CFO Blog: 11-12-2011

All,

By now I'm sure everyone has seen the press release on our recent lease acquisition. We're also making good progress on our development program, so I think an update is in order. I'll start with a drilling update.

We reached TD on the Felix Brandt #12 well last weekend. The log looks good so we cased and cemented it (the first step in the completion process). We perforated and swabbed this week and the fluid looks very good. By this I mean that the fluid that is entering the well bore from the target formations has good color and odor, indicating the presence of crude oil. I've included a picture (above right) of the fluid coming from the wellhead during one of the swab runs.

The paragraph above deserves a little more explanation. (If you're already familiar with how oil & gas is produced you can skip to the second paragraph below). When a well bore is "cased" this means that the operator has run heavy pipe (in this case 4.5" internal diameter) to the bottom of the hole. This casing maintains the structural integrity of the well during production. Cement is pumped into the space between the casing pipe and the hole to create a bond and allow us to isolate specific zones for production. The casing and cement protects groundwater from contamination and allows us to produce fluids only from the target formations.

In order to "open up" the target formations we perforate the casing and cement at the appropriate depth. This involves directional explosives and electric logging tools that I won't go into here. Once fluid begins to flow into the well bore, we "swab" the well. This means we run a tool down to the bottom of the hole that pulls residual fluids from the casing so we can get a look at what the target zones are actually producing. In most cases, the fluid is an emulsion of oil and saltwater. The percentage of oil in the emulsion is referred to as the "oil cut" and the more the better! We won't know where the oil cut will settle out on any of the wells we're currently drilling for a few weeks, but as you can see from the picture we're starting from a good base.

We spudded in the Leonard #6 well on Tuesday and should TD today (Saturday). I'll have more info on that well in the next update.

The new acreage that we recently acquired is part of the Leonard/Brandt project in southeastern Coleman County. In our original acquisition of the Brandt lease, we acquired "well bore" leases which means we only got the acreage around each well. (This is not the case with the Leonard - we acquired that entire lease). Well bore leases allow you to produce the wells and do some things to enhance production, which we have been doing for the last year; however, these leases don't allow you to drill any new wells.

As part of our development plan for the Leonard lease we did a geologic evaluation of the entire area. It became apparent that there were some good prospects on the Brandt acreage that we did not currently have under lease, so I made a deal with the mineral owner to acquire the balance of the acreage. We didn't pay any bonus, but we did commit to drilling at least one well on the new acreage within a year. The Felix Brandt #12 is that well, so we have "earned the acreage" and increased our lease position from 119 acres to 395 acres by drilling a well we wanted to drill anyway. That's an example of how we're creating value while conserving cash and avoiding dilution of our equity position in our oil & gas assets.

This has turned into a longer post than I'd intended, but I hope it you find it useful. Please feel free to leave comments or email me directly. Have a great week.

Shannon McAdams
Santa Anna, TX


PS: The article below is a good comparison of the actual costs and benefits of natural gas versus wind for electricity generation:

Gas Against Wind | Newgeography.com:

CFO Blog: 11-01-2011

All,

Things are progressing on our 4Q11 drilling program. After analyzing the open-hole log on Leonard #4 we perforated yesterday. This morning we swabbed the well (essentially cleaned drilling and completion fluids and solids from the wellbore) and installed production equipment. We'll hook up the power tomorrow morning and begin testing. As a reminder, it could be as long as two weeks before we have a good test on the well. We'll establish a baseline production level then make some treatment/stimulation decisions. I'll get the info out as soon as we're comfortable with it.

We spudded in the second well in the program this morning, the Felix Brandt #12. We made good progress today and should be at the casing point by the weekend. Again, I'll keep you informed of our progress.

I hope everyone finds these updates useful. We won't have huge announcements like a new drilling program every week*, but I'm trying to keep you informed on the day-to-day work that we're doing to build our E&P business. It's not sensational, but this is the kind of work that's required to create real value. Over time I believe the market will recognize it.

(*Nobody does unless they're wildly sensationalizing relatively meaningless developments, but that's a whole different discussion) 

Best,

Shannon McAdams
Santa Anna, TX


PS: This is a great article, take a few minutes to read it -

The Energy Revolution That Keeps Carbon on Top: Nathan Myhrvold - Businessweek:

-SM

CFO Blog: 10-25-2011

All,

We're well into our drilling program now which is keeping me really busy. I just wanted to give everyone a quick update and share an interview that I think will help everyone better understand our strategy.

We finished drilling our Leonard #4 well yesterday. The log looks good so we cased and cemented late last night. It will probably be a couple of weeks before we have a good potential test, but I'll let you know as soon as we have hard info. (I can go into the precise reasons why testing takes time if anyone is interested - just put it in the comments).

The good people at OilVoice were kind enough to do an interview with me earlier this month. No, we didn't pay them for the piece or for placement. No, we didn't solicit them to do the interview - they came to us. And finally, no, we don't advertise with OilVoice. Given all of that, I take their interest in our story as a good sign.

OilVoice Interview

I'll keep everyone updated as we progress. Check back often and in the mean time feel free to comment or email me questions directly.

Best,

Shannon McAdams
Santa Anna, TX

CFO Blog: 10-19-11

All,

This is just a quick note to clarify something in our press release. When I say that we expect the wells to average 5,000-6,000 barrels of oil over five years, I mean that each well is expected to produce 5,000-6,000 barrels of oil. That's 25,000-30,000 barrels for the program over five years.

The reason I refer to average numbers is that there is likely to be significant variation from well to well. Some could be significantly above that range, others far below (or even the occasional dry hole). That's part of the reason for a multi-well drilling program: diversification of risk.

I'm in West Texas coordinating the drilling program now. We spudded in the Leonard #4 well today and expect to TD (reach total depth) over the weekend. Things are moving fast now, so check back regularly - I'll keep you updated on progress.

-Shannon McAdams
 Santa Anna, TX

CFO Blog: 10-18-2011

All,

By now you've probably read the press release for our 4Q11 drilling program. I'm heading to West Texas today to manage the drilling and completion, so I'll keep this post brief.

The take-away from the drilling program is that it could more than double our current production levels. This assumes we make our baseline estimates of average performance for the five wells, which we believe are conservative. Keep in mind that there is likely to be significant variation in performance for individual wells, so I recommend that everyone reserve judgement on the program until we finish testing.

The more important item announced today is the partnership with BlueRock Energy Capital. I worked with these guys during my previous life as an investment banker. Their team is made up of professionals with direct experience in oil & gas development. They spend most of their time evaluating management teams and the assets that they've assembled. The fact that they not only gave us verbal encouragement, but also put their money behind us means a lot. We'll do everything we can to make sure that bet pays off for them and for Adino's shareholders.

I'd like to point out one more thing about our new financial partners. Their primary funding comes from Tudor, Pickering, Holt & Co through its private equity arm, TPH Partners. TPH is probably the premier independent investment bank in the energy industry. In addition to evaluation by BlueRock's team, Adino had to gain support from TPH to close funding for our new drilling program. It's hard to overstate the importance of validation of our plan by these two groups of seasoned energy professionals. You can learn more about BlueRock here and TPH here.

I'm off to West Texas. I'll keep everyone updated on our progress so check back regularly. You can also sign up for email alerts at the top right of this page. I'll never share your email address or use it for any purpose other than to update you on posts from this blog.

Let's go make some oil!

-Shannon McAdams
 Houston, TX

The Weekend Interview with Harold Hamm: How North Dakota Became Saudi Arabia - WSJ.com

This is a great interview with a true oil & gas entrepreneur. He's a great example of what's possible in the industry with hard work, discipline and a little luck. It's disgusting that the EPA is using selective enforcement to slow the development of industries of which the current administration does not approve.

The Weekend Interview with Harold Hamm: How North Dakota Became Saudi Arabia - WSJ.com:

CFO Blog: 10-7-11

All,

It's been quite some time since my last post. We've been busy in the intervening months streamlining and improving our field operations as well as preparing for another leg of growth in our E&P business. There's a lot to discuss, so let's jump right in.

We have completed and tested the Leonard #2 and #3 wells with good results. The two wells tested at a combined 14 barrels of oil per day, which is well above our targeted average for the area. The economics on these wells are excellent, mainly because of the low drilling and production costs. We intend to continue to deploy capital on this program which should significantly improve our cash flow.

   

As I mentioned above, we've made improvements to our field operations, primarily in the area of personnel. We've upgraded the quality of the team and reduced headcount. Additionally, we have tweaked our production methods which has improved lease productivity, especially for the more mature wells. This consumed quite a bit of time over the summer, but I am very happy with our new field team and have confidence that we will continue to see measurable improvements in the coming weeks and months.

Some of you may be wondering why I haven't been posting recently. Frankly, I wasn't certain anyone was listening. Of course we continued our SEC reporting, but I wasn't sure the color that I try to provide through the blog was adding value for anyone. After hearing from some of you and reading some of the feedback on various sites, I can see that I was wrong. So from here on out I'll provide regular updates through this blog. We'll continue to do press releases for big items, but if you want to keep up with our progress in more detail then check back here regularly.

Speaking of communication, you may have noticed from our filings that we've retained RKM Capital to increase awareness of our Company and the progress we're making. You can find their latest promotional materials here. 

I hope this has been helpful. As I mentioned above, we're moving into a new growth phase. Keep an eye out for updates and make sure to check back here on a regular basis. Have a good weekend and Roll Tide!   

Best,

-Shannon