date around September 2015.

The Milnesand San Andres Field was discovered in 1959 and to date has produced over 11 million barrels of 29 degree crude oil. The Field produces from fractured, low porosity dolomites at a depth of approximately 4,700 feet. The Company purchased its interest in the Field in September 2007 for $3.2 million. Oil production at the time of acquisition was 70 barrels of oil per day (bopd) from 22 wellbores. Subsequent to purchase, the Company has upgraded surface facilities, reactivated several additional wells, converted several wells to water injectors and completed a pilot CO2 flood over a limited area in the north portion of the Field. Current production at Milnesand is approximately 50 bopd.

The Company is currently increasing the well density from 40 acre spacing to 20 acre spacing in an attempt to increase primary recovery. These new wellbores will eventually be used for the CO2 flood at Milnesand. In recent years many operators of similar San Andres fields with wells spaced at 40 acres have experienced considerable production and reserve growth though down-spacing to 20 acres. In 2009, Cawley, Gillespie & Associates, Inc. (“CGA”), the Company’s reserve engineering firm, estimated that each new 20 acre infill well could recover approximately 34,000 barrels of oil and that each new well had a net present value, at that time, of $580,000. The Company and CGA have estimated that approximately seventy new 20 acre spaced vertical wells could be drilled at Milnesand.