7/29/2013 Newsletter Update - August 2013 Operations Update

Mon, 07/29/2013 - 10:09 -- admin

Over the last seven months, Treaty Energy Corporation (OTC: TECO) has made great strides in improving operations in Texas and in Belize. In order to improve shareholder confidence and to increase transparency, the Company will begin issuing weekly newsletter updates on all oil and gas operations.

These newsletters will typically reflect actions and developments that may have occurred since the last newsletter and will give projections for the next week.

Quarterly Financials (Treaty Energy Corporation):

Following the release of the 2012 financial statements via the 10-K filing, work has begun on the 10-Q’s for the 1st and 2nd quarters (Q1 and Q2) of 2013. Work could not begin on these quarterly statements until the 10-K annual was finalized. With the numerous internal structural changes and adjustments to the audited 10-K annual numbers, the Company and its auditors needed more time to release the 2013 10-Q for Q1 and Q2 after filing the 10-K annual statement. Shareholders should not be concerned as these documents are being worked on and will be released when completed.

Prior to their release, shareholders should be aware that the Q1 2013 statement will reflect actions taken by management in its evaluation of existing well operations, while simultaneously making several internal operating changes. Q2 2013 will reflect the transition in operating strategy from marginal “shallow well” operations to exploratory drilling operations with new “deeper” wells (Mitchell #3 and #4). 3rd Quarter (Q3) 2013 and beyond will start reflecting the success of management’s strategic policy changes.

TRRC Resolution (C&C Petroleum Management, LLC):

As of July 25, 2013 discussions with the Railroad Commission of Texas (TRRC) concluded on issues related to C&C Petroleum Management, LLC (Operator #120104). These discussions lasted over 5 months and have been finally resolved with the agreement to plug the P.H. Barnes lease (TRRC ID: 08680) and pay fines of $16,000. Once paid, C&C Petroleum Management, LLC will have the TNR flag lifted.

The plugging of the P.H. Barnes lease was initiated on July 27, 2013 and is expected to be plugged on July 29, 2013. The image below shows the P.H. Barnes lease shows the plugging rig on site and ready to begin plugging operations:

There are three outstanding issues on the Brown, McCommas, and Madley leases:

• The Brown Unit (27237) requires the filing of 2 H-15s. These are currently being completed by U.S. Fuels and will be completed within the next month.


• The McCommas -A- (16866) currently has a hearing date set. The Company plans to settle the issue before the hearing date, as the Company has plans to re-enter, repair and refrack the existing well to restore its production potential.


• The Madley “F1H” (14627) has a drilling pit that remains unfilled after its last operation. The pit is expected to be filled by July 31, 2013.

Contrary to speculation and misunderstandings of TRRC procedures by some, Company operations were not hindered by the TNR flag. C&C Petroleum Management was able to sell oil, transfer leases and continue normal well operations. On July 2, 2013, C&C Petroleum sold 120 barrels of oil on the Brown and Loven-Compton leases as proof that operations were not hindered.

Many shareholders have received information from third parties that is inaccurate on this particular matter in order to either encourage selling or discourage buying. While the Company is unsure of their motivations, management would like to state that issues with the TRRC are dealt with on a case-by-case basis. TRRC issues can take weeks if not months to resolve, such as the P.H. Barnes, but typically do not hinder day-to-day operations.

San Juan #3 Update (Treaty Belize Energy, Ltd.):

This will be the first official and major update on Belize operations since the voluntary injunction was placed on the company after the Oceana v. Belize case (April 24, 2013). This update does not establish commercial validity or invalidity of San Juan #3, but rather only updates investors on the status of on-going drilling activities. Any official information on the commercial validity of San Juan #3 will be tied to an official announcement by the Belize Department of Geology and Petroleum.

On May 7, 2013, Treaty Belize Energy, Ltd. (TBE) announced that it would recommence drilling after the Prime Minister of Belize gave re-authorization. Since then, under the guidance and authority of the Government of Belize, the Company has not issued a statement on well operations. However, the Company believes that shareholders should be updated on the status of on-going operations. Again, these statements are not indicative of the well's commercial or non-commercial viability.

Two weeks after the May 7, 2013 announcement, TBE reached a large fracture at approximately 3,300ft. (SJ3 FP1) After reaching SJ3 FP1, San Juan #3 lost circulation. After two days, TBE regained circulation and continued to drill for approximately 100ft., where the drill encountered another fracture approximately 40ft after the first (SJ3 FP2). TBE stopped drilling after receiving positive geological readings at approximately 3,400ft.

TBE pulled the drill and ran a sonic log to confirm additional positive results. With confidence, the decision was made to case and cement to maintain the stability of the borehole, but TBE would conduct an openhole operation for the fractured areas. Once cementing was successfully completed, a second sonic log and cement log was completed with again, positive and encouraging results.

Swabbing commenced and continued for over 7-8 days, where approximately 1000bbl of freshwater had been pulled from the well. At this point, TBE engineers decided to up swabbing capabilities by using air pressure and pulled over 5000bbl of water in three days. After careful analysis, it was determined that, the lower fracture, SJ3 FP2 was injecting freshwater into the well.

TBE began the process of sealing off the lower fracture, SJ3 FP2, with sand and pebbles and ran the mud pump with water to determine if the bottom had been sealed and if top was impacted. The mud pump test confirmed that SJ3 FP1 was impacted with mud and other sediments.

TBE has now begun to determine a multi-step process to open up SJ3 FP1 to determine possible production. If positive production sources are not found, SJ3 FP1 & FP2 will be cemented and the drill will continue to its original proposed total depth of 4000ft.

For a better understanding, the current well is believed to have pierced a stratigraphic trap sealed by anhydrite beds.

In reference to the above image, TBE believes that SJ3 FP1 is located in an oil trap and SJ3 FP2 is located in a reservoir rock rich in fresh water.

Brown #22 (Texas):

In early 2013, the Brown #22 was drilled and completed and was shown as commercially viable with positive oil shows. Shortly after completing the drill, management decided to include the Brown Unit in a possible sale. In the conditional operating agreement, the purchaser of the lease was responsible for the lease’s maintenance. It was assumed that the well was producing, but the Company had no knowledge of production rates. Management decided to rescind the offer.

Shortly after the offer was rescinded, it was discovered that the well was not turned on, and had built up sediment along the perforation zone. A pulling rig has been scheduled for the week of August 5th, 2013. Once production rates are determined, the Company will announce the increased production of the Brown lease following the Company’s protocols on production rates.

Mitchell Lease (Texas):

The Mitchell #3 is currently undergoing maintenance to improve flow rates. Crews were on site on July 26-28, 2013. An additional goal of this repair to improve production rates on Mitchell #3. The below picture shows work occurring on July 28, 2013:

The Mitchell lease will appear under the operator #833987, which is TNC's operator number. The Company is waiting on a completed long string report from TNC on the Mitchell #4. Completion reports for the Mitchell #3 have been completely filed, but were filed under US Fuels. As a consequence, the TRRC incorrectly listed Mitchell #3 and #4 under the existing Mitchell ID (Mitchell #1 & #2). With separate tank batteries, and in order to make it easier for shareholders to identify, the Company is re-filing the completion reports on Mitchell #3 and #4.

Total May production for Mitchell lease was approximately 300 barrels. Total June production was approximately 1500 barrels. Mitchell #3 did not start producing until late May and consistent production on Mitchell #4 did not occur until mid-June; average production after consistent production was reached on Mitchell #4 sat at 70-80bbl/day (1800 barrels in 24 days).

Total production sold on the Mitchell lease as of July 26, 2013 is approximately 2450 barrels of oil. At current prices and subtracting overriding royalties, the total amount of oil sold is worth approximately $185,000, and will be split between TNC and Treaty Energy Corporation. The Mitchell lease, in two months, has already produced more oil than all of the Company’s production in 2012. Total sales (before split) on the lease exceeds sales of 2012. Based on current production and expected well depreciation, the Company is expected to meet or exceed oil sale revenues of the prior year independent of additional new drills in 2013.

Standard Lease (Texas):

Operations on the Standard Lease have been put on hold. Work was planned to begin the week of July 29, 2013. However, the call was made by management to instead move the rig to an unannounced alternate project with a higher and more conservative ROI potential. As of 9:30am on July 29, 2013, this unannounced project is currently underway and will be completed within the next 72 hours. Please expect a formal news release on this unannounced project by August 2, 2013.

Stockton Lease (Texas):

The Stockton lease is still undergoing planning. US Fuels is awaiting a water board letter from the Texas Water Development Board (TWDB) to complete permit applications. This is expected to be completed the week of July 29, 2013. Once the Stockton lease permits have been filed, the Company will make them available for shareholders. Shortly after, the Company will post more complete information on the Stockton project.

Treaty Energy Corporation and its management would like to thank each and every one of its shareholders for standing by the Company. Every employee at the Company is working diligently to get these projects done in order to move the Company closer towards Cash Flow Positive status.

Contact
Treaty Energy Corporation
Investor Relations
investors@treatyenergy.com
Tel: 504-754-6927
Fax: 504-324-0844