Worth Its Salt: Kfg Resources Expands Its Oil Horizons In The Mississippi Interior Salt Basin

Worth Its Salt: Kfg Resources Expands Its Oil Horizons In The Mississippi Interior Salt Basin


Voltaire, the great French Rationalist philosopher, described business as “the salt of life”. Perhaps he may have got it backwards – as far as KFG Resources’ (TSX.V:KFG) management is concerned, “salt is the life of business”. It intends to test this theory as the company prepares to launch a 3-D seismic survey in its quest for oil on its Fayette Field property in the Mississippi Interior Salt Basin.

The Fayette Field is located in Jefferson County, just north of Natchez, Mississippi, and is presently producing 20 barrels of oil and 250 MCF (thousand cubic feet) of gas per day. There are currently ten producing horizons in the field, and management believes that there are between five and ten more viable horizons. It’s worth noting that the company’s property, which consists of a 49.2% (42% net) interest in three leases covering 3200 acres on the largest salt feature left to be redeveloped in the region.

Permitting for the survey has already started and the 3D seismic survey will be conducted in February 2008. A 10,000 ft test well will likely follow in the second quarter of 2008. Drilling in this relatively under-explored area has two major possibilities: one, the highly productive Eocene Wilcox Formation, and the much deeper Lower Cretaceous Lower Tuscaloosa – also a famous oil reservoir. Within the Wilcox Formation, recovery rates are as high as 40% in this water drive reservoir. Secondary recovery using CO2 in the deeper Lower Tuscaloosa have yield an additional 80% of primary production.

The advantage of 3D seismic surveying is that it’s a two-pronged strategy: The survey will delineate both shallow and deep reserves. It will also paint a picture of the secondary aspect of the reserves, which are important in determining added value in terms of what can be extracted via CO2 injection methods once the primary reserves have been tapped.

Salt domes are often the site of salt mines and oil wells. They can range from 1 to 10 km across and have been known to reach depths of up to 6.5 km. They are formed when large plugs of salt from deep in the earth are forced up, pushing up layers as they rise. As the density of salt is generally less than that of its surrounding material, it has a tendency to move upward toward the surface, forming large mushroom-shaped domes. As the salt moves up, it can penetrate and/or bend strata of existing rock with it, causing them to bend slightly upwards at the point of contact with the dome. This process often forms pockets where petroleum and natural gas can collect between impermeable strata of rock and salt. These formations are a major source of the petroleum produced along the coast of the Gulf of Mexico.

The economic potential of salt domes has been known about for some time, however, recent drilling (encouraged by both high oil prices and technological advances) of salt dome flanks in the Mississippi salt basin has resulted in important new discoveries.

37 deep wells of 10,000 feet or less have been drilled in the field– 29 of them on the east side of the dome. The east side of the dome has produced 2.2 million barrels of oil so far. This certainly gives cause for some optimism– since salt domes are usually symmetrical in nature, oil and gas deposits on one side tend to be mirrored on the other. The company’s 3D survey will focus on the west side of the dome. “I’m hoping to develop new production on the west side [of the dome], and to enhance the overall value of the project,” said the company’s CEO, Robert Kadane.

Investors would be hard-pressed to find a total package like this one, especially given recent record oil prices. Several factors highlight KFG’s potential for major appreciation: management is well prepared– all titles have been cleared, and the company is completely debt-free. Mississippi is an excellent place to work in– as costs and taxes are very low. Fayette Field, being inland, is sheltered from the notorious hurricanes that affect the Gulf Coat. Required infrastructure, such as salt water waste removal equipment and gas pipelines, is in place to support increased production. On the finance side, the company has recently closed the second tranche of its brokered private placement through Union Securities. The company is building on its existing success within the Fayette Field and within it other properties in Louisiana, Mississippi, and Kansas.

An oil play of this size offers investors maximum flexibility, mitigated risk, and the potential for handsome returns in a very short turnaround period– serious production and cash flow could take as little as ten months.

Mr. Kadane is a third-generation Texas oilman with over 40 years’ experience in the business. When asked why he has spent much of his life exploring in the Mississippi-Louisiana Salt Basin, his words of wisdom to investors were short – and sweet: “I’ve been here because it’s been successful for me in the past.”

This article is intended for information purposes only, and is not a recommendation to buy or sell the equities of any company mentioned herein. It is based on sources believed to be reliable, but no warranty as to accuracy is expressed or implied. The opinions expressed in the article are those of the author except where statements are attributed to individuals other than the author, in which case the opinions are those of the individual to whom they are attributed.