With an eye for the developing shale potential in Kansas, Irvine, CA-based startup New Western Energy Corp. said Wednesday it has obtained a 90% working interest in the 550-acre Smith Oil & Gas Lease in Chautauqua County, KS. The interest is in acreage that sits adjacent to 1,700 acres that New Western holds in the B&W Oil & Gas Lease.

Publicly held, New Western's latest 10Q filing to the Securities and Exchange Commission said the company projects are located in Kansas, Oklahoma and Texas principally, and its operating history is "limited" and revenues "nominal." The company has recorded losses in the past two first quarters (2011 and 2012).

Kansas is just beginning to get more attention for potential shale plays, said a spokesperson in the state oil and gas commission, which issues drilling permits and tracks results of exploration activity. "We're in the very beginning of the drilling, so we're still waiting to see what sort of initial results we will get."

While ticking off the names of majors such as Chesapeake Energy, Sandridge and Encana Corp. that have shown an interest, the spokesperson had not encountered New Western Energy, whose leaseholds are located just east of the four-county area in south-central Kansas that are drawing the most interest: Comanche, Barber, Harper and Sumner.

Located near what is called the Chautauqua Arch, the new acreage reservoir rock is part of Weiser Sands, with some Wayside Sands, according to Javan Khazali, New Western CEO. To the south, the Central Oklahoma platform merges with the Cherokee Basin in southeastern Kansas, in which some of the state's first Midcontinent oil and gas discoveries were made.

Currently holding leases on more than 2,200 acres, New Western earlier announced an agreement with Independence, KS-based Carroll Energy LLC to tap its more than 30 years of experience in the state's exploration and production (E&P) activity. Carroll is to complete studies for New Western to include recovery and reserve analysis, geological evaluations, reservoir mapping, historical production analysis and log interpretations. Carroll has been doing similar work on the adjacent B&W properties and will expand that to the Smith O&G leases.

With a focus on the Mississippian Lime play, Kansas oil and gas results have been a mixed bag. Oil output increased 2.5% for the most recent year-over-year comparison (2010 and 2011), hitting 41.5 million bbl last year, but natural gas output in 2011 dropped by 6%, according to the Kansas Geological Survey at the University of Kansas (see Shale Daily, May 9).

New Western stressed the various reservoir rock sands in its acquisition and the Mulky Shale and the Arbuckle, noting the production strategy for current E&Ps in the region has focused on natural gas production from the Mulky.

Khazali said the latest acquisition enhances the small independent company's already established footprint in the Chautauqua Arch. He said the company is "aggressively pursuing a strategy to acquire additional leaseholds with proven oil/gas reserves.

"Our close proximity to our existing B&W lease will allow us to capture synergies in both cost savings and production growth during the exploration and development phase of the Smith O&G Lease."