"We have an extensive landholding with many low cost, shallow targets," Kain said.
"We focus on non-conventional low-risk reserves, while still retaining exposure to high risk, hihg reward prospects."
Nuenco has so far drilled six wells in California's San Joaquin Valley and laid a gas pipeline to tie-in point.
In its most recent move, the company has spent $US5 million ($A6.8 million) to acquire a 50% stake in private Canadian oil and gas exploration company, Surf Petroleum solely focused on the San Joaquin Basin.
Surf has one of the largest prime oil and gas acreage positions in the San Joaquin Basin and a good understanding of unconventional, barely tapped plays in this region, acording to Kain.
The acquisition will see Nuenco’s Californian petroleum portfolio expand dramatically.
“We have been evaluating opportunities to expand in California since becoming active there in 2004,” Kain said.
“The increased prime acreage exposure – from about 8000 acres before this deal to over 160,000 acres now – will increase exploration, appraisal and development opportunities for Nuenco.”
An aggressive exploration program in the more prospective areas of Surf’s acreage is expected to begin later this year.
The current leads and prospects developed from this acreage will allow Nuenco to dramatically increase its current activities in the San Joaquin Basin, where the company has until been targeting a 100 billion cubic feet gas field and the development of a major oil resource in a premier, infrastructure-laden oil and gas market.
Surf’s project team has been involved in exploration and production in the San Joaquin Basin for more than four decades and now holds the exclusive right to develop oil and gas interests in 152,000 acres covering some of the most prospective parts of the basin.
The area has historically generated billions of barrels of oil and trillions of cubic feet of gas, most of which was trapped and discovered decades ago in large shallow anticlines apparent as surface structures or identified through simple 2D seismic surveys.
Recent drilling has confirmed the remaining exploration potential as being in new geological plays that can now be properly evaluated and developed with modern seismic imaging and advanced drilling, completion and stimulation technology.
Surf says its acreage is on the same trend as some of these new discoveries and contains numerous geological play types that include shallow oil and gas potential on the edge of large existing fields, as well as the development of oil reserves in unconventional reservoirs.
Kain said Surf would convert most of its optioned acreage to leases as soon as possible and begin an aggressive exploration program in the more prospective areas later this year.
Technological advancements in drilling and well completion, and improved hydrocarbons recovery via fracture stimulation, would continue to add enormous volumes of oil and gas to mature basins in the region, according to Kain.
Half of the $6.8 million price tag will be paid in cash, the rest under a convertible note.
Meanwhile, Nuenco is still working with operator Orchard Petroleum on the South East Lost Hills project nearby, where a shallow gas discovery is being production tested and a deep oil discovery is also being evaluated.
The South East Lost Hills project is adjacent to the giant 2.6 billion barrel Lost Hills oil field, just north of the 1.25 billion barrel South Belridge field and just east of the 240 million barrel North Belridge field.
Since spudding its first well in September 2004, Nuenco has had a 100% drilling success rate.
It has six wells either under development or subject to appraisal, and has built a spur to a major Californian gas pipeline in anticipation of producing the shallow gas it has discovered.
Besides quickly capitalising on the Surf prospects, current plans include developing South East Lost Hills – Nuenco’s first project – into a significant gas field.
The Californian market is now paying record prices for oil and gas, as escalating demand outstrips supply.
Amid the excitement surrounding the Surf acquisition, Nuenco has established its first commercial well, Jack Hamar 3-13, at SE Lost Hills.
The joint venture is also working on Jack Hamar 2-1, about 2.5km to the northwest, which has also flared, but is still work in progress at this time.
An acid stimulation program on the gas wells has also been carried out and fracture stimulation teams mobilised to commence stimulation work on the deeper oil and shallow gas.
“Once we can achieve commercial gas production levels from the existing wells and present the gas buyer with realistic gas deliverability, we will make the connection to the pipeline and begin production,” Kain said.
“When people ask me for timing on this, my answer is as soon as we get the results we need. We hope that will be from the upcoming acid job and frac that will follow in the next few weeks.”
There will also be more work on Jack Hamar 1-1 to access better oil-saturated zones understood to exist in the lower parts of the 1200-foot (365.7m) Monterey section.
Orchard is bringing in a larger rig to pull tubing and perforate a larger interval of this lower section before mobilising the Halliburton team to fracture stimulate the lower section.
“We look forward to adding to the existing production at Jack Hamar 3-13 via the work proposed on our other gas wells and to further fraccing in the Monterey, all of which are scheduled around now,” Kain said.
Current participants in the Jack Hamar Gas Field Project are Nuenco (50%) and Orchard (50%), while participants of the Deeper Jack Hamar Monterey Oil and Gas Field Project are Nuenco (37.5%) and Orchard (62.5%).
The company also has about $5 million in the bank following the successful completion of a recent rights and entitlements issue, along with the value of about 800,000 shares in Toronto-listed Statesman Resources.
The Surf acquisition has also triggered a reconstruction, including an 11-to-one share consolidation, to underpin the growth and stability of the company.
"We believe Nuenco has been held back in the market by slow progress at our first project, but that was part of the larning curve and future progress will be much faster," Kain said.
"We also believe Nuenco's share price has been limited by the capital raisings we have had to do in developing that field, which is why we are undertaking the consolidation."
Nuenco has reached agreement with a number of European-based investors to raise $2 million at an effective 26c a share price on a post-consolidated basis. The new shares will include attaching one-for-two options exercisable at 44c post-consolidation by June 30, 2008.