Neon Energy has declared the discovery of multiple hydrocarbon bearing zones at the Paloma Deep Prospect in the San Joaquin Basin, onshore California. The well reached Total Depth of 13,320 feet on 26 November 2011. Wireline logging has been completed and the well is presently being prepared for production testing.

Since the last update at 10,650 feet, the well continued to encounter extended zones of oil and gas shows. Analysis of wireline logging data confirms the presence of oil and/or gas in eight zones, which in aggregate represent approxi. 1,000 feet of potential hydrocarbon pay. The following figure indicates the potential pay intervals which will be production tested in either the current well or future wells.

Most notably the Lower Stevens sand encountered a column of more than 200 feet of continuous potential oil pay, with a high reservoir net to gross ratio. It is hoped that the reservoir will have sufficient permeability to allow an economic flow rate, and the Company believes that this potential pay zone could extend over at least 740 acres of Neon's gross 2,500 acre lease holding. If production testing confirms the economic producibility of the formation, the Lower Stevens alone could represent a significant resource.

Also of note is the Lower Antelope Shale, in which a combination of naturally fractured shales coupled with a mature source rock make the 350+ foot section a prime candidate for unconventional production. A 34 foot sand within this interval produced one of the most marked oil shows encountered in the well.

The well was drilled 310 feet into the Fruitvale Shale, which also exhibits characteristics of a producing oil shale and is interpreted to be approx. 1,300 feet thick at the well location. Due to the apparent success of this well and earlier drilling challenges, it was decided to cease drilling operations above the Round Mountain objective, which will likely be a target of future drilling.

After operations associated with preparing the well for production testing are completed in the coming days, the Nabors #710 rig will be released and a lower cost 'workover' rig will be brought on location in order to commence a comprehensive production testing programme. A statement regarding the commercial viability of these hydrocarbon zones can only be made after completion of the testing programme.

Neon is operating the well with a 75% working interest, while partner Solimar Energy is participating with a 25% working interest. Pursuant to the terms of a Farmout Agreement, Solimar is paying a promoted share of the dry hole and completion/testing costs, up to an agreed cost cap.

Tags: Neon Energy Limited