Epsilon Energy Ltd
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Hardic well, Elk Lake, Hwy. 706 Project, Susquehanna Co., PA
Photo credit - Chip Lines-Burgess, member of Rlstore.com
Concord, Ontario-based Epsilon Energy Ltd is a natural gas exploration and production company. It emphasizes Marcellus shale and Trenton-Black River exploration and has leasehold positions in New York, Ohio, Pennsylvania and West Virginia. According to the company web site, as of November, 2009, it owned 87,000 gross acres of Appalachian basin drilling rights or 40,000 net acres. In April, 2009 Epsilon produced a slightly different accounting of its acreage, which is reproduced below:
Leasehold Acres (February 2009) Appalachian Basin: Gross Net Pennsylvania 15,000 15,000 New York 32,000 16,000 West Virginia 36,000 15,000 Ohio 40,000 9,000 TOTAL 123,000 55,000 Source: Epsilon Energy website, Apr., 2009
The difference can largely be explained by the sale of its West Virginia acreage which occurred in June, 2009.
Latest Company Developments
A February, 2010 company press release announced the closing of a farm out agreement between Epsilon and Chesapeake Energy for joint development of the Highway 706 Project located about 8 miles southwest of Montrose in west-central Susquehanna County, PA. Chesapeake was to earn a 50% interest in the joint venture in exchange for $5 million up front and a carry for the first $95 million of Epsilon's 50% share of drilling and other expenses. The carry requirement was expected to be met within 30 months or by August 1, 2012. Acreage in the Highway 706 Project was to include 11,500 acres that currently produced approximately 10 Mmcf/d. The agreement also covered gathering lines and compression facilities. Epsilon's project wells are located in the vicinity of other acreage presently controlled by Chesapeake. All told the latter company planned to spend $195 million developing the Highway 706 Project.
2008 Development Timeline
New York State acreage acquired
In September, 2008, Epsilon was reported to have leased an additional 10,200 acres in Chemung and Tioga Counties in New York. The acreage was located between its Park Place and Evans Hill projects. The company was operator and held a 50% working interest. At the time, it owned a 50% interest in approximately 87,200 leasehold acres in New York and Pennsylvania.
Highway 706 Project progress
A later September, 2008 report stated that Epsilon had completed two horizontal wells in its Highway 706 Project located southwest of Montrose in west-central Susquehanna County, PA. At that time, drilling was still underway on a third well in that area. It had already received water withdrawal permits for fracing and continued drilling from the Susquehanna River Basin Commission (SRBC). Epsilon owned drilling rights to 11,500 acres in this project, and most of it remained unexplored.
Fracing of the first of these wells and microseismic evaluation were planned for mid-November.
Epsilon provided an operational update in November, 2008 in which the company reported a substantial slickwater fracture on its first horizontal well. Initial test results on the well were promising. A January 2009 report took note that the horizontal well was producing 3 Mmcf/d and a vertical well also in the same project produced 1 Mmcf/d.
2009 Development Timeline
Epsilon was working on a gathering system and planned to tap into the Tennessee Gas Pipeline. The initial phase of the company's pipeline infrastructure for the Hwy. 706 project was expected to be complete by the end of June, 2009.
In January, 2009 the company provided another operational update in which it noted that it had completed drilling of the Poulsen 1H, a 2,700 foot lateral horizontal well that was part of its Highway 706 project. It was further mentioned that Epsilon now owned drilling rights to 32,000 gross (16,000 net) acres in New York State prospective for Marcellus shale. The company so far had drilled four horizontal wells and three vertical ones in the Marcellus.
Another January, 2009 report found Epsilon outsourcing the drilling of its wells in Susquehanna County, PA to Turm Oil.
A February, 2009 report indicated a third well in the Highway 706 project, the Larue 2H, had a production rate over 4.2 MMcf/d. Another Larue well, 1A, had production of 1 MMcf/d. An eighth well in the program, named Hardic 2H, was in the process of being horizontally drilled.
Highway 706 production begins
In May, 2009 Epsilon announced that it had begun production from the Highway 706 project. It was both the operator of the project and owned 100% of the working interest. This represented the culmination of two and one-half years of work in which Epsilon had leased 12,000 prospective acres and drilled 3 vertical and 5 horizontal wells. It had fraced and completed 5 of these wells to date. Poulson #1H was the first well to be hooked up, and Poulson #2H was to follow as soon as a few operational issues were resolved with #1H. The company was in the process of installing its pipeline gathering system for these two and for some earlier wells that were producing at a combined flow rate of 8.5 Mmcf/d. The entire production from the project was to tie into the Tennessee Gas Pipeline to the south. Epsilon also had a compressor station in the vicinity to compress gas coming from the project wells.
All eight Highway 706 wells to be online by end of Q309
In a June, 2009 update, Epsilon noted that it expected all eight wells drilled so far in the Highway 706 project to be online by the end of the third quarter of 2009. Fracing was underway on four wells. In August, 2009 the company announced that it had begun selling gas from a Marcellus well that was producing 2 Mmcf/d in the project. Epsilon noted that it had only completed the first of five planned stages of a five stage frac on this well. The remaining seven wells were still underway in the development. The company planned to extend its present gathering system to the north of their compressor plant. This facility had the capacity of 7 Mmcf/d, and the company was planning to add a second compressor to expand its capacity.
Wells shut-in -- awaiting compressors
In late October, 2009 the company announced that its first compressor had gone online with production coming from four wells:
- one short stage horizontal well;
- one short stage horizontal for which the company planned additional frac stages; and
- two vertical wells.
These four wells were to use the full capacity of this first compressor amounting to just over 6 Mmcf/d. It was further announced that Epsilon had completed fracing the last of its eight wells, the LaRue 1B; it was a two stage frac. Both LaRue 1B and the previously completed LaRue 1A were having similar production of 1 Mmcf/d each. At this point there were still four wells shut in on the project, and added together they had production of 10 Mmcf/d. This sum exceeded the capacity of the next compressor the company planned to bring online around November 30. Its capacity is 6.8 Mmcf/d. The company planned to install yet a third compressor to handle the remaining 4 Mmcf/d from those wells shut-in and from its 2010 drilling program. The latter was planned to be 5 vertical wells and 4 horizontal ones.
Production exceeds 10 Mmcf/d
As of November 16, two additional horizontal wells were brought online as well as the second compressor giving Epsilon production in excess of 10 Mmcf/d from the Hwy 706 Project.
Utica shale play presence
West Virginia acreage sold
The company produced on land in West Virginia and Ohio. In its June, 2009 update, the company announced it intended to sell its Amber Bank and Blue Jacket properties in West Virginia for $13.0 million (US) thus closing out its position in that state. The money raised was to be redeployed for Marcellus shale drilling. Epsilon had owned a non-operating interest in the properties sold.
- The joint venture and carry with Chesapeake Energy should give Epsilon the financial wherewithall to adequately develop its Marcellus shale acreage in Pennsylvania. The company estimated the potential of at least 120 well locations.
- Epsilon plans additional compression facilities to avoid further well shut-ins.
- The company held various ownership positions in Trenton-Black River wells in parnership with Fortuna Energy in New York State. Much of this acreage was also prospective for Marcellus shale.
- Zoran Arandjelovic is Epsilon's Executive Chairman and interim President/CEO
- Daniel J. Ward is COO and International Exploration Manager for Epsilon Energy International Ltd.
- David Matz is the Director of Operations for Epsilon Energy USA Inc.
- Bruce Martin is Geoscience Manager for Epsilon Energy USA.