To the Shareholders of BRS Resources Ltd.
As we reported on March 26, 2012, our first well in Italy did not meet with the commercial success we expected. The Gallare 6d well, in which we participated through its 17.35% ownership interest in AleAnna Resources, the operator of the well, encountered gas shows while drilling through the targeted zones of interest. However, the well did not appear to have sufficient gas volumes in place to commercially produce them. As a result, AleAnna requested that the well be temporary abandoned to conduct an in-depth review and analysis of the seismic data, new well log and historical field data before attempting further drilling or testing at the Gallare field.
That said, we remain highly confident that significant natural gas reserves remain throughout Italy’s Po Valley that can be economically developed in the near term. More than 27 trillion cubic feet of gas has been produced from fields throughout the Po Valley since the 1950s, making it one of the largest onshore gas producing provinces in Europe. All these reserves were developed with previous generations of technologies. It is our belief that state-of-the-art technology – such as 3-D seismic imaging and new completion and production tools, technologies that are regularly used throughout the world – can help unlock trillions of cubic feet of gas that have yet to be discovered and produced in the Po Valley. In fact, we are one of the first companies to carry out large-scale 3-D seismic acquisition surveys onshore Italy – we have acquired 65,000 acres (260 sq km) of new 3-D seismic data over our Corte Dei Signori and Ponte Del Diavalo permit areas – which should be quite valuable to us in the future.
The Gallare 6d well was our first attempt to develop natural gas reserves in Italy – and it will not be our last. One well does not condemn the viability of significant new gas discoveries and production in Italy. The long-term opportunities to develop and produce natural gas in Italy remain attractive – today natural gas sells for more than $14 per mcf in Italy compared with less than $3 per mcf in the U.S. And having assembled more than 800,000 prospective acres, in eight active permit areas and three pending applications, we are in an enviable position to exploit these opportunities.
With the Gallare 6d well, we reentered a known field that had produced from 1977 through1988 and where we believed commercial volumes of producible gas reserves remained in place. Although 3-D seismic was used in developing the well plan, it was not the only factor in making our decision of where to drill. Well logs, production profiles, 2-D seismic data and two independent reservoir engineering reports were used in analyzing and defining the well plan. Other factors, such as proximity to an existing pipeline and regulatory approvals, played a part in the decision, as well. But as we found out with the Gallare 6d well, there are no guarantees in the oil and gas business until you drill the well. We are now reviewing and analyzing data from the Gallare 6d well and determining how we can fine-tune our operations – including 3-D seismic processing and interpretation – to make sure we have better results with our next well.
We have several other prospects identified with subsurface and seismic data both in the Pliocene and the deeper Miocene and the information gained from the Gallare 6d well, particularly from modern well log suites, will help better define those opportunities. However, the fact remains that some aspects of the education process can only be obtained through the drill bit. Again, the Gallare 6d well is by no means a condemnation of the Po Valley acreage itself, as the long history of exploration, development and production in the region proves.
On a positive note, because BRS had a pre-negotiated carried interest in drilling the well, we were required to fund only 12% of the drilling cost versus the 17.35% working interest we had in the well, so we were able to minimize our capital outlay. This reduced capital outlay helps us remain well-capitalized for the foreseeable future, given our current work commitments.
Since our inception, BRS Resources’ strategy has been to find develop and exploit energy-related opportunities that have the scale and scope to make a difference in creating shareholder value. We still believe we can achieve great results in Italy through our ownership in AleAnna Resources. In addition, we are expanding our horizons to see what other opportunities are available to us that will diversify our portfolio of projects, mitigate risk, and accelerate the creation of shareholder value.
On behalf of BRS Resources Ltd.