Strachan

The Delta Oil & Gas Strachan prospect is an agreement to participate in the drilling of a potential natural gas well in a highly prospective property discovered in the Deep Basin along the edge of the Alberta foothills belt approximately 80 miles Northwest of Calgary Alberta.

The Strachan Prospect is an opportunity just north of the current Strachan property and the now under-utilized Strachan gas plant.

To date the Strachan well has been drilled to a total depth of 13,650 feet at a totall cost of over $10 million. The operator encountered extremely high gas pressures of up to 10,000 pounds per square inch in several zones. A specialized, high penetration, low diameter perforation gun has been ordered to perforate into various zones. Due to the possible formation parameters, additional required notices and permissions had to be requested and granted prior to this work being undertaken. These are now in place. The size of the gas pool is undetermined and will remain so until testing is completed. If the results of the tests are positive, this well can be immediately tied into a nearby gas sales pipeline which is connected to the existing Strachan gas plant.

The Strachan gas pool was discovered 35 years ago. However, there were no new discoveries in the region until, in November 2004, Shell Oil announced a new Leduc Pool discovery at Ricinus with potential one trillion cubic feet of natural gas reserves.

The Strachan prospect is 12 miles Northeast of the Shell Oil discovery in the same part of the Deep Basin. The potential for this prospect is based on newly developed highly technical Three Dimensional Seismic programs that shed new light on identifying deeply buried full height and partial height pinnacle reefs.

History

The original Strachan Leduc discovery well was drilled in October 1967 by a junior oil company called Stampede Oil. Six gas wells delineate the aerial extent of this major gas pool with initial production rates to fill the maximum capacity of the Strachan Gas Plant at 250mmcf per day.

After 20 years, key wells had cumulative production of between 150 to 225 billion cubic feet natural gas each. To date, 962 billion cubic feet of natural gas reserves have been recovered and currently only minimal residual gas production is pipelined to what is now an under-utilized Strachan Gas Plant.

Project Structure

In participating in the Strachan prospect, Delta receives the benefit of the operator’s expenditures to date in this area including land costs, 3 dimensional seismic costs, pipeline costs to the Strachan Gas Plant and the intangible value of their exploration team.

Delta has agreed to pay 4% of the costs of drilling and completion of the well. Then, if natural gas is found in paying quantities, Delta will earn the following:

1. 1 in the Spacing Unit for the Earning Well:
2. i a 2% interest in the petroleum and natural gas below the base of the Mannville excluding natural gas in the Leduc formation; and
3. ii a 4% interest in the natural gas in the Leduc formation before payout subject to payment of the Overriding Royalty which is convertible upon payout at royalty owners option to 50% of Delta’s Interest; and
4. 2 a 1.6% interest in the rights below the base of the Shunda formation in Section 10, Township 38, Range 9W5M.
5. 3 a 1.289% interest in the rights below the base of the Shunda formation in Section 15 and 16, Township 38, Range 9W5M, down to the base of the deepest formation penetrated.