While still holding out the carrot of a possible 40-well, 3 Tcf natural gas play in the agricultural fields west of the central California valley town of Delano, Tri-Valley Corp. of Bakersfield announced that it has a letter of intent to sign a deal with an unnamed, privately held international energy company that wants to develop the prospective gas field in conjunction with building a baseload merchant electric generating plant. Tri-Valley called the field its Sunrise Natural Gas Project.

Although he would not name the firm or the country in which it is headquartered, Tri-Valley CEO Lynn Blystone said it is a privately-held E&P and power plant development company with a “quasi-government link” and is involved in several different countries. But this would be the firm’s first venture in the United States. The potential investors/operators are “pretty ambitious” and want to sign a contract by Sept. 1, but Blystone said he doesn’t think his firm will be finished with its due diligence.

In negotiation is a potential deal valued at about $150 million, considering the 40 prospective wells and various surface facilities such as pipelines and processing operations, said Blystone, who noted that Tri-Valley still has to get “all the answers to the questions it has (about its prospective partners) before we go forward.” He noted that on the surface the proposed terms of the deal “are really quite attractive, but we want to verify it so we don’t get into some movie accounting scheme where there are never any profits to split.”

Based on the test well Tri-Valley drilled last spring on part of its 6,600-acre on the western edge of Delano and beyond, horizontal drilling of wells in the area of $2.5 million/well will be required to “drain” the mapped area to date.

“Tri-Valley drilled the initial vertical test well for other objectives but instead was rewarded with nearly 300 net feet of gas-saturated McClure Shale,” Blystone said. “The independent engineering analysis from the well data says we have about 72 Bcf of gas per 160 acres. That equates to about 3 Tcf in place.

“With field development costs incrementally increased beyond the comfort level of Tri-Valley and its individual working interest partners, we have sought a larger partner needing a new, very long life natural gas source — [one] who could invest in drilling and surface facilities on a faster schedule.”

Additional drilling, Blystone said, will reveal if the surface of the field is larger and if the “thickness” of the underground gas zone is greater than now estimated. Similar drilling in the same McClure Shale is being done by a branch of Texaco in an adjacent field 17 miles south of Delano.

In another area southwest of Delano and northwest of Bakersfield, Tri-Valley is pursuing a separate $11 million deep-drilling venture, Project Ekho, where its so-called “Ekho No. 1” well was drilled to 19,085 feet. It has been tested for the past six weeks to confirm the mathematical models for its potential as completed by some “reservoir stimulation experts,” Blystone said.

Ekho, however, is looking for additional funds from current and new investors before it can go forward with the first well, from which Blystone said he expects to get 16 million barrels of oil and 20 Bcf of natural gas. But, he noted, it will “take a special approach” to the fracturing.

Blystone said Tri-Valley still has to “finish up” this first well and “demonstrate that it is viable” before the firm embarks on a second deep well. Meanwhile, other deep drilling in the general area that prompted Tri-Valley originally to start its project is not going as well, according to Blystone. Anadarko has two rigs operating and is now embarking on a ninth well, he said.

“We’re still spending about one-third of what other folks are on these type projects.”

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