Saxon Oil Company Ltd. is committed to delivering strong shareholder returns through an effective program to explore and develop oil and natural gas prospects. Our goal is to steadily increase our proven reserves of oil and natural gas – which, in turn, will lead to enhanced cash flows and earnings per share.
Our growth strategy is three-fold. First, we will use the majority of our annual capital budget to drill and develop relatively low-risk oil and gas wells that increase our oil and gas reserves and build up the company’s balance sheet. Second, we will participate in the drilling of wildcat prospects in areas where we have experience and a firm understanding of the geological risks and rewards. And third, we will purchase producing reserves when and where it makes economic sense.
To execute our strategy we are pursuing a number of diversified projects and prospects. A major undertaking is our Hudson Hills prospect in Central Texas. This is a shallow-depth (approx. 3,900 ft) Navarro oil prospect in which Saxon has a 75% working interest. We have drilled four wells in the prospect to date and are preparing to complete three of these wells. The fourth well did not meet the minimum requirements of sand thickness for a completion.
These first wells will help establish the parameters for development of the prospect. Saxon will use a new completion technique called "Radial Jet" on these wells. This new technology cuts one-inch horizontal holes approximately 300 feet into the prospective producing formation, opening up the well to more flow of oil and gas than would be expected from a conventional completion. This new technique may increase a well’s ability to drain the surrounding reservoir and thus reduce the number of wells necessary to adequately produce the field. Saxon has leased approximately 2,000 acres in this area and will continue to develop this prospect on 40-acre spacing.
Saxon is acquiring additional leases in the vicinity of Hudson Hills, where the same Navarro formation can be found. We will leverage our experience in and understanding of the geographical area and geological formation, together with the operational techniques being implemented and refined on the Hudson Hills prospect, to lower our operating costs and maximize ultimate recovery of reserves elsewhere in the area.
On the exploratory side of the business, Saxon has committed to participate in two West Texas wildcat wells to be drilled in late autumn. These wells will be drilled to the Ellenberger formation, known as a high-reserve formation when hydrocarbons are present.
Another exploratory well, the Seger Indian Well #2-22 on the Cobb Creek Prospect in Washita County, Oklahoma, is in the process of completion. This well was drilled to a total depth of 14,800 feet for a completion attempt in the Red Fork Sand formation. Initial bottom-hole pressures and well logs indicated gas production. However, the operator reported that the initial frac to stimulate the formation evidently created a block that has restricted production. The operator has advised Saxon of plans to add perforations, and then acidize and probably re-frac the well using a different frac procedure. Saxon has a 20% working interest in the Cobb Creek prospect which consists of 1,973 acres.
Saxon owns a 10% interest in Preset Drilling Company, a shallow niche driller. Preset has three rigs running in Oklahoma and the Texas Panhandle. The rig just added to the fleet is contracted to a major oil company for the next two years, on a day-rate basis. Preset’s strong financial performance continues to grow with the addition of new equipment. This investment not only brings attractive earnings to Saxon’s bottom line, but it is also presents opportunities for Saxon to participate in wells that Preset is contracted to drill.
Saxon continues to review prospects in many areas: West Texas, Louisiana, deep western Oklahoma gas plays, Barnett Shale in central Texas, Fayetteville Shale in Arkansas, Smackover play in Alabama, and horizontal wells in East Texas. While most prospects being generating in the industry are, in our opinion, not geologically sound or economically feasible, we fortunately have a long history in the oil business and are presented with a number of viable opportunities. Rest assured that Saxon Oil will find and develop proper prospects that fit our growth strategy and reward our shareholders.
Bill D. Saxon
Chairman of the Board
Saxon Oil Company Ltd.