Corridor Updates McCully K-57 Well Results
Halifax, Nova Scotia, July 6, 2004: Corridor Resources Inc. (CDH - TSX-V) announced today the results of further evaluation of the McCully K-57 exploration well recently drilled at a location approximately 1.5 kilometres northeast of the McCully A-67 discovery well. In early June, a service rig was mobilized to the site to pull the production tubing in preparation for additional logging and sampling operations. Dipole Sonic, Dipmeter and Compensated Magnetic Resonance (CMR) logs were run to further evaluate the character of the Hiram Brook formation within the gross natural gas pay interval. Sidewall core samples were successfully obtained from numerous reservoir sand intervals and analysis of the new information is nearing completion.
The well logs and sidewall core descriptions indicate that the K-57 well encountered sands with apparent average to above average reservoir quality relative to offsetting McCully wells. However, the sands at K-57 contain varying quantities of bitumen, oil and condensate within all of the gas-bearing reservoir intervals (the "A", "B", "C" and "D" sands). Corridor interprets that the presence of these petroleum-related components in these sands has adversely affected the formation permeability to gas in this well. Under-balanced drilling through these sands may have mobilized condensate to move into the reservoir pore throats, reducing permeability and resulting in the relatively low rates of natural gas flow experienced during the drilling and testing operations. The K-57 well, located within the K-57 fault block, is the only McCully well to date (other than the "E" sand in the P-66 well) that has encountered significant amounts of oil and condensate in the gas-bearing reservoir intervals. The McCully fault blocks have been mapped based on 3-D seismic data. Information obtained during drilling operations indicates that oil contained in the drilling fluid is unlikely to have damaged the reservoirs nor caused the initial poor rates of gas flow. However, there is evidence that some degree of mechanical damage to the formation at the wellbore face occurred during drilling operations, and this may have contributed to the poor gas flow rates. During final testing, the well continued to flow gas at low (non-stabilized) rates and pressures similar to those previously reported, with the last measured rate being approximately 200,000 cubic feet of gas per day at a flowing wellhead pressure of 280 psi.
As reported in a previous press release, the K-57 well encountered a "perched" water zone between gas-bearing intervals within the "A" sand. However, well information confirms that the subsequent influx of water from this zone into part of the wellbore was not responsible for the initial low gas flow rates. At the time, ages ago, when natural gas migrated into the K-57 reservoirs, it appears that it did not displace a significant amount of the liquids (oil, condensate and water) trapped within the fault block.
Pressure gradients were run in the well, confirming that the gas zones are over-pressured, consistent with the higher than normal pressures encountered in the same sands in offsetting wells in the McCully field. The pressure gradient results indicate the presence of condensate within the K-57 wellbore, confirming the movement of condensate from the reservoir into the wellbore. Temperature profiles obtained in conjunction with the pressure gradients indicate that all gas-bearing zones were contributing to the gas production from the well.
Corridor plans to case and frac the gas and condensate bearing "B", "C" and "D" sands in order to establish the true production potential of this well. However, due to the high costs of mobilizing frac equipment to and from New Brunswick for a single-well program, Corridor has decided to stimulate the K-57 well as part of a larger multi-well stimulation program planned for several wells, potentially as early as this fall.
With the extended completion, evaluation and testing operations, costs for the K-57 well have reached a total of $4.94 million, or 70% higher than initially budgeted. Corridor operates the well and is an equal 50% participant with Potash Corporation of Saskatchewan Inc. (PCS).
While the results of the McCully K-57 well are disappointing, prospects for the larger scale development of the McCully gas field remain positive. Corridor is actively pursuing arrangements for the next stage of development of the McCully gas field, and expects to be in a position to communicate those plans in August.
As an addition to this update, the McCully A-67 (#1) and P-66 (#2) wells are continuing their excellent production performance more than 14 months after start-up in April, 2003. The wells supply gas to the nearby PCS potash mill at an average rate of approximately 2 million cubic feet per day at wellhead pressures in excess of 1500 pounds per square inch. Corridor expects to release an updated independent reserves report for these wells later this month. In mid May, Corridor re-deployed the well testers from the K-57 well to test the shut-in D-48 gas well, located approximately 1.5 kilometres to the northeast of K-57. During the test, the D-48 well flowed gas at a rate of 2.6 million cubic feet per day at a wellhead pressure of 1,200 psi at the end of a continuous 46 hour flow period, indicating the well's flow performance continued to improve following the initial damage incurred at the well during completion activities in 2002. The D-48 well remains shut in awaiting market developments for gas from the greater McCully area.
Corridor is a junior oil and gas exploration and production company, headquartered in Halifax, Nova Scotia, with interests onshore in New Brunswick and Quebec, and offshore in the Gulf of St. Lawrence.
This press release contains certain forward looking statements relating to, but not limited to, Corridor's operations, anticipated financial performance, business prospects and strategies, including expectations relating to production levels; capital expenditure programs; the quantity of natural gas reserves; projections of market prices; projections of costs; supply and demand for natural gas; expectations regarding the ability to raise capital and to continually add to reserves through exploration and development; and treatment under governmental regulatory regimes. These statements are based on current expectations that involve numerous assumptions regarding factors and risks that could cause actual results to vary materially, including, without limitation to, the following factors: risks associated with oil and gas exploration, financial risks, substantial capital requirements, bank financing, government regulation, environmental, prices, markets and marketing, dependence on key personnel, dependence on Potash Corporation of Saskatchewan, Inc., availability of drilling equipment and access, risks may not be insurable, management of growth, expiration of licenses and leases, reserves estimates, seasonality, competition, conflicts of interest, Kyoto Protocol, issuance of debt, title to properties and hedging. There is no representation by Corridor that actual results achieved will be the same in whole or in part as those set out in the forward looking information. Furthermore, the forward looking statements contained in this press release are made as of the date hereof, and Corridor undertakes no obligation, except as required by applicable securities legislation, to update publicly or to revise any of the included forward looking statements, whether as a result of new information, future events or otherwise.
