Updated: Citadel producing oil, plans to pursue ‘several hundred’ wells

Project Indian, the oil enterprise owned by Citadel Exploration and a core part of the debate over extraction practices here, is now producing a “mobile” form of oil, the company announced Wednesday.
Citadel made the announcement about oil production and intentions to develop hundreds of more wells in the south county field despite a judge’s order that the company must halt its development there.
Citadel on Wednesday announced that its first exploratory well in the field has been producing about six barrels of oil per day for seven days in the first phase of the project. Next, in a Phase II, the company expects to conduct a full environmental review for a “full field development” of the 688-acre site that would include “several hundred wells,” according to the announcement.
The company mentioned it is making capital investments in preparation for commercial production and plans to build a one-mile pipeline connecting to the natural gas system in the area. Citadel believes there are 100 million barrels of oil in the field. The company also noted that thermal recovery methods – such as use of steam injections – usually deliver between 20 percent and 60 percent of the oil in place.
The company’s statement came after a Monterey County judge last month ruled Citadel failed to conduct a necessary environmental review before moving forward on its production. The judge ruled that the county board failed to properly weigh potential impacts through a full environmental impact review – officials bypassed the process in favor of a less time-consuming mitigated negative declaration – when supervisors in June 2013 approved the Project Indian well site.
Andy Hsia-Coron, one of the leaders in the San Benito Rising movement opposing the project, reiterated the group’s concerns about potential environmental impacts when interviewed Wednesday. San Benito Rising has supported the Center for Biological Diversity on the lawsuit.
“We believe the process that they’re using is environmentally risky,” Hsia-Coron said. “We think it has the potential for contaminating aquifers out there, especially the shallow aquifers.”
That is why he and others want to see steam injections, acidization and fracking banned in the county. They are behind the measure on the November ballot calling for a ban against those methods and to bar all petroleum production in rural residential areas of the county.
“We do think it should have had much more of a thorough environmental review,” Hsia-Coron said.
Robert Parry, spokesman for Citadel, underscored the company’s plans for a full environmental impact review for the upcoming well development, but asked for further questions in writing.
Kassie Siegel, attorney for the Center for Biological Diversity and director of its Climate Law Institute, called Citadel’s announcement “puzzling” due to the judge’s order made July 14. She said Citadel at that hearing said it was not producing on the site, and she expected the company would be capping the wells and “winding everything down” at the location.
“I think that this was very unwise to move forward with the project between the issuance of the decision and the next court hearing,” said Siegel, adding that a hearing scheduled for Wednesday, the day of the oil announcement, could be delayed. “We’re not happy with that and we’re going to be working to get that well secured.”
Look back for more.
Below is the full announcement:
Newport Beach, CA, (August 13, 2014): Citadel Exploration, Inc. (OTCQB: COIL) (“Citadel” or “the Company”), a pure-play California oil company with operations in the Salinas and San Joaquin Basins of California, announced today that its first well at Project Indian, the Indian #1-15, has been producing approximately six barrels of oil per day, over the past seven days. This is the first oil ever produced on this structure after over 100 years of exploration efforts in the area by Standard Oil and Chevron Corp (NYSE: CVX). The Indian #1-15 well data supports Citadel’s predrilling geologic model. Citadel believes its 688-acre lease contains an unrisked resource potential of 100 million barrels of original oil in place (OOIP). Historically, thermal recovery methods in California have proven to recover 20-60% of the OOIP.
Time line of events at Project Indian in 2014:
January 25: Drilled Indian #1-15 to a total depth of 469 feet encountering over 100 feet of oil pay.
January 28: Perforated 14 feet of oil pay from 382 feet to 396 feet. Submitted application to the Division of Oil, Gas and Geothermal (DOGGR) for steam injection permit.
May 5: Granted steam injection permit and moved in temporary steam equipment the following week.
May 13-23: injected steam at a rate of 300-400 bbls/pd, with total steam injection volume of 3,600 barrels.
May 23-28: Allowed steam to soak in reservoir.
May 29: Began producing gross fluids at approximately 50 bbls/pd, 100% hot water.
July 14: First oil is observed at 1% of gross fluid volumes of approximately 50 bbls/pd.
July 17: Lab analysis on produced oil determines the oil is 11.6 API and has pour point of 58 degrees Fahrenheit.
July 21: Oil increases to approximately 5% of gross fluid volumes of approximately 40 bbls/pd.
July 28: Oil increases to approximately 10% of gross fluid volumes of approximately 30 bbls/pd.
August 4: Oil increases to approximately 20% of gross fluid volumes of approximately 25 bbls/pd
August 11: Oil increases to approximately 25% of gross fluid volumes of approximately 25 bbls/pd.
“Having worked on this project for over seven years, I can’t overstate the importance and magnitude of our discovery at Project Indian,” said Armen V. Nahabedian, President and CEO of Citadel Exploration. “We have gained valuable data on the properties of the oil and characteristics of the reservoir. We are confident enough with these early results to now move to Phase II of the project.”
Citadel will now move into Phase II of the project. Phase II will include preparing a complete Environment Impact Report (EIR) for full field development which will likely require several hundred wells. Additionally, the company is working with its engineers to procure the long-lead items required for commercial production. These items include the purchase of a steam generator, heated production facilities, a reverse osmosis water system and construction of an approximate one mile of pipeline to connect to the existing natural gas system in the area.
Phil McPherson, Chief Financial Officer of Citadel, commented, “Given the current commodity price environment, with oil prices averaging $90 per barrel while natural gas prices average $4.00 per Mcfe, we are in the perfect environment for a thermal recovery project such as The Indian Oil Field. This first well, the Indian #1-15, has given us several data points, none more significant than the reservoir’s response to thermal stimulation and the lower viscosity of the oil. In theory, lower viscosity should reduce operating costs once the field is in full development.”
Citadel would like to thank the County of San Benito and its citizens for their support and approval of our project. Even with the recent adverse ruling by the Monterey County Superior Court Judge against the County and its approval of our project, we will continue to work with the County to defend our rights that our mineral lease has afforded us and develop this field with the highest standards of safety and environmental stewardship.
About Citadel Exploration, Inc.:
Citadel Exploration (COIL) is a pure-play California oil company with operations in the Salinas and San Joaquin Basins of California. Citadel has a broad portfolio of capital investment opportunities arising from management’s extensive knowledge of the geology and the history of oil and gas exploration and development in California.
Citadel currently is focusing its efforts on two primary prospects:  Project Indian, a thermal-recovery project in San Benito County on which it has recently drilled its first well, and the Yowlumne Project, a new prospect recently acquired from Aera Energy in which it is currently permitting two exploration wells.
Citadel prides itself on its legacy of discovery and innovation in the industry, and is committed to a plan of careful, deliberate growth tempering risk by focusing on historically successful projects.  The best place to find oil, is where it has already been found.
Company Contact:
Phil McPherson, CFO
949-612-8040
Investor Relations Contact:
MZ Group – North America
Dustin Salem, SVP
Tel: 949-259-4998
Email: [email protected]
or
Derek Gradwell
512-270-6990
[email protected]
Web:     www.mzgroup.us