Our Unconventional Natural Gas Resource Initiative targets the use of modern stimulation and completion technologies for the economic development and production of tight gas formations.

Woodford Shale Projects in Oklahoma

Following the closing of our Delhi Farmout in June 2006, we began the process of identifying unconventional natural gas resource projects. We chose two projects in the shallow portion of the Woodford Shale trend in Oklahoma. In choosing these two:

• We are concentrating on projects with relatively low unit development costs that could economically compete with other major gas fields in the region;
• We are leveraging our staff’s expertise in both vertical and horizontal drilling and completion of tight gas formations, a prerequisite to successfully exploiting and developing these resources;
• We are focusing on well known gas shale formations;
• We have considered that these projects require large amounts of capital over long periods of time, thereby providing reinvestment opportunities to absorb the substantial cash flows we expect from our other projects, particularly Delhi; and
• We are adding natural gas exposure to balance our substantial crude oil exposure.

We began actively acquiring leases in these two projects in May 2007. At June 30, 2009, we had acquired approximately 24,120 and 17,617 gross and net acres, respectively, across Wagoner and Haskell counties. 

During the fourth quarter of our 2009 fiscal year, we initiated a program in Wagoner County of drilling three wells and re-entering three wells utilizing air drilling in order to test two distinct gas bearing shale formations and one oil sand reservoir. We took one full core in the Woodford Shale, the full results of which are pending. Low pressure acid fractures resulted in commercial gas production in both gas shale formations and the company has initiated a long term production test of both gas shale formations following a pending treatment with a larger hydraulic fracturing with sand proppant.

We are targeting development of two gas shale reservoirs across all of our acreage with the potential of up to 400 MMCF per vertical well at a depth of 1200’ – 1800’ in Wagoner County, and 1.1 – 2.2 BCF per horizontal well at a depth of 4,000’ – 5,000’ in Haskell County. The vertical well costs are projected to be about $180,000 for two vertical completions in Wagoner and $1-2 million for two horizontal completions in Haskell County. Well spacing is initially targeted for 40 acres in Wagoner and 80 acres in Haskell.