Armada Oil, Inc. (the “Company”) (OTCBB:AOIL), an oil and gas exploration and production company, today announced that, as a part of its asset reallocation strategy, the Company recently completed the acquisition of 100% working interest in six producing oil and gas leases covering approximately 1,040 acres in the Vernon Field in Woodson County, Kansas. There are currently 125 shallow wells, some of which are shut in pending maintenance or recompletion work while a number of others are used as pressure maintenance water injection wells. Current production is approximately 80 barrels per day.
We believe that the existing shallow well field provides stable, low decline, long life production with low operating costs and the potential for the drilling of over 150 additional wells with a very low risk of dry holes. Due to the expected long life of the production and reserves, drilling of additional shallow wells can be expected to provide an outstanding return in the form of a booked Proved Developed Producing (PDP) reserve value per well that is almost five times the cost of drilling and completing the well. That is a much more favorable ratio than with almost any drilling program in the industry, including the popular unconventional plays. In addition, all depths are held by production and there is additional potential in the Mississippian Limestone as well as in the Viola Limestone, both of which are at depths of less than 2,500 feet. There is also water-flood potential in the currently producing zone.
Evaluation of the assets is underway and the Company expects to formulate and implement a development plan for the upgrade and enhancement of the existing wells as well as for drilling of additional wells over the next few months. New wells can be drilled, completed and producing in a matter of days.
“This acquisition represents a significant step forward in our current asset reallocation strategy. The expected long life production in this field and the ability to significantly increase PDP reserves at a low cost with almost no risk of dry holes provides a solid platform from which to expand into additional opportunities. We are pleased to be taking this step and, subject to the availability of additional capital, look forward to the drilling in 2014 of multiple wells in Kansas as well as the initial test well in our Niobrara operating area in Wyoming,” said Randy M. Griffin, CEO of Armada Oil, Inc. “We are currently in discussions with a number of potential capital sources and expect to announce new financing initiatives soon,” he added.
The effective date of the acquisition was March 1, 2014 and the purchase price of $6.5 million was partially funded out of the closing of Tranche B of the recently completed asset reallocation financing transaction with Gulfstar Resources. For full disclosure of the Gulfstar transaction and this acquisition, please refer to Armada Oil’s Form 8-K and 10-K filings with the SEC which are available for review at www.sec.gov and on the Company’s corporate website www.armadaoil.us.