Montello Begins Drilling for a World-Class Oil Find
Next Door to a Shut-in "Gusher" that Proved Too Hot to Handle
By Marc Davis
smallcapmedia.com
editor@smallcapmedia.com
September 23, 2007
Corporate Overview
Montello Resources Inc. (TSX.V: MEO) is a largely-overlooked Calgary-based oil & gas exploration company that has taken the path less trodden and is now daring to “go big” with a world-class oil discovery within its crosshairs.
By way of explanation, Montello has for the last few years painstakingly maneuvered itself into position to earn a shot at bringing on-stream a huge “Saudi-style” oil find in the under-explored southern state of Tennessee. So, what’s really at stake here? Read on:
“On July 19, 2002 Pryor Oil ‘brought in’ the biggest well the Eastern United States had seen in decades. So big, that the drilling contractor couldn't contain the pressure” – Pryor Oil Co. Inc. web site (
www.pryoroil.com)
Indeed, this huge catch pumped up to 750 barrels of light gravity crude an hour, with so much oil spewing to the surface that it even lifted the drill derrick right off the ground. In fact, the well's flow rate was calculated at a remarkable 12,000 barrels of oil in the first 24 hours, alone. [1]
On Saturday morning, July 20, 2002, a spark ignited the oil at surface and flames quickly spread to the well. Then the Environmental Protection Agency intervened and the now infamous “Blowout Well” property has languished in a legal limbo ever since. But not the property next door.
Enter Montello Resources.
The Opportunity of a Lifetime
Montello and its 45% joint venture partners – Austin Developments Corp. (TSX.V: AUL) and Great Northern Oil Sands Inc. (OTC:PK: GNNS) – are now drilling on the 160-acre property that adjoins the Howard farm property near the community of High Point in rural north-central Tennessee, one hour’s drive north of Knoxville.
The drill location is situated close to the Howard properly line, a little over a mile from the site of Pryor Oil’s Howard White #1 Well – the original name of the over-pressurized gusher that came to be known as “the Blowout Well.”
The sensational blowout came after an apparently routine drill program unexpectedly encountered extraordinary underground pressure at around 2,400 feet [2]. Pryor Oil had unwittingly tapped into an especially prolific oil formation. Unfortunately, it proved to be too big a catch to reel in. At least for Pryor Oil, which was later accused of using poor and inadequate drilling procedures to tackle the over-pressurized oil reservoir. In Pryor’s defence, this was an unknown over-pressured anomaly that no-one expected to encounter.
However, this time around Montello is extremely well-prepared with world-renowned drilling service contractor Nabors Drilling U.S.A. and its affiliates involved in the drilling portion of the project. That’s because the project operators believe that they will soon have a tiger by the tail. And they’re not the only ones who are convinced of the target’s immense potential.
Among the oil & gas experts who are well-acquainted with the Blowout Well’s short-lived, combustible history is Jim Pryor, the president of Pryor Oil, which had been a successful small oil & gas company for nearly two decades before the accident.
That was before Pryor’s company ran afoul of the U.S. federal Environmental Protection Agency after the well caught fire and damaged the pristine backwoods environment that surrounds it.
"This is a huge well for anywhere in the United States, but dwarfs anything ever discovered in Tennessee," Jim Pryor says ruefully of the major opportunity that slipped through his fingers. [3]
Since then, area landowners and government agencies have been reluctant to risk a repeat of this literally explosive situation. That said, a number of oil & gas companies from all over North America have since investigated the opportunity to pick up where Pryor Oil left off.
Five years later (to the day), a seemingly unlikely Canadian candidate – Montello Resources – has finally won out.
Winning the Much-Coveted “Elephant Target” Drilling Permit
On July 20, 2007, Montello Resources Ltd. USA (the company’s wholly-owned U.S. subsidiary) was issued a permit to drill the Bowen #2 Well at its Morgan Highpoint Project. This represents a milestone achievement for the company.
Indeed, Montello had to win over about a dozen representatives from eight state and federal agencies at a technical presentation in Knoxville in early May. All of these government representatives needed to be fully assured that Montello’s team of top-drawer geoscientists, as well as the drilling and operations managers, have sufficient technical expertise and geological acumen to drill in the vicinity of the Blowout Well.
In this regard, Montello demonstrated that its key personnel have extensive experience in successfully bringing on-stream similar high-pressure wells in geologically comparable regions. Ones like the Alberta Rocky Mountain Foothills and elsewhere in the world, including the Middle East (where wells that produce 10,000-12,000 barrels of oil per day are not uncommon).
Needless to say, the government representatives are all very sensitive about the fragile watershed ecosystem in which the project is located. They are also concerned about the interests of local land owners, many of whom make a living off the land. No-one is willing to risk a repeat of 2002’s well fire and oil spillage.
To Montello’s credit, the company has taken measures to mitigate these concerns and has won local area support for the project by creating a strong bond of trust with area land owners, who likewise stand to benefit from a potentially very big pay day.
Canadian Business Smarts Trump Home-Grown U.S. Competitors
How did Montello become a “local” favourite so far from home? Unlike most of its deep-pocketed rivals, Montello did what has become second nature for this maverick company – it did the unexpected. Under previous management, Montello started out as a diamond exploration company in Alberta when most others there were looking for oil & gas.
Then when Montello finally decided it could no longer ignore the burgeoning energy sector boom, it simply walked away from Alberta, the Texas of the North. Only to re-emerge as an aggressively ambitious oil & gas explorer at the very heart of north-central Tennessee’s rural back country. That’s because the company views this under-developed oil & gas territory as a diamond in the rough.
With its U.S. subsidiary’s headquarters situated in Oakridge, Tennessee, Montello has steadily earned a reputation over the past five years for being a good corporate citizen in this region. All the while, it has worked diligently and unassumingly to develop this economically under-developed region’s hydrocarbon assets, consisting mainly of shallow oil & gas wells.
So far this hasn’t proved to be a very lucrative exercise for Montello. However, the company has learned that doing business successfully in Tennessee is rooted in carefully building and nurturing relationships, rather than just waving a cheque book around. Meanwhile, the need to respect this charming but time-consuming Southern tradition explains why so many other out-of-state oil explorationists have lost patience and left Tennessee for good.
But Montello has stayed the course and has steadily but surely earned the trust and respect of the tightly-knit Morgan County community. And this dogged but dignified approach to doing business is finally paying dividends. Montello has become the first company since Pryor Oil to get a crack at re-drilling an epic oil prospect.
Doing It Right, Rather than Right Away
Initially, the joint venture partners had planned a January spud date. However, it was eventually decided that a larger drill rig was required, along with more specialized drilling technology.
There was also a heightened need for meticulous site preparation due to the technically challenging nature of this approximately U.S. $3 million well, which will bore down to 7,000-9,500 feet. In fact, the drilling will for the first time ever probe the region’s deep geological basement horizon with the latest ‘under-balanced’ drilling technology in what amounts to virgin exploration territory.
Moreover, Montello has used the additional extra months of drilling preparations to successfully negotiate further land agreements in the immediate area. This has not been an easy process. In fact, it is the culmination of over 30 months of protracted land negotiations. During this time, Montello carefully and systematically pieced together a collection of strategic rural properties in the vicinity of the Blowout Well.
These strategic land holdings now ensure that Montello is ideally-positioned to drill up to 6-7 more offset wells (if warranted) at a spacing of 160 acres per well. Montello’s goal in this eventuality would be to tap into the same prolifically rich oil reservoir.
Tapping into Tennessee’s Last and Deepest Oil Frontier
Montello’s strategy involves drilling a “twin” well (drilling in much the same location) as a 2003 well that had all the makings of a success story until its owner and operator suddenly and unexpectedly passed away.
Located a mere 1.25 miles from the Blowout Well, the Bowen #1 well flow tested at 800 barrels of oil equivalent per day (boepd). [4] That was before being cased and shut-in ahead of a production decision than never came due to legal issues related to the untimely death of the well’s operator.
What’s most notable about this never-completed drilling project is the fact that yet again the upper fractures of a major oil formation were encountered at around 2,400 feet – the same depth that the Blowout Well succumbed to too much pressure.
However, Montello intends to literally get to the bottom of why Morgan County’s subterranean geology is apparently the most highly pressured in all of Tennessee. The company began drilling the Bowen #2 Well on August 15, with the program expected to take about 30-45 days to reach its basement target.
Montello’s president and CEO, Bill Cawker, realizes that the stakes are very high with such a much-anticipated and pricey drill program. But he’s extremely confident that his field team has the expertise and the most sophisticated equipment to handle the challenge of drilling one of the region’s deepest and most complicated wells ever.
“No-one in this part of the geologically fertile southern Appalachian Foothills has ever taken the time and perseverance to go to basement ‘under-balanced’ in this under-explored region,” he tells SmallCapMedia.
“We’ll be the first and our field geoscientists have the technological know-how and the depth of experience to do it right. After all, it’s not the first time that they’ve ever successfully struck pay-dirt by going after deep Saudi-style reservoir targets,” he adds.
Why Tennessee?
Montello’s entrepreneurial vision and pioneering spirit has always led the company to search for buried wealth where others are seldom intrepid enough to venture. With regards to Tennessee, this minor league oil & gas “frontier” state has for many years been overlooked and underestimated.
However, that’s largely because no one has yet hit upon a reliable scientific way of predicting where new oil & gas fields will be found there, says Tennessee State geologist Ronald Zurawski.
The situation hasn’t been helped by the fact that most out-of-state oil & gas companies have in the past earned a reputation for arrogantly exploiting local land owners. In many counties, they are no longer welcome. Then there’s also the fact that Tennessee’s previous biggest discoveries have topped out at 1,000 barrels a day – a payoff that has until recently been too meager to attract large companies.
Strong Management is Always the Key to Success
On a corporate note, the analysts at SmallCapMedia have always found strong management to be the most important value driver for exploration and development companies. To this end, Montello’s shareholders are being well-served.
The company’s field management team collectively boasts over a century’s experience in all areas of the oil & gas business. Key personnel include Dwayne Tyrkalo, President of Montello Resources USA Ltd. (the company’s U.S. subsidiary). The project benefits from his 20 years of industry experience, including his integral role in major exploration and development projects with such heavyweights as Dome Petroleum and Amoco.
Another key figure is Montello’s Drilling Manager, Phil Emrich, who has worked all over the world, often directing high-impact drilling projects. In this regard, he has held senior hands-on positions with Shell and Elf in Africa, as well as Shell and Petro-Canada in the Alberta Rocky Mountain Foothills region. Until recently, he also spent four years in the Middle East, where he’s been involved in some of the world’s most ambitious drill programs.
They are joined by Dave Schofield, US Operations Field Manager, who is the President of Sundance Ventures Ltd., an oilfield service company. He has also worked for over 25 years in the Alberta Rocky Mountain Foothills region – a hydrocarbon basin that is geologically analogous to the foothills of Tennessee where Montello is active.
Last but not least, the team is rounded out by the recent addition of on-site geologist Max Sloan who has been involved in a number of major discoveries during his illustrious career which spans over 40 years. He regards the challenge of tackling such an exciting drilling program as too tempting to resist. His confidence stems from the fact that he is likewise intimately acquainted with successfully commercializing deep drilling projects in the Alberta Rocky Mountain Foothills.
Investment Summary
On an investment note, Montello has approximately 142.3 million shares issued (about 187.5 million shares fully diluted) which is a scenario that makes for impressive daily trading liquidity. That said, such a seriously diluted share structure would benefit immeasurably from a “company maker” discovery to kick-start Montello’s share price to much higher share price multiples.
In terms of the big picture, Montello’s enterprising business model revolves around a high-octane growth strategy via the drill bit. One that provides investors maximum leverage from Montello’s modest business development expenditures, while also defraying most of the investment risks by way of key joint venture partnerships.
Furthermore, the company’s potent growth formula offers investors ample exposure to historically high energy prices. Most importantly, it promises to act as a powerful springboard for Montello’s graduation to the ranks of North America’s most successful up-and-coming oil & gas producers.
Certainly, that will be the case if the company successfully commercializes what many believe will become one of the most prolific oil producers ever east of the Mississippi River. Therefore, SmallCapMedia believes that Montello is poised to be a strong performer during the balance of 2007 and beyond, while also offering patient investors outstanding “home run” potential.
By Marc Davis
smallcapmedia.com
September 23, 2007
*Investors, please note that Marc Davis, Managing Editor of SmallCapMedia, is a director of Montello Resources and holds a stock option position in the company.
[1] Pryor Oil web site:
http://www.pryoroil.com/
[1] Mon, July 29, 2002:Oil well fire pits oil companies against conservationists,
Publisher: The Oak Ridger
[2] Pryor Oil web site:
www.pryoroil.
[3] Mon, July 29, 2002: Oil well fire pits oil companies against conservationists,
Publisher: The Oak Ridger
[4] Montello Resources web site: http://www.montello.com/s/Tennessee.asp
