Solimar Energy Limited
ASX : SGY
TSX VENTURE : SXS

Solimar Energy Limited

November 17, 2011 18:31 ET

Independent Assessment Confirms Large Oil Resource in Solimar's Kreyenhagen Project

MELBOURNE, AUSTRALIA--(Marketwire - Nov. 17, 2011) - Solimar Energy Limited (TSX VENTURE:SXS)(ASX:SGY) is pleased to report on the results of an independent evaluation of oil resources prepared by Sproule Unconventional Limited ("Sproule") for the Company's Kreyenhagen project located in the San Joaquin Basin California. The Sproule report has an effective date of 31 October, 2011 and was prepared in accordance with National Instrument 51-101.

The assessment was limited to the Company's lease holdings covering and contiguous with the California Division of Oil and Gas and Geothermal Resources recognized historic Kreyenhagen oil field area. As such it did not cover in detail the Company's entire, operated position in the Kreyenhagen area where it now holds net working interest acres of approximately 13,000 acres. Hence there is upside to the resource estimates. See attached Location Map.

Oil resources of differing risk classifications (refer to Appendix A for definitions) were assessed for the three principal oil reservoirs in the acreage. Each of the reservoirs in the project outcrop in the west of the Company's acreage and plunge to greater depths to the east. The already discovered shallow oil accumulations in the Temblor and Avenal Sandstone conventional reservoirs are located in the shallow western part of the acreage. The tables below summarises Solimar's working interest share of the unrisked oil resources estimated by Sproule. Solimar operates the Kreyenhagen project with mostly 100% interests.

Commenting on the report results, Solimar CEO John Begg said:

"This resource assessment confirms the large, multifaceted potential of the Kreyenhagen project for Solimar. By comparison with offset fields, Sproule has estimated recoveries in the range of 10% (Low), 35% (Best) and 60% (High) for the Temblor heavy oil reservoir under steam stimulation. Summing the estimated unrisked total in place resources gives a range of 30.8 MMbbl (Low), 47.9MMbbl (Best) to 79.1 MMbbl (High) for the Temblor. A Best case oil recovery derived from these estimates is 17MMbbls from just this reservoir with considerable upside opportunity available to the Company.

In addition to this potential near - term development project in the Temblor, there is also opportunity in the Avenal Sandstone light oil reservoir and to take the Kreyenhagen oil shale play to proof of concept. Sproule's scoping level estimates for Total Petroleum Initially In Place (PIIP) in the Kreyenhagen Shale are in the range 21.7MMbbl (Low), 35.9 MMbbl (Best) and 59.4 MMbbl (High) estimated for a nominal 640 acre section. These preliminary estimates compare favourably with that being reported by other operators in the play."

Conventional Reservoirs (Solimar Working Interest)
Temblor Sandstone (Heavy Oil) Low Best High
Discovered Resources (PIIP) (1) MMbbl 19 23.8 29
Undiscovered Resources (PIIP) MMbbl 11.8 24.1 50.1
Subtotal (2) 30.8 47.9 79.1
Contingent (recoverable) Resources (3) Mbbl per well 19.4 32.4 45.9
Recovery Factor Applied % 10 35 60
Avenal Sandstone (Light Oil) Low Best High
Discovered Resources (PIIP) MMbbl 0.88 3.7 13.5
Prospective (recoverable) Resources Mbbl 29.7 148.4 648.7

Notes:

(1) "PIIP" means Petroleum Initially In Place, see Appendix A.

(2) This volume is an arithmetic sum of multiple estimates of Discovered and Undiscovered Resources, which statistical principles indicate may be misleading as to volumes that may actually be recovered. Readers should give attention to the estimates of individual classes of resources and appreciate the differing probabilities of recovery associated with each class as explained in Appendix A.

(3) Estimated for a 2.5 acre 5 spot steam pilot project.

Unconventional Reservoirs (Solimar Working Interest)
While pointing to the presence of oil within the Kreyenhagen Shale on the property, the current database has limitations and Sproule conducted scoping level assessments at this early stage of evaluation of the reservoir.
Kreyenhagen Shale (Light Oil) Low Best High
Undiscovered Resources (PIIP) MMbbl per a 640 acre Section 21.7 35.9 59.4

Assessment procedures and risks

Sproule is an internationally recognized oil and gas consultancy and a member (Permit No P10418) of the Association of Professional Engineers, Geologists and Geophysicists of Alberta, Canada.

In the assessment of this unproved property, Sproule considered all available pertinent factors, including where applicable, geological structures, prospective zones, historical drilling and production results, terrain and accessibility, access to infrastructure and markets, and risks related to exploration development and production. The analysis was conducted without consideration of economics, royalties or other encumbrances. The resource classification methodology used complies with the Canadian Oil and Gas Evaluation Handbook definitions and guidelines, in accordance with the requirements of National Instrument 51-101.

The Contingent Resources have not been risked for chance of development and the contingencies that prevent these resources from being classified as reserves are regulatory approval, development of the pilot project itself and proof of economic viability. Discovered Resources have not been risked for chance of development and, as such, there is no certainty that any of these resources will be developed or that it will be commercially viable to develop any portion of these resources in the future. Undiscovered resources have not been risked for chance of discovery or chance of development and, as such, there is no certainty that any portion of these resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.

Background to the oil reservoirs in the Kreyenhagen Project

The Temblor Sandstone: Contains 11-18 degrees API gravity heavy oil for which there has been historic, primary production recorded from some 22 wells. Individual wells produced at up to 12 bopd, although only a limited amount of the oil in place has been recovered.

The Temblor is to be the subject of renewed primary production testing by Solimar using modern equipment followed by a cyclic steam production trial as a possible pre -cursor to developing the field via a steam flood.

Both Discovered (close to the well control) and Undiscovered (In Place) Resources have been estimated for the Temblor heavy oil reservoir. In addition, Contingent (Recoverable) Resources have been attributed by Sproule to a 2.5 acre area to estimate the recovery that could be achieved from a steam enhanced production pilot program. The recovery factors have been estimated by Sproule after comparison with the giant Coalinga oil field 12 miles to the northwest. That field has produced over 900MMbbl of 11-18 API gravity oil from the Temblor and is the subject of a large scale steam enhanced production program.

The Avenal Sandstone: Contains plus 30 degrees API gravity light oil. Flows of oil at modest rates have been recorded from up to five wells on the property without commercial production to this stage. The most recently tested wells (in 2007) also flowed gas at rates up to 200mcfd.

Unrisked Prospective (recoverable) Resources of light oil have been estimated for the Avenal.

The Kreyenhagen Shale: This fractured reservoir is currently the least well documented by the well control in the acreage and is at an early stage of evaluation. However oil saturations between 20% and 30% have been recorded in sidewall cores from a number of wells in the project and a flow of light oil from one old, shallow well is attributed to the Kreyenhagen. The shale formation is thick and pervasive across most of the Company's lands, attaining a thickness in excess of 1,000 feet in the more deeply buried eastern part of the acreage.

Undiscovered Resources, expected to be light oil have been estimated for a nominal 640 acre (1 square mile) area, equivalent to one grid section, based mainly on analysis of information from four recent wells on the property. There are promising indications for oil in the Kreyenhagen Shale but due to the currently sparse data base Sproule did not extrapolate these estimates across the Company's holdings.

Sincerely,

John Begg, Chief Executive Officer

Solimar Energy Limited

Reader Advisory: Potential resource estimates and forward-looking statements

The estimates of petroleum volumes described in this news release are for resources only. These estimates constitute forward-looking statements. Readers are cautioned not to place undue reliance on forward looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific that contributes to the possibility that the predictions, forecasts, projections in the forward-looking statements will not occur, and that the actual performance or results expressed or implied by such forward looking statements.

Potential resources estimates are subject to certain assumptions, risks and uncertainties, including those associated with exploration for oil and gas, the drilling and completion of future wells, limited available geological data and uncertainties regarding the actual production characteristics of, and recovery efficiencies associated with, the reservoirs, all of which are being assumed. As estimates, there is no guarantee that the estimated resources will be recovered or produced. Actual resources may be greater than or less than the estimates provided in this presentation. There is no certainty that any portion of these prospective resources described above will be discovered. There is also no certainty that it will be commercially viable to produce any portion of such prospective resources, if discovered.

The forward-looking statements contained in this press release are made as of the date of this press release. Except as required by applicable securities laws, Solimar, disclaims any intention and assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, Solimar undertakes no obligation to comment on the expectations of, or statements made by, third parties in respect of the matters discussed above.

Kreyenhagen Project – Schematic Locality Map: http://media3.marketwire.com/docs/1117sxs_map.jpg

Appendix A

Resource Definitions

This discussion has been excerpted from Sections 5.2 and 5.3 of the Canadian Oil and Gas Evaluation Handbook, Second Edition, September 1, 2007. The following definitions relate to the subdivisions in the SPE-PRMS resources classification framework and use the primary nomenclature and concepts contained in the 2007 SPE-PRMS, with direct excerpts shown in italics.

Total Petroleum Initially-In-Place (PIIP) is that quantity of petroleum that is estimated to exist originally in naturally occurring accumulations. It includes that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations, prior to production, plus those estimated quantities in accumulations yet to be discovered (equivalent to "total resources").

Discovered Petroleum Initially-In-Place (equivalent to discovered resources) is that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations prior to production. The recoverable portion of discovered petroleum initially in place includes production, reserves, and contingent resources; the remainder is unrecoverable.

Production is the cumulative quantity of petroleum that has been recovered at a given date.

Reserves are estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from known accumulations, as of a given date, based on the analysis of drilling, geological, geophysical, and engineering data; the use of established technology; and specified economic conditions, which are generally accepted as being reasonable. Reserves are further classified according to the level of certainty associated with the estimates and may be subclassified based on development and production status.

Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political, and regulatory matters, or a lack of markets. It is also appropriate to classify as contingent resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage. Contingent Resources are further classified in accordance with the level of certainty associated with the estimates and may be subclassified based on project maturity and/or characterized by their economic status.

Unrecoverable is that portion of Discovered or Undiscovered PIIP quantities which is estimated, as of a given date, not to be recoverable by future development projects. A portion of these quantities may become recoverable in the future as commercial circumstances change or technological developments occur; the remaining portion may never be recovered due to the physical/chemical constraints represented by subsurface interaction of fluids and reservoir rocks.

Undiscovered Petroleum Initially-In-Place (equivalent to undiscovered resources) is that quantity of petroleum that is estimated, on a given date, to be contained in accumulations yet to be discovered. The recoverable portion of undiscovered petroleum initially in place is referred to as "prospective resources," the remainder as "unrecoverable."

Prospective Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and a chance of development. Prospective Resources are further subdivided in accordance with the level of certainty associated with recoverable estimates assuming their discovery and development and may be subclassified based on project maturity.

"Low Estimate (P90)" means a conservative estimate of the quantity that will actually be recovered from the accumulation. It is likely that the actual remaining quantities discovered will exceed the low estimate. If probabilistic methods are used, there should be at least a 90 percent probability that the quantities actually recovered will equal or exceed the low estimate.

"Best Estimate (P50)" means the best estimate of the quantity that will actually be recovered from the accumulation. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. If probabilistic methods are used, there should be at least a 50 percent probability that the quantities actually recovered will equal or exceed the best estimate.

"High Estimate (P10)" means an optimistic estimate of the quantity that will actually be recovered. It is unlikely that the actual remaining quantities recovered will exceed the high estimate. If probabilistic methods are used, there should be at least a 10 percent probability that the quantities actually recovered will equal or exceed the high estimate.

ABN 42 112 256 649

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Contact Information

  • Solimar Energy Limited
    Registered Office:
    566 Elizabeth Street, Melbourne, Victoria 3000
    +61 3 9347 2409
    +61 3 9349 1186 (FAX)
    www.solimarenergy.com.au