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Desert Mountain Energy Corp
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Desert Mountain tests 1.3622% He at KGSU

2019-05-13 07:02 ET - News Release

Mr. Irwin Olian reports


Analytical tests performed on gas samples from three existing oil and gas wells in Desert Mountain Energy Corp.'s Kight-Gilcrease sand unit oil field in Seminole county, Oklahoma (KGSU), returned positive results for the presence of helium, with concentrations up to 1.3622 per cent He. These initial test results are viewed by management as highly encouraging and suggest the potential for future development of helium production from the KGSU. This gives the company another highly prospective property for helium development in addition to its flagship Heliopolis project in Arizona's Holbrook basin.

The KGSU is located in an area of Oklahoma which has been host to numerous helium-bearing natural gas wells, with commercial production grades typically ranging from 0.6 per cent to 1.4 per cent He.

The Hugoton field in Kansas, Oklahoma and Texas, among the nation's largest natural gas fields, has produced helium ranging from 0.3 per cent to 1.92 per cent, with future production grades estimated to be in the range of 0.5 per cent.

Current test results from the KGSU are consistent with helium concentrations being produced from other U.S. natural gas fields.

While the KGSU remains a strong target for enhanced secondary water flood production of oil, management has viewed it also as highly prospective for helium. Accordingly, a preliminary program of testing was recently conducted by sampling gas from some existing well bores on the property (see news release dated April 16, 2019). These tests were conducted by sampling gas from the Gilcrease sand zone utilizing old perforations in the wells which ranged from approximately 2,700 feet to 2,880 feet in depth. The gas samples were sent to independent analytical laboratory VR Curry Labs of Bristow, Okla., for analysis. Curry Labs has conducted gas analysis for decades for exploration, production and gas gathering companies in Kansas, Oklahoma and Texas. Results are summarized below.

Helium is the second-lightest element (next to hydrogen) and has the smallest molecular size of any element on Earth. Accordingly, it defies gravity and tends to rise to the surface of the Earth's crust and dissipate into the atmosphere and space unless it is retained by effective trapping mechanisms underground. Three stratigraphic zones above the Gilcrease sands, namely the Booch, Senora and Earlsboro sands, are viewed as highly prospective for helium gas in the KGSU. These zones range from 2,160 to 2,728 feet in depth and provide a wide target for additional helium, potentially higher in grade than that now sampled from the Gilcrease sands due to the above-noted tendency of helium to rise toward the surface. These zones are viewed as highly prospective because of their dense lime or anhydrite cap and close proximity to known or indicated fault structures. The discovery of helium gas just below them in the Gilcrease sands is extremely suggestive that He will also be found in these zones.

The three wells reporting positive results for helium were situated higher on structure in the KGSU; three other wells lower on structure were also sampled but predictably did not return notable helium values. This is reflective of helium's tendency to rise in structure until it bumps up against an impermeable cap. Commercial viability of helium production from the KGSU will ultimately depend upon grade, pressure and size of the helium reservoir. Next steps would be drilling of several new shallow gas wells in the KGSU to test for the presence and concentrations of helium in the three zones above the Gilcrease sands as well as to test the extent of the potential helium reservoir.

Test results from the three wells with positive helium showings are as follows: The 3PBS well drilled in September, 2004, has known perforations at 2,870 to 2,880 feet which would be in the middle of the Gilcrease sand formation. The gas analysis for this well showed helium at 1.0952 per cent, no hydrogen sulphide (a known corrosive agent), 4 per cent nitrogen, 70 per cent methane, and 11 per cent ethane, propane and other readily marketable gases. The Israel C. Davis B No. 2 well drilled in December, 1929, had open-hole completion methods with 40 quarts of nitroglycerin used for stimulation on the Gilcrease sand from 2,779 to 2,880 feet. The gas analysis showed 1.3622 per cent Helium, no hydrogen sulphide, 5 per cent nitrogen, 73 per cent methane, 9.7 per cent ethane, propane and other marketable gases. The Israel Davis B No. 3 drilled in January, 1936, had open-hole completion methods with 30 quarts of nitroglycerin used for stimulation on the Gilcrease sand from 2,733 feet to 2,781 feet. The gas analysis showed helium at 0.8874 per cent and methane at 74.03 per cent.

All three wells encountered significant dense limestones and anhydrites above the Gilcrease sand formation. While the older wells were drilled when open-hole well logging was just starting, the 3PBS well being drilled in 2004 had the newest open-hole well logging technology utilized. Much of the old drillers' logs physical description of the formations encountered correlated directly to the newest open-hole logging tools.

The well logs from the 3PBS well clearly show dense limestones and anhydrites above the Gilcrease sand formation and above the sequence of the Booch, Senora and Earlsboro sand formations. Drilling time on the 3PBS well increased from two to three minutes per foot to a high of 45 minutes per foot in the dense limes and anhydrites. The open-hole compensated neutron density logs show these dense limestones and anhydrites have minimal porosities of between 0.05 per cent and 3 per cent and shale limestone formations which when combined serve as an effective barrier to migration of both hydrocarbons and helium. The sands above 1,300 feet have little to no gas and the oil is a low gravity (19 to 21 gravity API), oil concentrations are constrained to small pockets which would tend to confirm the lower seals were and still are effective in limiting the movement of helium, oil and natural gases to shallower formations. Consequently, the company considers the sand formations directly above the Gilcrease sand formation as highly prospective.

By way of background, the KGSU was permitted and approved by Oklahoma Corporation Commission (OCC) by order No. 375263 dated July 19, 1993, as an enhanced oil recovery project primarily utilizing water flood secondary recovery operations, in an administrative proceeding which consolidated and unitized all working and royalty interests in the project. The KGSU has had historic production estimated at 1,690,240 BO by the OCC and presently has seven wells on site, one of which is operational. The oil produced is a light sweet crude that varies from 34 API to 43 API gravity.

The KGSU comprises an area of approximately 883.7 acres, which is substantially underlain by the Gilcrease sandstone common source of oil supply. The KGSU leases are located eight miles south of Wewoka directly astride State Highway 56, in a portion of the S/2 of Section 6, all of Section 7 and the NW/4 of Section 18, T6N R8E Seminole county, Oklahoma. It is not located within an environmentally sensitive area or on a known native American reservation. The oil-bearing pay zone was estimated by the OCC to be from 10 feet to 40 feet in width and to occur at a subsurface depth of approximately 2,726 feet to 2,810 feet, as reflected in geophysical logs from the Adams No. 1 Maverick well drilled in the SW/4, SE/4 and SW/4 of Section 7-6N-8E, Seminole county.

According to Irwin Olian, chief executive officer of the company: "We are very excited by the gas test results at the KGSU, as they confirm the presence of helium gas on the property in concentrations typically found in other producing natural gas fields in the U.S. While the Heliopolis project in Arizona remains our flagship property and immediate priority, it is encouraging to have another property in our portfolio with strong potential for helium production down the road. The KGSU also remains a secondary water flood prospect for oil production, which we hope to initiate in the next year."

About Desert Mountain Energy Corp.

Desert Mountain is an exploratory resource company engaged in exploration and development of helium, oil and gas, and mineral properties in the southwestern United States. Until Sept. 5, 2018, the company also owned the Yellowjacket gold project in Atlin, B.C., which it had been developing. The company has its executive offices in Vancouver, Canada. The company was incorporated under the laws of British Columbia on April 30, 2008, and was formerly named African Queen Mines Ltd.

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