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Clients and Solutions
The Appalachian Basin of Kentucky is prime territory for smaller companies because it is broken down into thousands of individual landowners. Major oil companies will rarely go door to door trying to lease mineral rights on only a few hundred acres unless the production potential per well is in the hundreds or thousands of boepd.
Without risking huge amounts of capital, the most significant growth opportunities for a smaller oil & gas company in North America exists in Kentucky. While the Basin has been in production since the early 1800s, much of it is unexplored – due to the fractured makeup of landowners and abscense of a large number of major oil companies – although the states New Albany Shale is starting to attract a lot of attention. Central and Eastern Kentucky is made up of thousands of small farms who watched the tobacco industry disappear. This region is particularly attractive to KOS because of the known (shallow) oil reserves, potential for large deeper gas reserves – and the fact most landowners have low income levels and want to see drilling.
According to a recent report at the University of Kentucky, the basin still contains as much oil and gas reserves as has already been extracted.
• Original oil-in-place ~ 2.4 billion barrels
• Remaining oil ~ 1.7 billion barrels; implies only 29% recovery efficiency
• Remaining Devonion shale gas ~ 12 tcf (estimated as high as 112 tcf)
Tens of thousands of wells have been abandoned over decades because of low production & low commodity prices. Hundreds of landowners are sitting on substantial oil or gas reserves but large companies are not interested at this stage, few small operators exist with the capital to advance exploration, and the landowners themselves cannot afford to drill. Essentially an Oil & Gas Vacuum has been created.
The Economics of drilling in Central Kentucky are very strong. A well can be drilled for a fraction of the cost we see in Canada, North Dakota or Montana - thereby reducing dry-hole risks. To put a well on production is also significantly less. Even a 5 bopd well at $80 oil can often payback in 4 to 5 months. Wells in the region are capable of producing for decades and higher production and commodity prices obviously improve the economics even more.
The First Objective of KOS Energy was to secure the rights to a new Horizontal Jet Drilling Tool developed over the past decade. This process is expected to make a significant impact on the recovery of oil & gas from older wells and on the drilling of new vertical wells (in particular shallow wells of a few thousand feet). The cost is dramatically lower than a Frac. As it is proven in Kentucky, KOS will look at expansion outside the state.
KOS will spend the first year doing workovers on more than 100 older wells on their leases. This will extensively test and document the new tool and steadily grow production and cashflow.
The Second Objective of KOS Energy was to secure a very large land position of carefully selected oil leases in south central Kentucky. This region has been a significant historical producer and allows for low cost of acquisition, drilling and production. The company is also securing leases in Northwestern Kentucky in the highly successful Illinois Basin, New wells will be drilled across this portfolio of properties as capital is raised and cashflow re-invested.
Once 1 well is drilled on a lease, KOS owns the mineral rights (to depth). This locks up long term rights to deeper formations where they have seen major discoveries in other regions of North America. Over time it is expected this could prove to be highly valuable as large companies in Kentucky target deep production.
Third Objective is working on the advancement of oil exploration techniques in the region. KOS will do this by working with a veteran geologist at one of the Kentucky Universities who has developed very advanced models for oil & gas exploration that entails the use of seismic, geophysics & geochemistry, and satellite imagery – combined in proprietary computer models to target drill locations. KOS is also working to develop a Co-Op student program with the University & the Geologist to advancement exploration expertise in Kentucky.
Kentucky unlike any other region in North America provides Unique opportunities for small (by industry standard) oil and gas companies. This assumes of course they are well managed, well funded and have access to the latest technologies and tools. A high commodity price environment makes this region all the more attractive