BELLINGHAM, Wash., Jan. 22, 2004 (PRIMEZONE) -- Avalon Gold Corporation (OTCBB:AVGC) reports an update further to its News Release dated November 12, 2003, relating to its 0.70% (.70 of 1%) proportionate, reducible, Gross Overriding Royalty interest in the LAK Ranch Oil Project located in Newcastle, Wyoming. This royalty interest equates to $0.252 per barrel based on a price of $36.00 per barrel for Avalon.
According to News Releases issued January 20, 2004, Derek Oil and Gas Corporation (OTCBB:DRKOF) and Ivanhoe Energy (USA) Inc. (Nasdaq:IVAN) have formalized their agreement to jointly develop the LAK Ranch field using thermal recovery technology. Derek and Ivanhoe state: "Surface preparations are under way and steaming operations are expected to begin before the end of the first quarter. Assuming successful development of the project, the companies expect to recover between 30 and 70 million barrels of oil using thermal recovery techniques. The LAK Ranch oil contains high levels of naphtha and is expected to command a premium to West Texas Intermediate (WTI) benchmark pricing."
Based on Avalon's ongoing agreement with respect to the LAK Ranch, if Derek sells any or all of its interest in the LAK Ranch Property, it will pay to Avalon, subject to adjustments, 7.5% of the net sales proceeds on the first USD$7,500,000 and 1% on any balance over and above USD$7,500,000.
Under terms of their agreement, Ivanhoe will become operator and earn a 30-per-cent working interest in the project by financing the $1.1-million in capital cost of pilot phase. Following the pilot phase, Ivanhoe has the option to increase its working interest to 60 per cent by providing an additional $3.9-million in capital costs toward the initial development phase. After the $5-million (U.S.) threshold is reached, all future capital expenditures will be shared on a working-interest basis.
The LAK Ranch field, originally discovered in the 1920s, covers approximately 7,500 acres in the Powder River basin. Historically, oil production has been sporadic from a limited number of wells completed in the Newcastle Sand due to the abnormally low reservoir temperature in this part of the basin. However, the oil contains high levels of naphtha and the viscosity should respond dramatically to the application of heat through steam injection. To date, Derek has completed SAGD test well pair that was drilled to a depth of 1,000 feet and 1,800 feet horizontally into the Newcastle sand formation. More than 5,000 barrels of oil were recovered in limited preliminary testing. Avalon, through its predecessor Asdar has received royalty payments from the sale of every barrel of oil sold to date.
The pilot phase is scheduled to commence within 90 days and will include temporarily injecting steam into existing wells. By summer, five vertical steam-injection wells will be drilled, providing continuous SAGD application to the reservoir and increasing production volumes from the production well. Additionally, a high-resolution 3-D seismic data program is planned to further identify the limits of the field. Over an 18-month period, the pilot phase should provide valuable data on the effectiveness of steam application and its impact on improving the oil recovery rates from the reservoir. The oil produced will be sold for approximately West Texas Intermediate market prices and processed by a local refinery in Newcastle.
Assuming a successful pilot phase, the development program will include additional horizontal producing wells, new steam injection wells and the expansion of surface facilities. Ivanhoe has estimated that at the low end of the recovery range, the initial development program could grow to over 20 producing wells and oil production volumes in excess of 4,500 barrels per day. As more productive acreage is identified through further development daily production rates could exceed 10,000 barrels per day. After the pilot phase should Ivanhoe decide not to finance initial development costs, Derek will become the operator and Ivanhoe's working interest will revert to 15 per cent.
Avalon Gold Corporation is an aggressive gold mining company focused on finding, exploring and developing exceptional gold properties internationally.
/s/ Robert Waters ------------------------------ Robert Waters, President
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: The statements contained herein which are not historical fact are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements, including, but not limited to, certain delays in testing and evaluation of products and other risks detailed from time to time in Avalon's filings with the Securities & Exchange Commission.