San Leon says 1st of 4 wells at Palo Pinto field makes commercial gas discovery

San Leon Energy PLC (AIM: SLE) said the operator of the Palo Pinto gas field in Texas has made a commercial gas discovery at the first well drilled there.

San Leon holds a 25 percent interest in the first well, Nichols # 1, which is operated by McCown Engineering and will have an 80 percent interest in the remaining three wells to be drilled in this field. Larry McCown will hold the remaining 20 percent.

Nichols # 1 has been drilled to its target depth of 3,386 feet with additional pay zones at 3,104 feet and 3,126 feet. The well was flowed and calculations indicate it will produce 1.2 billion cubic feet at at up to 1.3 million cubic feet per day.

A gas purchase contract has been agreed and a 3 inch pipeline will be installed in the coming weeks. This will require installation of a sales line 2000 metres long at no additional cost to San Leon.

Nichols # 1 is the first of a four well programme in the field. Following geological investigation, McCown Engineering calculate that each well-site is expected to produce reserves of 1.2 bcf or a total field size of 5 bcf of natural gas at a completion cost of US$230,000 per well.

San Leon CEO Philip Thompson commented: “San Leon can now join the very short list of producing AIM listed oil and gas companies. Whilst the initial discovery in itself is not massive, the outcome of the further three wells will make it more interesting, nevertheless it will provide both welcome positive cashflow into the company and also valuable experience in running a producing field.”

“We now move forward to our next stage of development with confidence,” Thompson added.

San Leon in June 2009 completed the acquisition of Canada's Gold Point Energy in an all share deal valued at £1.4 million.

“This acquisition has given us geographical and asset diversity; we now own assets in Morocco, Netherlands, Poland, the US and Argentina," it had said, adding that the acquired operations include assets with proven production histories.

Following the acquisition news, Fox-Davies Capital had initiated coverage of San Leon with a ‘buy’ rating and a target price of 60 pence, noting that the company had an active exploration and development program starting in the second half of this year designed to unlock value from its portfolio.

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