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Treaty Energy Corporation
Newsletter for the Week of August 5, 2013
Over the last eight 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.
This newsletter is for the week of August 5, 2013 and contains information current as of August 2, 2013. Information contained in this newsletter may be outdated at the time of release. Prior issues of the newsletter may be found on the Company’s website located at http://www.treatyenergy.com/investors/news .
General Operational Updates/Question of the Week:
As announced on May 9, 2013, the Company signed a binding Letter of Intent (LOI) with U.S. Fuels, Inc. of Breckenridge, Texas. Several shareholders have inquired about the July 31, 2013 date listed in the LOI, which many have interpreted as a final ‘all-or-nothing’ acquisition date.
To quote the document directly, “…the parties will negotiate in good faith with the goal of entering into mutually acceptable definitive written agreements regarding the Transaction by July 31, 2013.” Please note that this clause states “written agreements”, and not “an agreement.” There will not be a single binding agreement, but rather multiple agreements to create an unwritten, but understood, unified “exploration agreement” in West Texas between the two parties. This confusion was further caused by the original LOI announcement which referred to a unified “exploration agreement” instead of multiple agreements. This confusion was caused due to colloquial usage as the agreements are referred to internally as the “U.S. Fuels West Texas Exploration Agreement” despite them being multiple agreements.
A copy of this LOI can be found on the Company’s website at http://www.treatyenergy.com/sites/default/fil...LS_LOI.pdf .
To date, the Company has acquired assignments on three of the five (3/5) leases listed (Mitchell, Stroebel and Standard) and has acquired two additional leases/wells, Stockton and Mitchell #1, which were independent of the LOI. The two remaining leases in the binding LOI are the Bridges and Knott, which the Company is continuing to work with U.S. Fuels on beyond the July 31, 2013 date.
The Company has had a fantastic working relationship with US Fuels and expects to continue the relationship beyond the LOI. Both companies believe that the opportunities offered through a mutual working relationship will lead to increased revenues and a greater potential for both companies.
TRRC Issues and Resolutions (C&C Petroleum Management, LLC):
As stated in the previous newsletter, C&C Petroleum Management, LLC has reached an agreement with the Railroad Commission of Texas (TRRC) on the P.H. Barnes Lease. C&C Petroleum Management, LLC will pay a fine of $16,000.00 to be clear of its TNR flag. C&C Petroleum Management, LLC has made a payment of $8,000.00 to the Attorney General of Texas and will pay another $8,000.00 by August 8, 2013.
The P.H. Barnes lease, which has caused problems since its acquisition, was not drilled or completed by the Company. The P.H. Barnes lease was transferred under the Company’s control as part of the acquisition of C&C Petroleum Management, with many of the issues being undisclosed. The P.H. Barnes lease is a very unique case with it being the only lease in the history of the TRRC with this particular issue.
Drilled in 1968, the Barnes #1 is a 12’ in diameter oil "well” that extends almost 100-150 feet below ground. For perspective, 100 feet is approximately the height of a 10 story-tall building. This enormous "well" has been the subject of months of debate between both parties on how to properly plug it. On August 2, 2013, a representative of the TRRC came to inspect the site again, but there are still lingering discussions on how to properly and environmentally handle the large borehole. A picture of the "well" is shown below:
As a result, the P.H. Barnes lease is still undergoing plugging operations. Six out of the nine (6/9) wells that were required to be plugged have been fully plugged. The plugging operation was expected to have been completed by July 29, 2013, but there have been minor unforeseen complications in the plugging operation that have set back the expected completion date to August 8, 2013.
On one well, the P.H. Barnes had a bridge plug in place at 250’ that was rumored to cause “massive” problems. This was a minor issue and simply required that the bridge plug be drilled through and then plugged. While the issue did cause a small delay, the issue has been resolved and the well has been plugged .
San Juan #3 Update (Treaty Belize Energy, Ltd):
This update does not establish commercial validity or invalidity of San Juan #3 and provides only an update on on-going drilling activities.
On Sunday, July 28, 2013, Treaty Belize Energy, Ltd. (TBE) began the multi-step process to attempt to seal off the second fracture point (SJ3 FP2) and explore the first and more promising fracture point (SJ3 FP1). From the last newsletter update, SJ3 FP2 was filled with sand and pebbles and a mud pump test was run to determine if the bottom was sealed and if the top was impacted. The results of this showed that SJ3 FP1 was impacted.
This test was also unable to pull out any sediment from SJ3 FP1 due to the large pressure that SJ3 FP2 was causing. After the test was run, the force of SJ3 FP2 removed the barrier of sand and pebbles from the bottom of the well which was pushed through the pump. Because of the immense power of SJ3 FP2, TBE cemented both fractures and allowed the cement to cure for 48 hours . Once cured, TBE drilled the fracture points and in order to ensure that SJ3 FP2 was completely safe for re-entry, cemented the bottom of the well again to ensure a large enough barrier was placed between the well and SJ3 FP2. TBE will once again allow a minimum of 48 hours of curing time.
After discussions with the Government of Belize, Management, Geologists and Engineers, the decision has been made to continue drilling to the official pre-designated total depth of 4,000’ with the intent to possibly discover more fracture points independent of SJ3 FP1. TBE believes that based on the data provided so far, there may be other potential fractures of interest below the current depth of the well. All parties believe that this would be the best and most cost effective opportunity to continue with exploratory hydrocarbon activities rather than a re-entry later.
Once the final TD has been reached, TBE will return to potential zones of interests (including SJ3 FP1) and perforate/acidize them to determine hydrocarbon production potential. Please note that this action does not reflect the statement made last week as drilling plans have changed.
Based on the geology and discovered fracture points, TBE has ordered a new drill bit from Texas, which is expected to arrive on August 6, 2013. The new bit will allow the drill to continue with a higher chance of success without disturbing the cementing jobs done on SJ3 FP1 & FP2.
Mitchell Lease (Texas):
As announced on July 31, 2013, the Company had acquired a 50% working interest (W/I) and a 38.5% net revenue interest (NRI) on the Mitchell #1 well. This rig was used on the Mitchell #1 instead of the Standard #2 well due to the higher NRI that the company would receive. The decision was also much more conservative in its potential success, which would increase overall revenues for the Company.
The Company expects that the fracking operation on the Mitchell #1 will result in approximately 2 loads per month. Based on current oil prices and the NRI received, this refracking operation will yield approximately $138,000.00 per year for the company in revenue.
While the Mitchell #1 was a successful fracking operation, the TRRC placed a severance on the Mitchell lease shortly after due to a leak on the Stockton #1 tank battery , which happens to be on the Mitchell lease. David Jakobot addressed concerns immediately to shareholders on the Company’s Facebook page with the following statement, “…The Stockton #1 well tank battery and separator are located inside the firewall off the Mitchell. Their separator has been leaking a little and we had received the letter about 30 days ago. We contacted the Stockton Field Super and he had promised to take care of it. They did not, so [the TRRC] severed us [as their separator is located on our lease]. I called the district office and told them the leak was not ours and took pictures. [Allyson Winans] told me to write a letter to her and she will have a field rep from the [TRRC District] go out there. No big deal. If I have to, I will clean it up. I need to sell that load before we flow the Mitchell 1.” Mr. Jakobot stated further that the issue would be resolved over the weekend and expects the Mitchell #1 to be off severance the week of August 5, 2013. Once Mitchell #1 is off severance, the Company will notify shareholders immediately through social media channels.
You may view Mr. Jakobot’s response on the Company’s Facebook page located at: https://www.facebook.com/TreatyEnergyCorp/pos...omments=16
This severance does not apply to the Mitchell #3 and #4. Statements regarding “all Mitchell production” are false and show a gross misinterpretation of the situation.
Stockton Lease (Texas):
On July 29, 2013, U.S. Fuels voluntarily pulled the Stockton #2 well permit (and by extension the Stockton #3 permit). Geologists believe that the well will have a better production rate if it is moved to 780’ from the nearest lease line instead of 330’. To prevent having to resubmit permits for re-renewal after approval, the permits were pulled before the permit was approved. To demonstrate that this was a voluntary action, the top of Stockton permit pages stated, “ Operator [U.S. Fuels] requested a problem be sent so (07/30/2013 08:45:37 AM).”
The plats are being redrawn in order to accommodate this change. U.S. Fuels believes that the permits will be approved the week of August 5, 2013.
Update as of August 5, 2013: The permits were amended and are now available for viewing at: http://www.treatyenergy.com/sites/default/fil...RC_opt.pdf
On TRRC Records:
Last week, the Company mentioned that shareholders have received inaccurate information from third parties that is designed to encourage selling or discourage buying. The efforts of these individuals increased when we were issued formal notifications by the TRRC this week. The Company has taken the time in this newsletter to specifically address and acknowledge the concerns that many shareholders have this week based upon reading information presented by these individuals.
Based on the Company’s current information, these individuals are not affiliated with the TRRC and do not have complete information regarding TRRC matters. These individuals are calling TRRC officials and are selectively misquoting statements, without any explicit written or verbal permission being on record. This is referred to as “cherry picking” information in an attempt to further their agenda. TRRC information, as presented by these individuals, should be treated with circumspect and as opinion only, not as fact or as a primary source for these reasons .
TRRC issues are handled daily and managed on a case-by-case basis. The Company, and its representatives, communicates daily with the TRRC. In many situations, such as the severance on the Mitchell #1, the TRRC issues formal notices but the Company does not have the authority to resolve immediately. Formal notifications are considered normal operating procedures for a government regulatory agency. These notifications are typically the agency requesting a formal response or action from a Company that acts under its supervision.
In making this statement, the Company would like to remind every shareholder to conduct their own due diligence. Following the plugging of the Barnes lease, the Company will create a special page on its website dedicated to on-going TRRC issues. This website section will provide information on each TRRC issue and how the Company is handling it. The Company hopes that by doing this, shareholders will be more informed and will be able to do their own due diligence on these issues. In the meantime, the Company strongly encourages shareholders to contact the Company’s IR department and request information on how the Company is handling each issue, should there be any questions regarding TRRC compliance. As evidenced by the Company's response on our Facebook to the Mitchell #1, the Company is more than happy to address any questions or concerns shareholders my have on these issues.
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
Company Links
Website: http://www.treatyenergy.com
Facebook: https://www.facebook.com/TreatyEnergyCorp
Twitter: https://twitter.com/TreatyEnergyCo
About Treaty Energy Corporation
Treaty, an international energy company, is engaged in the acquisition, development and production of oil and natural gas. Treaty acquires and develops oil and gas leases which have “proven but undeveloped reserves” at the time of acquisition. These properties are not strategic to large exploration-oriented oil and gas companies. This strategy allows Treaty to develop and produce oil and natural gas with tremendously decreased risk, cost and time involved in traditional exploration.
Treaty Energy Corporation (TECO) trades on the OTCQB, the marketplace for companies that are current in their SEC reporting requirements. Investors can find Real-Time quotes and market information for Treaty Energy at http://www.otcmarkets.com/stock/TECO/quote
Forward-Looking Statements
Statements herein express management's beliefs and expectations regarding future performance and are forward-looking and involve risks and uncertainties, including, but not limited to, raising working capital and securing other financing; responding to competition and rapidly changing technology; and other risks. These risks are detailed in the Company’s filings with the Securities and Exchange Commission, including Forms 10-KSB, 10-QSB and 8-K. Actual results may differ materially from such forward-looking statements.
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