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Montello Resources (TSX.V:MEO) - Drilling Down The Devil’s Throat

oil,gas,alberta,calgary,investing,resource,tsx

ResourcexInvestor.com
September 10, 2007

Montello Resources (TSX.V:MEO – www.montello.com), an oil and gas exploration firm based in Calgary, Alberta, potentially has a very big problem on its hands. It’s the kind of problem most junior explorers only wish they had.

The company is in the last leg of drilling on the John Bowen #2 test well in Tennessee, just over a mile from the site of the now notorious Pryor Oil blowout, after a drill penetrated a formation at 2,400 feet that was under an estimated 2200 pounds per square inch of pressure. The resulting explosion of condensates blew the derrick into the air, and by the time the EPA showed up to take control of the scene, the gusher had flowed at rates of up to 12,000 boe a day!

Pryor Oil was all but annihilated by the legal and cleanup costs, and for years afterwards, the Tennessee Oil and Gas Authority banned any further exploration in the region.

That was over 5 years ago, and it has taken that long for Montello president Bill Cawker to get the company’s ducks in a row to take another shot at the monster formation.

When it came to putting a property package together in Tennessee, fractured ownership and obtuse property configurations were enough to alienate all the usual American Big Oil suspects for a well with potential of the John Bowen.

The reality is that highly pressurized formations like the one under Tennessee are merely a technical challenge requiring a strategic approach to sinking a well.

Montello was delayed in spudding the John Bowen #2, originally planned for January 2007, due to the lead time required to organize specialized drilling equipment for the drilling program. The drilling contractor is Nabors Drilling USA, a subsidiary of Nabors Industries (NYSE:NBR). Nabors is the world’s largest provider of land and platform drilling contact services for exploration of oil, gas, and geothermal wells.

High-pressure reservoirs are traditionally drilled with large overbalanced margins to minimize the risk of unplanned reservoir inflow. The high pressures associated with these influxes can result in larger kick volumes, reduced reaction time and consequently, greater risk. Challenges associated with these overbalanced margins serve to increase loss of circulation risk, resulting in high-pressure kicks, differential sticking and wellbore damage, never mind environmental accidents like the one involving Pryor Oil in 2002.

Domestic supplies of hydrocarbon energy are a new priority for George Bush and the U.S. government. The upside for Montello is that should this first well result in the safe oil and gas production from a domestic source, it is likely that “Tennessee Oil and Gas” will be predisposed to accommodate Montello in its application for additional drill permits.

In the August monthly newsletter of the Tennessee Oil and Gas Association, the lead article quotes Montello’s intentions from the company’s own web site, which seems to demonstrate local support for Montello.

There are good reasons why major oil companies have steered clear of Tennessee. About 215 million years ago, under the heat and pressure of a continental collision, the rocks in northern Tennessee began to bend. When they broke — in a series of long, jagged, parallel lines — oil and gas migrated from deep in the Earth into cracks and folds in the rocks. Prospectors in Tennessee spend lifetimes tracing the patterns of ancient breakage; they call it "chasing fractures."

That makes the reservoir like the one that produced the Pryor gusher a rarity, and big oil companies don’t like to waste time on such locations. Drilling is shallow and cheap here, compared with Texas or Oklahoma, but the biggest discoveries have topped out at 1,000 barrels a day, a payoff too small to attract large companies.

''There are thousands of acres east of this that have never been drilled,'' added Alan Murrell, one of the owners of Southeastern Energy, the company that discovered an 800 boe/d well in 2004 near Pickett County.

'This has been a hot area to drill in,'' he said. ''Tennessee is finally getting the recognition it deserves. It's a little Texas, I've always thought.''

Montello, on the other hand, is drilling deep in an effort to get a broad understanding of the geophysical characteristics of the target ground. Montello will be drilling to the basement (Pre-Cambrian) to the depth of the "Granite Wash Shale” to an estimated depth of between 7000-9500 feet.

This article is intended for information purposes only, and is not a recommendation to buy or sell the equities of any company mentioned herein. It is based on sources believed to be reliable, but no warranty as to accuracy is expressed or implied. The opinions expressed in the article are those of the author except where statements are attributed to individuals other than the author, in which case the opinions are those of the individual to whom they are attributed.

The author and ResourcexInvestor.com are not shareholders in the companies herein mentioned, and the author, as an employee of Resourcex Publishing Corp is expressly prohibited for owning any securities about which they may write for a period of 30 days prior to and 30 days after initial publication of the article in which the securities of any company are mentioned.
Published: 2007-09-24
Author: Eric Pratt

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