Thu Aug 24, 2006 President's Quarterly Report -- August 2006
THIS IS NOT A NEWS RELEASE - FOR THE INFORMATION OF SHAREHOLDERS ONLY
To Derek Shareholders & Potential Investors:
Derek has spent the past few months focused on finalizing the numbers for the reserve forms to be filed on SEDAR, preparing Derek's 2006 Annual Report, perfecting strategic plans for an independent development program on the LAK Ranch should Derek's JV partner decide to revert to a 15% working interest in the project (Derek becomes operator), re-building the company's corporate website and updating corporate material while monitoring the progress on the LAK Ranch operations. It has been an extremely busy few months of hard work and preparation that Derek is expecting will pay off over the next few months.
Quick Overview for new readers:
Derek owns approximately 8000 acres of prime property located in a regional oil migration fairway in NE Wyoming's Powder River Basin
Derek owns a 5.42% royalty
The property is conveniently located five miles from the Newcastle Refinery
The reservoir contains millions of barrels of high quality oil
The oil is viscous & requires an enhanced oil recovery method (EOR) to extract
The infrastructure required to extract the oil has been built by Bateman Engineering Inc.
The Pilot Plant & above ground facilities have been paid for by Derek and are successfully operating and producing
We are producing a high quality, low sulphur and low paraffin oil receiving a US $2.25 premium to Wyoming Sweet Crude (other) pricing through TEPPCO
We believe that a Modified SAGD program and/or a vertical well development program is applicable on the LAK Ranch property
We have already identified several hydrocarbon targets in our extensive 3D seismic survey completed in Q4/04 & continue to identify new potential targets through further in-depth seismic interpretation
Derek management and its highly qualified board of directors are focused & determined on making the LAK Ranch property a domestic oil supplier to the United States of America
As at: 8/24/2006 10:30 AM
Share Price TSX.V Exchange (DRK)
Share Price OTC Bulletin Board (DRKOF)
High
$ 0.39
$ 0.355
Low
$ 0.27
$ 0.255
Current Range
$ 0.275 - $0.30
$ 0.25 - $0.27
Recent Operation Observations:
Derek continues to place full attention on the LAK Ranch project
The limited "Continuous Steaming Program" that commenced in November 2005
continues to demonstrate positive reservoir reactions, increasing temperature readings, decreasing viscosity and increased oil production
Successful results are being observed in the limited Pilot Program
Multiple targets for future development identified in the 3D seismic interpretation by Derek's geophysicist & geology consultants
Fiber optic system has been invaluable in monitoring the reservoir temperature
Produced water treatment expenses were greatly reduced with a more effective chemical used for reverse breaker (removes residual oil particles from produced water)
A major refiner of produced oil came back on line months ago and oil prices returned to normal which for Derek means receiving a US$2.25 dollar premium to Wyoming Sweet Crude (other) benchmark
Successfully tested an economically viable EOR to extract the viscous oil
Blue Sky Potential:
The upside hydrocarbon potential in deeper horizons identified in the 3D seismic is still a major part of Derek's future development program.
Derek management has decided to resume the discussions & exploration strategies for the deeper hydrocarbon potential at a time when the Newcastle Formation is producing levels that are providing cash flow for re-investing into an exploration program
There is ongoing search for property located in North America with similar opportunities and characteristics to the LAK Ranch
We are still working on obtaining further acreage contiguous to the LAK Ranch
In order to ensure a successful increase in levels of production from the LAK Ranch reservoir Derek is planning two alternate development scenarios with the same goal and outcome in focus. Derek is preparing to take the Pilot program to the next phase.
What is Derek's short term agenda?
Continue preparation of the economic analysis
Board approval for reserve form & file on SEDAR
Continue to perfect short term development program options
Develop & implement optimum independent drill program if required
What is Derek's long term goal?
Enter Phase II and increase oil production
Reach commercial production levels from LAK Ranch
Ensure the best price is being received for oil produced
Be a significant oil supplier to North America
Re-invest cash flow from the Newcastle Formation's produced oil into the exploration potential identified in deeper horizons or other properties similar to LAK Ranch
Corporate Communications Targets: Derek management continues to develop strong communications by effectively executing its corporate goals:
Current:
Investor Relations program with Stockgroup - ongoing
Investment Strategy Analyst, Dr. Michael Berry continues his endeavors for further exposure for Derek in the US market
Flash presentation & streamlined corporate package or link is always available for mailing or emailing to current & future shareholders
Prepare new corporate website
Upcoming:
Reserve form will be filed at www.sedar.com upon board approval
Annual Report will be finalized, filed and mailed by August 28th, 2006
Launch re-built corporate website pending editor and management approvals
The next few months decisions and corporate actions will pave the way for 2007 development on the LAK Ranch property so watch out for upcoming press releases on our website at www.derekoilandgas.com. Please note that our next Quarterly President's Report will be sent out in December of 2006 and that Ms. Erica Bearss is always available to provide updates to our shareholders and potential investors via email: or telephone toll free at 1-888-756-0066.
Derek management and its active board of Director's are keyed up to see the development plans in progress unfold over the next few months. The Company's determination towards taking the Pilot Program to the next phase is as strong as ever!
On behalf of the board of directors and management team at Derek Oil & Gas Corporation we would like to thank all of our current & future shareholders for their continued confidence & support.
Barry C.J. Ehrl
President & CEO
Derek Oil & Gas Corporation
