By: Tomas Ronolski - AllPennyStocks.com News

Friday, January 24, 2014

People all over the United States are dealing with frigid cold. For many states, it’s the type of cold that nears record lows on some days and certainly is the coldest in well over a decade. This, of course affects businesses, including oil producers. Disruptions in transportation and difficulties in fracking have at times slowed production, even in the booming Bakken oil shale of North Dakota. Temporary slowness, although not enough to have any meaningful impact on the nation’s output at this point, has been reported nearly all over the nation as the arctic cold sweeps from state-to-state. In Kentucky, the air is still icy, dipping below zero virtually every night and spending little time in double digits – if at all – during the daylight hours. Residents and businesses are bundling up again on Friday as another Winter Storm Alert has been issued for the central and eastern part of the state that is slated to bring “near blizzard conditions.”

Daybreak Oil and Gas, Inc. (OTCQB:DBRM), an independent oil and gas company with assets in California and Kentucky, is plugging through the weather with partner App Energy, LLC and showing very promising production rates. The company said on Friday that the Gerald Grove H-3 well at its Twin Bottoms Field Project in Lawrence Country, Kentucky was placed on production on December 21, 2013. Daybreak has a 25-percent working interest in the project, which is on the eastern edge of the state line. App owns the remaining 75-percent interest and is the operator of the project.

To date, the well has already produced and sold about 3,300 barrels of oil. The company said that the well is experiencing a “very large” initial production rate of approximately 300 – 325 barrels of oil per day. However, the company has voluntarily slowed production by limiting the number of daytime hours that the well pumps oil because of minimal storage capacity.

The company also cited the weather conditions as limiting tanker trucks from accessing the project, which has caused the distribution process to slow, creating more demand to store the oil if kept at peak production rates. As a resolution to the problem, App and Daybreak are building a central facility that will provide easier access for tankers and improve the distribution chain.

Daybreak acquired its interest in the shallow oil play in September. Oil discoveries have come quickly with five holes successfully drilled by the end of the year. The Gerald Grove H-1 was drilled in September and began producing late in October. 6,435 barrels of oil have been produced from that well to date.

"Both the Gerald Grove H-1 and the Gerald Grove H-3 wells have produced at a predetermined reduced rate until permanent facilities, gas lines and compressors are installed. We expect all work to be completed by mid-February 2014,” commented James F. Westmoreland, president and CEO of Daybreak, in a Friday statement.

Horizontal wells in Kentucky tend to produce very quickly at first before leveling off. The company said it expects a decline after the first few months of higher production to a range of 50 – 100 barrels of oil per day.

Plans are being finalized for App to drill about 20 more wells, starting late next month. Data shows about 50 locations that the companies consider “low risk” targets, according to Daybreak. It is expected that the new drill program will lead to revenue streams hitting “new levels in 2014 and 2015” and sustained profitability for Daybreak.

Shares of DBRM are trading ahead by 2.8 percent in Friday action at 37 cents. Shares are about flat so far for January, but have risen nearly 400 percent since last May.

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