The first flush of new oil on a virgin lease is an exciting event, as the oil flows without any help from a pump, but following this flush, however long it lasts, the inevitable natural decline in production begins and the oilfield operator must work harder and harder to maintain production. Many people believe that the oil has “run dry” but in fact, the “drive” of the natural underground gas pressure that pushes the oil to the well perforations begins to fall as the gas is set free in the atmosphere or burned off. In the 70’s and 80’s numerous Enhanced Oil Recovery (EOR) methods were tried in Eastern Kansas to boost oil production back up. However, the additional costs of these methods meant that most of them were discontinued when oil prices went through their historical downswings. As less oil was produced, operators struggled to maintain and renew their oil leases. As the generations of oilfield operators continued to change, the “knowledge of success” disappeared with them, even though there is still plenty of oil in the ground. Let’s flash forward to Eddy County in Southeastern New Mexico, where over 1 million barrels of oil are now being produced per day, making New Mexico the 2nd largest oil producer in the USA behind only Texas. This phenomenal change in fortunes is due to the reinjection of carbon dioxide out of large natural caverns into the Delaware Basin oil formation, the western branch of the Permian basin. This success also is being achieved in Canadian oilfields where smaller producers are experiencing a significant extension of the life of production on their leases with CO2 injection. Long forgotten is that a select number of oilfield operators in Eastern Kansas were having great success in the 70’s and 80’s by injecting gas into the shallow oilfields in this region. Phoenix Oilfield Management, LLC, the oilfield operator of BARTLESVILLE A OIL RENEWAL ANNUITY draws on the extensive knowledge of the Town Oil Company (TOC), one of the premiere oilfield operators in Eastern Kansas, after big oil moved on. The Town brothers were specialists in gas injection. The work results lie in the archives at the Kansas Geological Survey. The Town brothers sometimes injected gas into oilfields before they began production and were regularly called to repressurize oil formations by lease owners who did not want to install water floods. Today, Jason Town, 3rd generation oilfield operator systems is leading the effort to revive oil production in Eastern Kansas using gas injection. For this purpose, Phoenix Oilfield Services LLC will be formed as a stand-alone oilfield operator. The BARTLESVILLE A OIL RENEWAL ANNUITY seeks a loan in the amount of $1,000,000 to renew and develop a very promising 1 square mile lease with existing production. In turn, the private lender(s) will earn a 12% return on their money and be paid directly from the oil purchaser monthly. The BARTLESVILLE A OILFIELD RENEWAL ANNUITY project sits on a 1 square mile tract in the 43,040 acre St. Paul-Walnut oil field which has produced just under 1,500,000 barrels of oil to date from wells only 400 to 430 feet depth. The adjacent Walnut Southeast oil field to the west exhibits equal success.
The vast majority of the acreage is still drillable, meaning that there is ample room for expansion, which management predicts will drive the production to around 50 barrels per day. This success is based on a combination of air injection into the existing oil formations and the addition of new virgin wells. The oil sands on this lease are a very uniform 15 to 22 feet in thickness, and less than 420 feet deep. This means that drilling and maintenance are substantially lower than deeper wells in other fields. The capital provider(s) will receive monthly operating reports from management and quarterly reporting from an independent certified public accountant (CPA). Any upward deviations of more than 5% in new costs must be reviewed and approved by the capital provider. The lease is located in South Eastern Kansas in the famous Bartlesville Oil formation. Because of a geological upshift, the oil lies less than 400 feet below the surface, far shallower than most oil fields. The BARTLESVILLE A OIL RENEWAL ANNUITY functions just like a property mortgage. The oilfield development loan will be recorded and notarized under Kansas law in the oil payment assignment. This means that the payments to the lender are guaranteed and directly paid by the oil purchaser to the lender each month. As security, a lien will be recorded against the entire project assets. The lender will receive 50% of the monthly Working Interest Payment. After the interest has been subtracted from that sum, the balance will be applied to paying down the loan principal. This will continue month by month until the entire principal has been returned with the promised rate of interest. The other 50% of the Working Interest will be used to continue to develop the 1 square mile lease. While the payments will fluctuate with the price of oil and amount produced each month, the principal and interest must be returned to the lender before Phoenix Oilfield Management, LLC can take control of the full payment or sell the lease onwards. Management estimates that the complete payout of principal and interest will take place about 3 years after the project is funded. This estimate is based on very conservative oil production numbers and the continual reinvestment in new oil wells on the lease. Upon completion of the loan repayment, the lender will be awarded a 50% share of the project and profits, including any forward sale of the property.
