Although still fighting investor resistance on some of its pet projects, Bakersfield, CA-based Tri-Valley Corp., one of California’s more aggressive independent oil/gas developers, Wednesday reported a profit for the third quarter, along with estimates for a profit for all of 2002.

Net income for the quarter ended Sept. 30, 2002 was $1.07 million on $3.9 million in revenues, compared to a loss of $172,172 on $298,560 in revenues for the same period last year.

Tri-Valley, which has a major $10 million deep drilling well (Ekho No. 1) northwest of Bakersfield in the general Elk Hills area and shallow drilling around the town of Delano to the north, reported that its total assets increased to $4.9 million at the end of the third quarter, compared to $3.4 million for the same period in 2001.

Lynn Blystone, Tri-Valley’s CEO, said the company has had “gains in revenue, earnings and assets” due to its widespread drilling program that he characterized as comprising “26 large, very large and super-large exploration prospects in the Bakersfield region,” which is one of the largest oil/gas production areas in the nation. Tri-Valley is projecting completing up to $100 million of drilling in the area. However, in an interview with NGI, Blystone noted that the current energy industry climate continues to keep new investment away and two of the company’s prime projects are languishing right now as a result.

Specifically, an initial test well in the shallow natural gas well drilling program near the agricultural town of Delano so far has been disappointing.

“We drilled a new horizontal well and fractured it, and so far it has not responded at a commercial rate,” said Blystone, adding that the company is still “tweaking” that well to “resolve the mystery of that situation.” He said the well had a 2.5 MMcf/d flow for a while, then stopped, and then built back up again. “It is very annoying because all we want to do is show that we can sustain a commercial rate (500 mcf/d); we don’t really care how much it is as long as it’s commercial because then that validates the whole map of the formation area,” he said.

Given added financing, Blystone said Tri-Valley will drill at least one more well in the area, regardless of the outcome of the first test well, because he contends “we know the gas is there, and we’re learning more and more about this formation (tight shale).” He said it is similar to tight shale formations in areas of Texas (“Barnett Tight Shale”) that required 10 years of exploration work, but now produce several million cubic feet of gas daily.

“We’re seeing sort of a glimmer of a return (of investment interest, after 9/11 and the Enron aftermath),” said Blystone.

Another project that so far hasn’t panned out is the Ekho No.1 deep drilling well below 20,000 feet that so far lacks the additional financing to move forward. It is one of nine deep-drilled wells in the area, most of which are north and west of Tri-Valley’s well. One of the original deep wells is still marginally producing, according to Blystone. “There is a tremendous amount of water and the limitation is how much water they can dispose of, so they can’t open the well any further until they are able to get rid of more water,” he said.

The deep drilling, which carried bullish prospects two or three years ago, has not panned out thus far. Anadarko, which has been experiencing tough financial times, has basically pulled out all of its equipment from one of the first deep wells, Blystone said. Occidental Petroleum, which controls the nearby Elk Hills Reserve, has purchased a major deep well that has spent more than $30 million already, about three times what Tri-Valley has invested in its so far unproductive deep project.

Many industry observers in the southern end of the San Joaquin Valley predict that Oxy eventually will buy all the deep-well projects. Tri-Valley’s goal is to bring one or two deep wells to fruition and then sell them to major operators, Blystone said.

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