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      CHERAMIE REPORT Update - Recommendation to Plug & Abandon

      CHERAMIE REPORT Update - Recommendation to Plug & Abandon

      Report from the management at Shelf Energy to all in the Shelf#4 project:

      Update: The Cheramie #2 has more than likely developed a hole in the casing. The well is losing fluid to the formation and lowering the oil production to the surface. To repair the damage in the casing would require mobilizing a workover rig to find and squeeze the hole with cement. The estimated cost to do this repair is +/- $135,000 for a ten (10) day workover.

      Discussion: The Cheramie #2 has been producing since 2001 and during that time it has produced over 192,000 bo (see attached). Recently our daily production has dropped from 21-23 bod to 13-14 bod (see attached daily report). Research into this issue has led to the conclusion we have a hole in the casing restricting our rate. A repair to squeeze cement the hole in the casing would cost +/- $135,000. Additionally, our “Lease Operating Expenses” for this well are excessively high and attempts to reduce this have been futile. Our biggest monthly expense is disposing of our produced salt water. When making 20-22 bod and 90 -100 bwd our expenses on salt water disposal alone are $12,00 - $15,000/mon. To remedy this Shelf had an approved permit to convert the John Plaisance to a Salt Water Disposal Well. However, anticipated production needed to make this $350,000 expenditure economically beneficial was getting the Cheramie #2 well to 30 -35 bod. To achieve this Shelf installed a Unidraulic Pump artificial lift method in 2022. Initial production was 25-28 bod. Remembering, that the main reason for this artificial lift change was due to Hurricane Ida in September 2021. This storm damaged our gas take point for the gas lift system and was not returned to service. So, this prompted the opportunity to increase production with a different artificial lift method. However, this change of artificial lift method was plagued with lifting issues that required numerous “Slick Line” mobilizations to pull valves and a workover to check for lack of productivity. It appears that the increase in production we expected was handicapped by a combination of downhole issues in the Gravel Pack along with a small leak in the casing that is now cutting us back to half of the production we were making.

      Recommendation: The Cheramie #2 is uneconomic to continue producing at 13-14 bod and Shelf has shut the well in after running out of propane on 10/9/2024. Additionally, another cash outlay to repair the hole in the casing at $135,000 would be just a temporary fix, so the hole could open or breakdown without any warning. That said, Shelf recommends to Plug and Abandon the Cheramie #2 and the John Plaisance #1.

      Thank you to all who participated in the purchase of this well in 2017 and also to investors that participated when interest in the well was sold to increase production by upgrading the artificial lift to a Jet Pump. In 2017 the well initially produced in the +/- 30-35 bod range and good revenue was established. Over the last few years oil prices have increased, oil production has decreased and services and mainly pick up and disposal of salt water (our greatest monthly expense) has steadily increased. Our remedy to run a salt water line and convert the John Plaisance to a Salt Water Disposal well was designed based on the Cheramie #2 making 30-35 bod. The cost to lay the line and convert the John Plaisance well was estimated to be +/- $250,000. The capital outlay to install the line and convert the John Plaisance #1 to a SWD well of $250,000 plus a workover to repair the hole in the casing of +/- $135,000 cannot be economically justified.

      An AFE and cash call will be forthcoming to plug and abandon the Cheramie #2 well and facility along with the John Plaisance #1 well.

      Note by Energyne Resources:

      Even with the latest opportunity to lower the monthly cost of salt water from the well, which meant that we could use a SWD well close to us for a fee, which could lower the cost by 35-40% per month, which also seemed to be a good plan, until this news about a hole in our production casing that will cost too much to fix and still have a healthy and economical well, even with the savings that could be achieved by using a SWD well close by. - EnerGyne Resources

      Sincerely,

      Tom Poche’/Operations Manager