Solimar Energy Limited Announces Production Testing to Commence at Kreyenhagen Oil Field

Wednesday, Feb 22, 2012

Solimar Energy Limited (ASX:SGY)(TSX VENTURE:SXS) is pleased to provide the following update regarding the Company's 100% owned and operated Kreyenhagen oil field development project located in the San Joaquin Basin, California.

Kreyenhagen Project - Temblor oil reservoir

Kreyenhagen is a multi-faceted oil project on the western side of the San Joaquin Basin that contains a partially developed heavy oil (13 degrees to 18 degrees API gravity) field in a shallow, high quality sandstone reservoir known as the Temblor Sandstone.

Unrisked in place oil resources totalling 47.9 MMBBLS (Best Case) and 79.1MMBBLS (High Case)(i) net to the Company's working interest have been independently assessed and detailed in releases made by the Company on November 18 and 22, 2011.

The oil is contained in an approximately 200 feet thick upper sandstone pay zone overlain by the Monterey Shale (McClure Shale member) and with a base seal provided by an intra-Temblor Sandstone shaley layer. The oil reservoir outcrops along the west side of the field, where it is believed to be capped by a biodegraded tar mat then plunges steeply underground to the east. The oil column within the structure is 1,200 feet thick based on existing well control. Due to the shallow depth of the oil reservoir (less than 1,500 feet in the appraised part of the field) future development drilling costs are expected to be low. Some 22 historic, vertical wells have been drilled into the field that were flowed at unstimulated, "cold flow" oil rates of between 1-21 bopd using standard type beam pumps.

Solimar will be conducting 2 phases of production testing as pre cursors to planning a full field development. A distinction is made between the "cold flow" or primary production phase and a thermally enhanced or secondary production phase using steam to increase the mobility and recovery of the oil. Heavy oil fields in California are commonly produced using steam with the necessary energy provided by burning gas. The increased operating costs are then offset by both higher well flow rates and high oil recovery.

Currently, commercial conditions are very favourable for a steam enhanced redevelopment of the Kreyenhagen field as there is a large differential between the price being achieved for California heavy oil ($102 per BBL average during January 2012 for Midway - Sunset reference 13 deg API gravity oil) and low prices for natural gas (California Composite $2.7 per MCF during January 2012).

The "cold flow" production operations are set to commence by early April 2012. These operations will involve re-entering up to 4 vertical wells that were drilled in 2007 to deeper targets and suspended without testing of the primary Temblor reservoir. The cost of these operations is expected to be approximately US$500,000. Solimar proposes to perforate a number of different zones within the thick oil reservoir and using Progressive Cavity Pumps ("PCPs"), test each zone for flow potential. If these tests are successful the Company may drill additional vertical and horizontal wells to accelerate early production from the field using these low operating cost, "cold flow" production techniques. Several additional well pads have already been prepared.

Source: Marketwire

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