Holbrook Basin News Release

Holbrook Basin News Release

June 11, 2014

Meeting with Dr. Salvatore Mazzullo on the Holbrook Basin Geological Report:

We had a very positive meeting with Dr. Salvatore Mazzullo yesterday.  He has completed the research required to recommend drilling locations in the Holbrook Basin.  It has been interesting to watch him progress in his understanding of the geology of the Holbrook Basin.  We have watched his evolution as he began with ideas very different from our own, only to be molded by the facts of the geology into opinions nearly identical to our own.

Dr. Mazzullo has given us a greater understanding of the specific reasons for the traps and the locations of the reservoirs, through detailed mapping of the tilt of subsurface structures, their thickness, and fault blocks in the Supai formation and in the Devonian formation.  These maps show that the surface anticlines have very little correlation to the Supai formation which underlies them, and they show that the Supai formation has very little in common with the Devonian structures which underlay it.  This is significant because many of the wells that were drilled in the past were drilled on surface structures, with little to no understanding of the true lay out of the subsurface targets.  This has provided many significant shows of oil and gas, which we confidently predict would be productive, if, as varies by area, the zone is followed up dip, to a greater thickness, or an area of greater porosity.

Dr. Salvatore Mazzullo has also made history by designating standard geological markers within the logs to prepare cross-sections across the Holbrook Basin.  He has designated standard log correlations for an A, B, and C, marker within the Devonian, which are critical to differentiating the rock types which sit above or below the markers in the various parts of the basin, and whether they have been eroded away or if they exist in different parts of the basin, how thick they are, whether they are up or down dip in correlation to one another, and if faults appear between areas of the basin.  No geological report in the Holbrook Basin that we or Dr. Mazzullo have been provided, or have been able to obtain, has made these critical correlations of the A, B, and C markers in the Devonian before.  This has led previous drillers to the failed assumption that the top of the Devonian in one part of the basin is the same as the top of the Devonian in another part of the basin.

Because of Dr. Mazzullo’s monumental work, we can plainly see that the ‘A’ marker does not exist in the Eastern part of the basin, which means that the top of the Devonian to the east of the basin is an entirely different rock from the top of the Devonian in the western part of the basin.  This type of understanding is critical because failed assumptions about following an oil show near the ‘top of the Devonian’ could have led past drillers to fail in productivity as this type of assumption would mislead explorationists into believing that they are drilling to their target zones, when in actuality they are drilling into an entirely different rock.

Furthermore, Dr. Mazzullo has correlated the porosity streaks in well logs across the basin to oil shows and drill-stem tests (DSTs), and has come to realistic expectations as to why previous drills were unsuccessful.  It becomes clear that a mid-continent (Kansas, Texas) understanding of tapping into the top of a zone under the assumption that the oil floats on water, so the top of the zone must be completed carefully, has created some failures.  Dr. Mazzullo points out that one DST was run where the show of oil was on the hard streak above the porous rocks; they didn’t test the reservoir—they tested a show that they got from leakage from the reservoir.  Mistakes like this are common and apparent when you correlate the oil shows to the porosity streaks, the strike and dip (tilt) of the formations, and the DSTs that have been run in the past.

Of the few wells that penetrated the Devonian, additional to the numerous errors stated above, elevations reported have been erroneous, the stratigraphy has been unstandard, the zones picked by drillers have been misunderstood, and incompetent mud-engineering has led to poor cutting returns (and the rock cuttings are where the oil shows exist).  We have them to thank, however, as their attempts at hydrocarbon production have given us enough information to correlate into an accurate geology of the basin, and a greater understanding of why hydrocarbon production has not yet been realized in commercial quantities.  Management is very encouraged by the understanding of this information.

Without consulting our satellite work, or our lease maps, Dr. Mazzullo has picked six areas within our initial area of interest that he believes merit drilling.  Last night he recommended 15-20 wells be drilled to test these areas, noting that because of the pervasive fault blocks, drilling a dry-hole in one of the areas does not condemn another.  His study has led him to change his initial opinion regarding seismic work.  He previously believed 3D seismic would be needed to prove the traps.  Because of the numerous shows, and significant data to map the subsurface structures and porosity, he believes several of the areas can be drilled with reasonable assurance of the geologic conditions of the subsurface.  The only seismic he recommends is a small 2D line to pinpoint one of the faults that is critical for the crest of a trap in one of his six designated areas.

You will be pleased to know that we own acreage in four of his six areas (the other two are on the Navajo Reservation), as our satellite work and basic geology have already led us there, and each of these areas is a jumping off point from which to expand and develop as the wells come in, and the information gained from the wells leads expansion development.