Company Overview
Blugrass Energy Inc. (BLUG) is acquiring, developing and exploiting oil and gas properties in the Appalachian and Illinois Basins. The Company has secured leases in known producing areas of Kentucky’s Breathitt and Magoffin Counties. BLUG’s Breathitt County acreage lies on the eastern edge of the largest producing oil field in the eastern Unites States - the Big Sinking Oil field. This field has produced in excess of 120 million barrels of oil. The Company’s properties are believed to contain both natural gas and oil. Proven undeveloped reserves are estimated at 500,000 barrels (bbls) of oil and almost 1 billion cubic feet (bcf) of natural gas, according to independent engineering reports.
In addition to establishing a footprint in eastern Kentucky, the Company is also actively seeking acreage in parts of western Kentucky that overlay the New Albany Shale. In February 2009, BLUG formed a joint venture with 7921 Energy LLC to develop natural gas and oil reserves associated with the Bullseye property, which encompasses leases on more than 5,200 acres in Hancock and Butler Counties of western Kentucky. Reserves associated with Bullseye lease locations overlaying the New Albany Shale and related formations are estimated at 695,000 bbls of oil and 64 bcf of natural gas. To date, wells drilled in the New Albany Shale have produced a 99% successful completion rate. Other nearby formations that may contain oil and gas reserves include Ft. Payne, Warsaw, Jackson, McClowsky, O’Hara and Tar Springs. A continuous development drilling campaign is planned for 2009.
Investment Highlights
Oil and gas properties in prolific areas of Kentucky
BLUG is acquiring, exploring and developing highly prospective oil and natural gas properties in underexplored areas. The Company has acquired and/or is finalizing the acquisition of prospects in Kentucky, which account for about 3.5% of the nation’s total oil and natural gas output and hold significant potential for undeveloped reserves. To date, the Company has secured leases in Breathitt and Magoffin Counties of eastern Kentucky and Hancock and Butler Counties in western Kentucky. BLUG plans to assess the potential of its prospects through drilling and exploration activities in 2009.
Partnership with 7921 Energy in western Kentucky
In February 2009, BLUG formed a partnership with 7921 Energy LLC to acquire and develop natural gas and oil reserves in the Bullseye properties located in Hancock and Butler Counties, as well as other nearby areas that extend into the New Albany Shale and Black Shale. Phase I of the partnership will involve developing 5,200 acres in the New Albany Shale which to-date has had a record of 99% successful well completions. 7921 Energy will serve as the managing partner.
BLUG may further expand its oil and gas leases in the region by exercising an option to acquire an additional 5,000 acres during the first 270 days of its partnership with 7921 Energy.
Proven undeveloped reserves valued at $475 million
BLUG’s proven, undeveloped oil reserves in western Kentucky are estimated at 695,000 bbls of oil and almost 64 bcf of natural gas, according to independent engineering company Ruby Holdings Inc. The New Albany Shale will be the primary targeted formation for drilling. The Company also believes that oil and gas may be produced from shallower formations, including Ft. Payne, Warsaw, O’Hara, Rose, McClowsky, Jackson, Tar Springs and Cypress.
For its eastern Kentucky properties, independent engineering reports estimate proven oil reserves of 500,000 barrels and gas reserves of nearly 1 billion cubic feet.
Encouraging drilling result on adjacent properties
NGAS Resources Inc. is BLUG’s neighbor on the Bullseye properties in western Kentucky and has Illinois Basin holdings of approximately 43,000 acres. Since discovering gas on this find in 2006, NGAS has drilled 35 vertical wells and two horizontal wells through the New Albany Shale, which blankets the acreage at depths ranging from 2,600 to 2,800 feet. According to NGAS, initial production rates from its Illinois Basin horizontal wells have been very encouraging. NGAS completed gathering and processing facilities for this acreage last year and plans to drill at least five New Albany Shale horizontal wells during 2009.
Sizable undeveloped reserves within the Appalachian and Illinois Basins
The Appalachian and Illinois basins are the most extensively drilled and mature hydrocarbon basins in the world. Cumulatively, these basins have produced more than 5 billion barrels of oil and 50 trillion cubic feet (tcf) of natural gas. However, the Appalachian and Illinois basins are believe to still contain at least as much oil and natural gas as has been produced to-date. Estimates of remaining technically recoverable resources, including proved reserves, are in the range of 4.8 billion barrels of oil and 79 tcf to 96 tcf of natural gas. In 2004, oil and gas production in the basins was valued at $5.9 billion.
Business Model
BLUG seeks to acquire leases on oil and gas properties with relatively low geological risk, located within well-known producing areas such Kentucky, which have been underexplored. In addition, the Company is interested in acquiring drilling properties that have low operating costs, long-lived reserves and offer a high probability of commercial success. Its leases tend to be located in close proximity to gas pipelines and typically produce from more than one formation in each wellbore, increasing the probability of success. The Company commenced energy operations by acquiring properties in Kentucky’s Breathitt and Magoffin Counties thought to contain approximately 500,000 bbls of oil and approximately 1 bcf of natural gas.
In February 2009, the Company formed a partnership with 7921 Energy LLC to develop its Bullseye leases. The project involves acquiring and developing oil and gas reserves in the Bullseye properties, which are located in Kentucky’s Hancock and Butler Counties. The New Albany Shale and Black Shale will be the primary targeted formations for exploration activities. In addition, oil and gas may be found in shallower structures such as Ft. Payne, Warsaw, Jackson, McClowsky, O’Hara and Tar Springs.
At present, BLUG and 7921 Energy are finalizing a long-term gas purchase agreement which implies the acquisition of approximately 5,200 acres in phase I of the project, with the option to acquire an additional 5,000 acres during the first 270 days of the partnership for phase II. The drilling program is expected to begin in 2009. Wells will be drilled to a depth of approximately 3,000 feet.
Industry Outlook
World energy demand
Total world consumption of marketed energy is projected to increase 50% between 2005 and 2030, reflecting GDP growth over the next 25 years that will be higher than the rate recorded over the prior 25 years. Analysts expect the global economy to show sustainable growth of about 2.7% per year, more than doubling the world economy to $71 trillion (in 2000 dollars) by 2030. Over 70% of increased energy demand will occur in developing nations, led by China and India. These countries are expected to consume 25% of world energy by 2030, as compared to 18% today. China is expected to soon overtake the U.S. as the world’s leading producer of CO2 emissions.
Over the next 20 years, the world's population is projected to grow 1.0% annually to about 8.1 billion from 6 billion in 2000. More than 90% of this growth will be outside the developed- nations of the OECD. In addition to population growth, increasing standards of living in developing countries will trigger strong energy demand. The average person in the less-developed countries currently consumes only 1/6th of the energy consumed by the average person in Japan or Western Europe. Doubling per-capita energy consumption in the less developed countries over the next 50 years, combined with population growth, will contribute to a two- to three-fold increase in world energy consumption.
Oil demand
Through 2030, traditional fossil fuels are expected to remain the most important sources of energy. Oil use is forecast to grow 1.4% annually, moderated somewhat by increasing efficiency, particularly in transportation. At this projected growth rate, oil and gas combined will represent close to 60% of overall
energy use. Natural gas will also remain an important fuel for energy generation worldwide since it is more efficient and less carbon-intensive than other fossil fuels.
World oil consumption has been revised downward in 2009 in response to the global economic slowdown. According to the Energy Information Administration (EIA), global consumption is projected to fall by 1.2 million barrels per day in 2009. Total world oil consumption is expected to rise slightly in 2010 by more than 1.2 million barrels per day from year-earlier levels, assuming a global economic recovery takes hold. Oil consumption growth will be concentrated in countries outside of the OECD, particularly China, the Middle East and Latin America.
U.S. oil prices reached record levels in 2008. High prices combined with a slowing economy to reduce petroleum consumption by about 1.2 million barrels per day, or 5.7% compared to 2007 levels. Reduced GDP growth is expected to slow petroleum consumption by about 400,000 barrels per day, or 2% in 2009. Assuming an economic recovery, consumption is forecast to rise by 220,000 barrels per day, or 1.1% in 2010.
Oil supply
Following skyrocketing oil prices in the first half of 2008, OPEC pushed its oil production to the highest level in its 48-year history in June 2008, even as demand was falling in the U.S. and Europe. Demand reductions resulting from the economic slowdown played a critical role in the late 2008 collapse of oil prices. In November 2008, OPEC agreed to support prices by cutting oil production by 1.5 million barrels per day. In December, OPEC announced another 2.2 million barrels per day cut to take effect in January 2009. OPEC production is expected to fall to 29.1 million barrels per day in the first quarter of 2009, the lowest level in five years. OPEC crude oil production is expected to average 29.4 million barrels per day in 2009 and 30.1 million barrels per day in 2010.
Non-OPEC supplies for 2009 are forecast at 50.0 million barrels per day. Supply growth in countries such as the United States, Brazil and Azerbaijan is expected to more than compensate for continued declines in production from non-OPEC nations such as Mexico and Russia.
Kentucky Oil and Gas Overview
Oil and natural gas occur throughout much of western, south central and eastern Kentucky. Eastern Kentucky contains the largest natural gas fields in the state, buried in the Devonian Black Shale, a fine-grained sedimentary rock laid down during the Devonian geologic period some 400 million years ago. At the surface, early explorers and settlers found many oil seeps, evidenced by place names such as Burning Springs, Oil Springs, and Oil Valley. In the subsurface, oil and gas are found where porosity, permeability, traps, and hydrocarbon sources combine to form reservoirs.
Hydrocarbon Geologic Zones
Kentucky’s oil and gas industry began early in the 19th century near the Southfork National River. By the end of the Civil War, the exploration era for oil and gas was well underway, with the first commercial wells drilled between 1863 and 1865. Kentucky’s total production to-date is 9.85 quadrillion BTU, 765 million barrels of oil and 5.4 tcf of gas. However, oil and natural gas deposits in the Appalachian Range remain largely untapped. Because of the age of the rock formations and the varied terrain, most deposits lie in small fields that are relatively close to the surface.
All of Kentucky's counties have been tested to varying depths for oil and gas resources. In 2004, production was reported from 65 counties. In general, oil production dominates in the western coal fields and south-central areas of Kentucky; the eastern coal fields produce mostly natural gas. Kentucky has an estimated 18,000 producing oil wells and 13,000 producing gas wells. The majority of the producing wells are in the "stripper" category, with daily production rates of 60 million Btu or less (10 barrels of oil or 60,000 cubic feet of gas). Many wells have been reported with initial daily production rates in excess of 580 million Btu (100 barrels of oil or 580,000 cubic feet of gas). Daily production per well averages much lower, however, at 2.4 million Btu (0.5 barrels) of oil and 19 million Btu (19,000 cubic feet) for gas. Annually, Kentucky produces about 12% of the 921 trillion Btu of oil and natural gas it consumes .
The state’s oil production peaked in 1959, when 27 million barrels of oil flowed. Production varied with the energy market’s ups and downs. By 2006, output had fallen to 2.2 million barrels per year. In 2007, production rose to 2.6 million barrels and 2008 production was estimated to exceed 2.6 million barrels, according to geologists with the Kentucky Geological Survey.
Recent BLUG News:
February 4 -
Blugrass to Form JV to Develop 5000 Acres in Western Kentucky
Blugrass Energy Inc. (OTCBB:BLUG) recently announced that it has agreed to form a Joint Venture with 7921 Energy LLC to develop the New Albany Shale on over 5000 acres in Western Kentucky.
A 3rd Party engineering report estimates the reserves on the project to be 64 BCF of gas and 695,000 Bbls of oil. All the reserves have been classified as Proven Undeveloped.
The New Albany shale will be the primary targeted formation. In addition, potential shallower oil and gas formations on the acreage would possibly include the Ft. Payne, Warsaw, Jackson, McClowsky, O’Hara and Tar Springs. Depths of the wells are anticipated to be 3000 feet.
Several public and private companies have been successful in the area and are reporting high commercial success rates in the drilling and completion of wells within Western Kentucky.
Currently, Blugrass and 7921 are actively putting a plan of development together, finalizing a long-term gas purchase agreement, and negotiating with other industry partners who have expressed interest in participating or providing services for the project. Blugrass and 7921 anticipate drilling work to commence during 2009.
About Blugrass
Blugrass Energy, Inc. is an oil and gas development and exploration company based in the United States that is traded on the Over the Counter Bulletin Board under the Symbol BLUG. The goal of BLUG is to grow through internally generated and developed prospects, participation with industry partners in oil and gas exploration and in targeted joint ventures.
Blugrass Energy Inc.
3751 Appian Way
Suite 75
Lexington, KY 40517-5929
Phone: 859-552-6036
Phone (IR): (866) 590-6589
E-mail (IR):
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Website: www.blugrassenergy.com
