Arena Resources, Inc. announced today it has signed a letter of intent to produce and sell gas from its Fuhrman Mascho properties in Andrews County, Texas, to Aspen Pipeline of Houston.
The gas, produced from the Yates formation at an approximate depth of 3,000 feet, has a high nitrogen content and is often considered too costly to produce because of the need to remove the nitrogen before transporting. Aspen announced in February 2007 a Memorandum of Understanding with Texas Independent Energy that could lead to the construction of a dedicated pipeline to TIE’s 1,000-megawatt energy generation facility just outside Odessa, Texas, which can consume a blend containing Yates formation gas without removing the excess nitrogen.
Arena’s Fuhrman Mascho properties comprise approximately 17,000 acres. The Company initiated a development program at the Fuhrman Mascho in April 2005 and has currently drilled 177 wells to a deeper, oil-bearing formation at approximately 4,800 feet.
Arena has the drilling rights to the Yates gas formation on 14,000 acres and has agreed to dedicate the Yates gas reserves to the project for the life of the reserves. Based on 40-acre spacing, the Company estimates there are 350 potential locations including approximately 100 idle or temporarily abandoned well bores which were drilled prior to Arena’s acquisition of the properties. These wells were drilled to the deeper, oil-bearing formation and are excellent candidates to be re-completed at the shallower Yates formation. The agreement requires Arena to drill or recomplete 60 – 90 wells per year for a four-year period and to strive on a best efforts basis to attain a volumetric goal of 31,000 – 37,000 mcf per day or more. It is estimated that construction of the pipeline will reach the properties by the 2nd quarter, 2008.