Vancouver, British Columbia — AFRICAN QUEEN MINES LTD. (the “Company”) is pleased to announce that its wholly-owned U.S. subsidiary DESERT ENERGY CORP (“Desert Energy”) has now entered into a definitive agreement with SEMINOLE PRODUCTIONS LLC, an Oklahoma private company (“Seminole”), pursuant to which Desert Energy will acquire the Kight Gilcrease Sand Unit oil and gas project in Seminole County, OK (the “KGSU”). As previously announced (PR January 31, 2018), Desert Energy was formed by the Company to engage in exploration and development of oil & gas and mineral properties in the Southwestern United States and will be operating as a separate division of the Company. KGSU is the first of several major projects that Desert Energy has targeted for potential acquisition in the near future.
Under terms of the Purchase Agreement, Desert Energy is acquiring all leases covering the KGSU above the Base of the Gilcrease Sand Formation, subject to an aggregate gross overriding carried royalty on hydrocarbon production of 22% payable to various royalty holders (2% of which is payable directly to Seminole). Hence Desert Energy is acquiring a 0.78 Net Revenue Interest in the KGSU. In addition, Desert Energy is acquiring all wells and associated surface and downhole equipment on site, including pumping rigs, piping, storage tanks, supplies, etc., and all rights to any additional hydrocarbon bearing zones which may exist above the Base of the Gilcrease Sand Formation. The underlying leases are extendible year-to-year by maintaining minimal prescribed production levels.
The total consideration payable for the acquisition is U.S. $400,000. Of this amount, Desert Energy is paying Seminole cash in the sum of U.S. $180,000 by April 15, 2018 (subject to extension); and the Company is issuing to Seminole Units (the “Units”) at a deemed price of CAD $0.05 per Unit, where each Unit is comprised of one share of Common Stock of the Company (“Share”) and one Share Purchase Warrant (“Warrant”) where each Warrant permits the holder to purchase one Share for a period of 3 years from the date of issuance at a price of CAD $0.075 per Share. The number of Units to be issued to Seminole shall be equal in value to U.S.$220,000 converted into Canadian currency on the date all applicable regulatory approvals shall be received. At today’s exchange rate, Seminole would be entitled to receive approximately 5.5 Million Shares and 5.5 Million Warrants. The transaction is subject to completion of due diligence by Desert Energy and approval by the TSX Venture Exchange and the OCC.
The KGSU was permitted and approved by the Oklahoma Corporation Commission Oil & Gas Conservation Division (“OCC”) by Order #375263 dated July 19, 1993, as an enhanced recovery project primarily utilizing water-flood secondary recovery operations, in an administrative proceeding which consolidated and unitized all working and royalty interests in the project. It was subsequently acquired by its present owner/operator Seminole in 2003. The KGSU has had historic production estimated at 1,690,240 BO by the OCC and presently has 7 wells on site, one of which is operational. The oil produced is a light sweet crude that varies from 34 API to 43 API gravity.
The KGSU comprises an area of approximately 883.7 acres, which is substantially underlain by the Gilcrease Sandstone common source of oil supply. The KGSU leases are located 8 miles S of Wewoka directly astride State Highway 56, in a portion of the S/2 of Section 6, all of Section 7 and the NW/4 of Section 18, T6N R8E Seminole County, Oklahoma. It is not located within an environmentally sensitive area or on a known Native American reservation. The oil-bearing pay zone was estimated by the OCC to be from 10 ft to 40 ft in width and to occur at a subsurface depth of approximately 2726 ft to 2810 ft, as reflected in geophysical logs from the Adams #1 Maverick Well drilled in the SW/4 SE/4 SW/4 of Section 7-6N-8E, Seminole County.
The Gilcrease Sands are part of the Atoka Formation Series which ranges from about 160 ft to 250 ft in thickness. It is comprised of limes, sands and sandy limes and occurs at depths of approximately 2650 ft to 2950 ft. Recent geological studies and particularly drill logs from two recent wells on the KGSU , 3PB’s and Sears 18-H, suggest that the pay zone width may be significantly greater than estimated by the OCC. In addition, they suggest higher porosity and permeability than estimated. The overall Gilcrease Sand Formation, named after iconic Oklahoma oilman Tom Gilcrease, has produced in excess of 580 million BO since the early days of oil production in Oklahoma in the 1920’s and 1930’s. The KGSU forms a small portion of the historic area which is within a radius of about 30 mi from the KGSU. As the Gilcrease Sand Unit is relatively shallow at about 2800 ft subsurface, vertical wells are the most efficient manner of drilling for oil production. Most of the primary oil has been produced by conventional means, i.e. first flowing, then simple down hole tubing pumps with traditional pump jacks at surface.
The Gilcrease Formation was originally characterized as a “gas drive” formation, where the gas in the formation helped force or drive the oil out of the pore spaces within the sand layer up into the wellbore. However, original low-cost production methods in the 1920’s and 30’s unduly depleted this “drive” mechanism. The early depletion of this drive resulted in only a fraction of the original oil in place within the KGSU being produced and creates an opportunity for substantial new production by Desert Energy at relatively low cost using a modern secondary recovery techniques. Management believes the optimal recovery technique for the KGSU involves the injection of CO2 or Nitrogen into the uppermost portion of the sand layer, whilst injecting water into the lowest part of the sand. This “water-flood” technique works to squeeze and drive the oil to the producing well bores in much the same manner as the old gas drive mechanism of early days. Variants of this type of technique have been developed over a period of many decades and are now highly refined and efficient.
Water-flood secondary production calls for the drilling of some new wells for both water injection and oil production, along with the conversion of existing wells into an injection well format. The technique has been used very successfully to generate production in the offsetting Sasakwa Gilcrease Sand Unit (“Sasakwa”), located within one mile directly S of the KGSU. Sasakwa has historic reported production of 1,233,009 BO from primary production and 1,000,730 BO from water-flood enhanced recovery secondary production. By comparison, the KGSU has produced 1,690,240 BO from primary production to date but has not yet had water-flood enhanced recovery techniques applied. This suggests considerable potential for future oil recovery from the KGSU utilizing such techniques, though there can be no guarantee that future results from the KSGU will be similar to those achieved at Sasakwa.
Desert Energy’s development strategy contemplates initially reconditioning the existing wells on site and drilling several new shallow vertical wells to create new primary production and cash flow in the short-term. This would be followed by instituting a comprehensive water-flood program to optimize long-term production from the KGSU and fully exploit the reserves in place. It is to be noted that water-flood recovery is totally unrelated to “fracking” which involves hydraulic injection to fracture underlying rock and is typically associated with horizontal drilling. Water-flood is designed to create pressure by filling porous spaces without disturbing in situ rock.
According to Irwin Olian, CEO of the Company, “We are very excited to be acquiring the Kight Gilcrease Sand Unit and view it as great opportunity to add cash flow and value to the Company for the benefit of our shareholders. It is an established oil field with significant untapped potential in one of America’s most prolific historic oil producing regions. We believe the U.S. Energy Sector holds out great promise in coming years under a favorable Government Administration and are working diligently to bring significant opportunities to African Queen to participate in future grown in this sector, together with exploiting opportunities in precious metals.”
About African-Queen
The Company is an exploratory resource company engaged in exploration and development of mineral properties in Canada. In addition, its wholly-owned U.S. subsidiary Desert Energy Corp. is engaged in exploration and development of oil and gas and mineral properties in the Southwestern United States. The Company has recently been focusing on development of its Yellowjacket Gold Project in Atlin, British Columbia, which covers an aggregate of approximately 291.54 km2. The Company has its executive offices in Vancouver, Canada. The Company was incorporated under the laws of the Province of British Columbia, Canada, on April 30, 2008, and received certain southern African assets in a spin off transaction related to the acquisition of Pan African Mining Corp. by Asia Thai Mining Co., Ltd.
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