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Price Spikes Fail to Attract CA Drilling Funds

Price Spikes Fail to Attract CA Drilling Funds

Even with near record prices for oil and gas, the ever-optimistic independent exploration outfits in California's traditionally fossil fuel-rich Kern County are having a hard time nailing down financing to continue exploring.

Canadian investors who have backed an initial round of deep drilling between Bakersfield and Elk Hills, CA, have been hit hard by Canadian economic woes, opening up the opportunity for U.S. investors, but not a lot are biting so far.

"The Canadian national stock market is just devastated right now," said Lyn Blystone, CEO of Tri-Valley Oil and Gas Co., Bakersfield. "It has been going on for some time, and it why our Canadian partners couldn't refinance this year."

Nevertheless, Tri-Valley is still planning for a refracturing of one deep (below 19,000 feet) well and starting a second one in the area southeast of Elk Hills. With separate financial backing, the company has moved to an undrilled part of the central valley farmland 40 miles north of Bakersfield to sink Sunrise-Mayel No. 1 test well, which started operations just after Thanksgiving in an area whose total potential is in the 500 Bcf range, according to Tri-Valley officers. There has been no drilling before in this area, according to Blystone, who said the company could have estimated 22.5 Bcf of output just from the initial test well, with an estimate of "50 or 60" possible other well locations.

"We could have made a case for three times as much gas as we talked about (for Sunrise) in its financing prospectus," Blystone said. "We just took the primary zones and used 1,500 Mcf/acre-foot and with that assumption, it could be 500 Bcf easily."

Even with the continuing positive geologic projections and Tri-Valley's almost religious belief in deep drilling in Kern County, which still regularly out-produces some of the world's largest oil fields, financing is not coming easy, Blystone said all but one of eight Canadian investors in its Project Ekho deep-drilling test well have backed out because of Canada's almost year-old bear stock market, which has plunged the value of even the large oil/gas companies north of the U.S. border.

"If it turns out that the refracturing just won't work, we will look at two or three zones above that have not been tested yet," Blystone said. "Hopefully the fract job will work, and we'll just start our production and it will produce until it's exhausted and then we'll move up in the formation."

He said Tri-Valley is talking to prospective new investors about both the reworking of Ekho No. 1, and starting a second deep-well test below the 15,000-foot (and probably the 19,000-foot) level.

"I'd say the price of gas right now is adding a lot to it, and it represents the first U.S. attention that we have been able to get," Blystone said. "We had a little before, but didn't have any U.S. activity. And up until today there still hasn't been any new financing.

Richard Nemec, Los Angeles

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