Jointly owned by affiliates of Shell and ExxonMobil, Aera is one of the largest lease owners of onshore acreage in California and one of the state’s largest oil and gas producers, Orchard said.

The project agreements covering Northwest Lost Hills, the Belgian Anticline and Coles Levee Deep will be followed by two additional projects in the final stages of negotiations, which are expected to be signed later this month, Orchard said.

It estimated the five projects had reserve potential for over 200 million barrels of oil equivalent, which if successful includes material upside for the company.

While Orchard’s stakes in these projects have yet to be finalised, the company expects its interest level on a project-to-project basis would range from 15% to 60%.

“Some of these projects based on Orchard’s assessment could be classed as ‘appraisal’, hence the risk is considered moderate,” executive chairman Steve Graves said.

He said two of the projects involved testing and redrilling wells drilled as far back as the 1950s.

“Orchard believes that current high oil and gas prices combined with technological improvements in drilling and testing should improve the chance for commercial success in these wells drilled decades ago,” Graves said.

“All projects have material ‘follow-on’ potential in the event that the test wells prove successful; hence the follow on drilling and development potential could be very significant as OP Inc would have secured a very large acreage position.”

Project work has already begun on the Northwest Lost Hills and Belgian Anticline projects, which are budgeted to cost Orchard about $US2 million for the remainder of this year.

Northwest Lost Hills involves the production testing later this month of NWLH 1-22, which was drilled in August 2001 and only reached a depth of 6400 metres in August the following year because of delays “resulting from extremely difficult drilling conditions”, Orchard said.

“This well was prepared for completion and testing, however operations were suspended in late 2002 pending further assessment by the working interest parties,” Graves said.

Orchard will earn a 14.9% working interest in the project by only paying for future testing costs of about $US1.5 million. The structure is estimated to contain more than 300 billion cubic feet equivalent of natural gas and condensate reserve potential.

As part of the deal, Orchard will earn a 15% working interest in the neighbouring 7600 acres for future exploration potential, it said.

The second project involves drilling a well adjoining the Belgian Anticline Oil Field, which has historically produced over 50 million barrels of oil and more than 150 billion cubic feet of gas, Orchard said.

Data reviews suggested numerous untested reserves existed in the field, with the project targeting about 26 million barrels of oil equivalent, according to the company.

As operator, Orchard said it would drill a well in the phase-1 area to a target depth of 1829 metres before the year-end. The company will earn between a 20% to 60% working interest by paying for wells costs to casing. In addition, it will also retain the option to drill a second well in the phase 2 area of mutual interest, it said.

The third project involves drilling wells in the Coles Levee area, which contains two fields that have collectively produced 165 million barrels of oil and 235 billion cubic feet of gas from the prolific Stevens Sand and the shallow Etchgoin gas horizon, Orchard said. The first well is a re-drill of or twinning of a Vedder discovery well drilled by Arco in 1953.

“It is expected that current drilling and completion techniques will be able to significantly improve hydrocarbon flow rates from the earlier tests drilled using old technology,” Orchard said.

A 6000-acre area of mutual interest will see Orchard earn the mineral rights below 3810 metres. Orchard will earn a 33% interest in the prospect by drilling the first test well.

Graves said the new venture allowed Orchard to build on its core focus area in onshore California.